An amendment to the Electricity Market Act that took effect in June was meant to allow electricity sellers to unilaterally add the cost of frequency reserves to customer bills.

"The amendment passed by the Riigikogu was intended to allow sellers to add the cost of maintaining frequency reserves to even fixed-price contracts. Unfortunately, the provision was worded so broadly that it gave sellers the right to unilaterally raise prices whenever any legal act changes. This has upset the balance between the rights of consumers and sellers," Chancellor of Justice Ülle Madise wrote in a letter to Minister of Climate Andres Sutt (Reform).

Madise noted that, according to the explanatory memorandum accompanying the bill, the aim was to clarify the law and improve legal certainty. However, it fails to explain why electricity sellers suddenly need the right to unilaterally change contracts — nor does it analyze whether such interference with contractual freedom is proportionate.

Based on the revised provisions, some electricity sellers have altered fixed-term, fixed-price contracts, passing on the VAT increase that took effect in July directly to consumers.

Disputes over this issue have reached the Consumer Protection and Technical Regulatory Authority (TTJA). Some of these cases remain unresolved, while others have ended in compromise.

According to TTJA, the vagueness of the law has led to several concerns. For example, electricity sellers can change contracts even when their actual costs haven't increased. At the same time, they are under no obligation to lower prices when legal changes reduce their costs and consumer prices could decrease.

TTJA also pointed out that consumers have no way of verifying the actual costs borne by electricity sellers and neither does the Competition Authority. As a result, price increases justified by changes in legal acts may lack transparency.

The authority added that sellers also hold a strong advantage in terms of market power and analytical capacity, making it unfair to strip consumers of the ability to respond to market changes and switch to a cheaper plan without a termination fee.

Unlike unilateral changes to network contracts, which require approval from the Competition Authority, electricity sellers can modify consumer contracts unilaterally with disproportionate ease, TTJA emphasized.

It also noted that the legitimate expectation of consumers who signed fixed-term, fixed-price contracts — that their terms would remain unchanged until expiry — has not been respected.

Consumers the weaker side

Madise stressed that consumers are in a weaker position when dealing with traders and for that reason, contractual relationships should be regulated in a way that ensures a balance of rights and obligations, with consumer protections firmly in place.

According to the chancellor of justice, the issue is not limited to the VAT increase, as the wording of the disputed provisions is broad enough to allow electricity sellers to unilaterally change contracts under various circumstances.

"Even a clause stating that unilateral price changes would be allowed only when changes to legal acts result in a significant increase in the seller's costs was removed from the bill during the legislative process," Madise noted.

The Supreme Court has previously acknowledged that in sectors essential to people's daily lives, the contractual freedom of service providers must inevitably be restricted. Legal norms that limit contractual freedom and property rights must be clearly defined and the rights and obligations of both parties must be balanced.

Madise recommended that the Ministry of Climate address the legal ambiguity surrounding the disputed provisions of the Electricity Market Act as soon as possible.

The ministry has until November 30 to develop its position.

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