Electricity providers not concerned about contract termination fee losses

String lights. Picture is illustrative
String lights. Picture is illustrative Source: Siim Lõvi/ERR

With the introduction of universal service, users will be able to switch from their current electricity contracts, without incurring penalties. Electricity providers do not believe that this will result in major financial losses.

Under the draft Electricity Market reform, which is due to be discussed at an extraordinary sitting of the Riigikogu on August 31, Eesti Energia will be obliged to sell electricity to Estonian household consumers as a universal service from October this year, until April 30, 2026.

To join the new service, consumers will not be required to pay financial penalties for terminating any existing contracts with electricity providers.

State-owned energy provider Eesti Energia estimates that a large proportion of its customers will pay lower prices this winter than those who immediately opt for universal service. Company spokesperson Mattias Kaiv, reiterated a view expressed previously by Eesti Energia representatives, that universal service may not automatically be better than existing electricity contracts. "Therefore, we do not foresee a mass termination of fixed price contracts," Kaiv said.

Kaiv also pointed out, that contract termination fees only apply to those with five-year contracts and are not designed to punish customers, but only to cover genuine losses.

"The charge, if applied, is to cover losses incurred by the electricity provider in cases where the customer terminates the contract early and we have to sell the surplus electricity back to the market at a cheaper price than we paid for it. Given today's market situation and the increase in electricity prices, there is no reason for us to apply the charge for the rest of this year," said Kaiv.

Gas provider Eesti Gaas has less than 1,000 domestic household customers, whose electricity contracts include a penalty clause for early termination.

Kersti Tumm, the company's marketing and communications manager, said it was difficult to say how much Eesti Gaas stands to lose due to the change to universal service, because termination fee amounts are determined by several factors, including consumption levels and the amount of time remaining on a customer's contract.

"We predict that any economic damage caused by the contractual penalty exemption will not be- significant," said Tumm. "Rather, the undermining of legal certainty, by essentially creating two conflicting regulations on the same issues in half a year, is regrettable," Tumm added.

Alexela, which offers fixed-price contracts for periods of up to seven years, preferred not to comment on any potential impact of the proposed amendment, until concrete details about the new pricing levels and principles have been established.

Communications manager Marit Liik said, "It is difficult for us to comment without knowing what the price is and how it will be set."

Eesti Energia representative Mattias Kaiv also underlined that all scenarios are currently theoretical, and that it is too soon to accurately assess the financial impact the amendment will have on electricity providers.

The price of universal service is expected to be announced in mid-September. In setting the price, the Competition Authority will to take factor in production costs and, what it deems to be a reasonable profit for electricity producers. Sales costs may be added by electricity providers.


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Editor: Michael Cole

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