Red tape slowing introduction of electricity as universal service

Cord plugged into an  electricity outlet.
Cord plugged into an electricity outlet. Source: Siim Lõvi/ERR

While the introduction of electricity as a universal service may provide some relief from higher electricity prices, it also comes with a considerable amount of additional red tape for municipalities. This is particularly the case for larger municipalities, which will need to go through a time-consuming tendering process in order to get themselves connected.

Tartu Municipality had the opportunity to connect to the universal service in December and therefore launched a new tender to find a suitable electricity provider. However, as the total volume of electricity purchases exceeds the €215,000 threshold, EU law obliges the municipality to hold an international, rather than simply national, tendering process.

"Strange as it may seem, we have to allow all European suppliers the possibility of providing electricity to the city of Tartu. As a result, procurement deadlines are therefore longer. We will only receive (bids for the) tender at the end of December. So, we expect to be able to start buying electricity through the universal service only from February 1, as there are further deadlines related to the competition for the awarding of the contract," said Tartu Deputy Mayor Priit Humal (Isamaa).

While Humal does not expect to receive any bids for the tender to come from abroad, he believes that Estonian electricity providers may factor in different profit margins to their offers.

"If we buy around €3-4 million worth of electricity a year, the (profit) margin is approximately €100,000. Because of the delay (in awarding the tender and therefore connecting to the universal service – ed.), we will lose significantly more than just the potential difference in profit margins (in the offers) of the different suppliers," said Humal.

Almost half of the municipalities in Estonia may be left facing similar problems. While the Ministry of Finance wants to make procurement procedures easier for smaller towns and municipalities, for larger municipalities no clear solution appears to be in sight.  

The city of Pärnu for instance, will need to organize a new tendering process within the next month.

Pärnu deputy mayor Meelis Kukk (Pärnu Ühendab) said, that the universal service would make electricity 15-20 percent cheaper.

"The logical thing would be to set a limit on the (profit) margin of the energy distributor. It is analogous to buying margins on loans in the credit market. If this is applied to the purchase of electricity as a commodity, then things get complicated. We would then have to start buying electricity depending on the consumers, and we have 45 sub-departments. This would lead to further confusion and therefore a need for more coordination," said Kukk.

Therefore, according to Kukk, it remains unclear how the procurement procedure will eventually be organized.

Concerns about the increased administrative burden resulting from the switch to the universal service are also cause for concern in the Estonian capital, according to Tallinn Deputy Mayor Tanel Kiik (Center).

"There are several types of universal service. A local authority's universal service cannot be resold to a small company that is our tenant (i.e., located in Tallinn), for instance. They have the small business universal service," said Kiik.

"When it comes to universal service, there are also some properties where the (electricity) costs are shared between multiple consumers: part by the municipality, part by household consumers, part by business consumers. In that case, you have to do the calculations on multiple levels," Kiik said.


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Editor: Michael Cole

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