Economy ministry finishes universal electricity price bill

Enefit Power's Auvere Power Plant.
Enefit Power's Auvere Power Plant. Source: Ken Mürk/ERR

The Ministry of Economic Affairs and Communications has completed draft legislation to amend the Electricity Market Act and Competition Act aimed to allow home consumers to buy electricity as a universal service and provide grounds for universal service prices.

"The bill helps realize goals set out in the cooperation agreement of the Reform Party, Isamaa and Social Democratic Party for 2022-2023 to alleviate energy price advance and ensure better coping of Estonian families. The draft legislation makes it possible to support the consumer group in a simpler, faster and more effective way and avoid a situation where beneficiaries would have to apply for support with the central or local governments," the bill's explanatory memo reads.

The bill introduces changes to the Electricity Market Act to obligate sellers that belong to a group with an electricity production capacity of at least 150 MW or those controlling over 50 percent of the market in the Nord Pool Estonian price region to sell electricity to consumers, including home consumers (persons who use electricity in their household and for non-commercial activity), apartment associations and electricity resellers as a universal service and at a fixed price.

The regulation is temporary and set to remain in effect until April 30, 2026.

"Should the price of the universal service be set at €180 per megawatt-hour (the actual price level will be determined in Competition Authority coordination proceedings), the average consumer with a consumption of 0.5 MWh a month would save €35 a month at the forecast market price of €250/MWh," the memo reveals.

Consumers could opt to keep using their current electricity package or switch to a universal service package. All electricity sellers would retain the right to offer free market service next to the universal service.

The Competition Authority would be given the power to lay down a temporary electricity price in cases provided by law.

The amendments would also introduce an exception to allow customers to terminate existing electricity contracts without having to pay contractual penalties in order to sign a universal service agreement.

To switch to the universal service, consumers would have to notify a seller of their interest and sign a universal service contract.

At the time of the bill's creation, state-owned Eesti Energia is the only company obligated to offer the universal service as it controls 58.5 percent of the market, the ministry said.

The universal service price would be the coordinated power production cost, whereas it would also need to cover the costs of sellers obligated to offer the universal service, including a sensible profit margin.

Because all sellers will be able to offer the universal service, no profit margin ceiling will be introduced. Consumers will be able to buy the universal service from the service provider with the lowest markup, the memo reads.

"The optimum, fastest and least cumbersome way to achieve the goal is to involve the largest electricity producer in the Nord Pool Estonian price region that is Eesti Energia AS subsidiary Enefit Power AS. To ensure proportionality and avoid overregulation, the law will provide that only the company's production facilities with a net output of over 150 MW will be subject to the mandatory regulation. This means that the regulation concerns the Estonia Power Plant, Baltic Power Plant and Auvere Power Plant at the time of the bill's creation."

The Competition Authority, when determining the price, would have to make sure production costs, investments for continued operation and development, environmental fees (whereas the producer reserves the right to compensation for CO2 quota purchases) and compliance with quality and safety standards are covered. The entrepreneur must also retain reasonable profitability.

The watchdog needs to approve the price based on the most effective production facility's performance indicators.

Enefit Power AS would have five days to file a price coordination application after the bill becomes law. Producers who achieve 150 MW power generation capacity at a later date, would have to notify the watchdog inside one day.

"Such short deadlines are caused by the need and expectation to enter the regulation into force by October 1, 2022 at the latest," the ministry explained.

The Competition Authority would have 30 days to decide whether to approve the price, or 60 days in case of complicated or labor-intensive applications. The watchdog would also have the right to lay down a temporary price until applications are coordinated and approved.

Because these constitute additional tasks and administrative workload for the Competition Authority, electricity producers would also be subject to a supervision fee of 0.2 percent of service sales revenue on a specially regulated market.

The ministry noted that electricity sellers, the Competition Authority and producers were consulted before the bill was put together.

"All relevant proposals were taken into consideration. Considering the urgency of the bill, it was not officially sent out for coordination by other ministries or market participants. The bill was put together in cooperation with the Ministry of Finance and the Ministry of Justice," the explanatory memorandum reveals.


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Editor: Marcus Turovski

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