The move comes after demonstrations this month against a new standing charge to pay for electricity distribution regardless of the quantity consumed.
The utility said it was restructuring prices to end the subsidizing of domestic consumption by business.
"As of the spring of 2002, there will be no separate price lists for residential customers and business customers, and all customer groups will have equal rates," said Jaanus Arukaev, marketing director at Eesti Energia.
Eesti Energia has established eight different packages for its customers. The highest residential rate will rise from 0.91 kroons ($0.05) per kWh to 1.10 kroons per kWh, and the highest business rate will rise from 1.08 kroons per kWh to 1.10 kroons per kWh.
Under the new system some business customers may even see a drop in prices, particularly Eesti Energia's most important business clients, who have individual contracts with the company.
Arukaev attempted to discourage those with electrical heating systems from switching to gas, saying that gas prices will rise by 50 percent next year.
The new pricing system meant electricity prices had reached European levels and would not increase further, he said. "Electrical heating is the most convenient form of heating. One can turn it off during the day and move the heating system from one place to another. It does not freeze and the preliminary costs of switching to electricity are low."
The company's main justification for the price hike was that Eesti Energia should operate profitably and, prices should cover the cost of electricity generation.
Eesti Energia plans to break even in the current financial year, ending in April 2002, and to earn a profit in 2003.
"The market situation is not good and exports are dropping constantly," said Arukaev. "The main reason is that Estonia's energy market is the most liberal in the world, certainly more so than Latvia's and Lithuania's. Sales are also decreasing because industries that once consumed a lot of electricity inefficiently are folding."
Last year the company had a net loss of 4.56 billion kroons on a turnover of 4.56 billion kroons. It attributed its losses to depreciation of its assets from 16 billion kroons to 14 billion kroons.
Margus Kasepalu, spokesman for the Energy Market Inspectorate, expressed approval for Eesti Energia's new pricing system.
The company's separation of its electricity production business from network services was also a positive move, he said.
"The network service wants to earn some revenue regardless of whether the electricity is used or not."
A monthly 20 kroon distribution fee payable by all customers would guarantee high-quality electrical power at all times, said Arukaev.
He acknowledged that people who use only a few kilowatts annually at summer cottages, for example, must pay at least 240 kroons a year for distribution - something which prompted protests by residents' associations, pensioners and trade unions outside the Economy Ministry on Oct. 3.
According to Aino Runge, of the Consumer Protection Union, the electricity bills of the poor, who try to save money on utilities, are currently around 40 kroons per month. The new prices will mean them paying an additional 11 kroons on top of the 20 kroon monthly fee. "The new prices would hit the poorest people the most. We have about 1,500 customers who earn from 1,400 kroons to 1,600 kroons a month. They go to bed early and wake up early in order to save electricity. They have to count each cent," said Runge.
According to Arukaev, Eesti Energia together with the Ministry of Social Affairs will launch a special social program in order to alleviate the effects of the price rises on poorer households.
Previously, electricity was not considered a basic necessity and was not compensated for. But last year 60,000 of Eesti Energia's 584,000 domestic customer received support from the ministry, 10,000 of them on a regular basis.
Arukaev said that Estonia's electricity prices are lower than in Latvia and Lithuania, adding that electricity would still be 30 percent more expensive in neighboring Finland after the rises.
Kasepalu said that electricity is probably slightly too expensive in Estonia because of the environmental expenses incurred in generating electricity from oil shale. "We can't help it. In future we will have cables," he said referring to a planned underwater power cable between Estonia and Finland to be completed in 2004. "Maybe it will have a positive effect for consumers."