Competition Authority rejects bill aiming to change network fee calculation

The amended law would make it impossible for the Competition Authority to demand network fee reductions based on Elering's cross-border trade income.
The amended law would make it impossible for the Competition Authority to demand network fee reductions based on Elering's cross-border trade income. Source: Priit Luts/ERR

Amended legislation currently in the works for the Electricity Market Act calls for a change to how network fees are calculated. The Estonian Competition Authority doesn't think the change is justified, as it will make lowering network fees considerably harder and thus give what is already a monopoly even greater pricing power, while at the same time reducing the amount of the profits state-owned operator Elering allocates for the benefits of individual consumers.

In the currently applied scheme, the network fees are calculated in part based on how much network operator Elering earns on cross-border electricity trade, applying a predictive model that doesn't always correspond to Elering's actual revenue.

The bill to amend the Electricity Market Act wants to change this, and apply the revenue out of the same cross-border trade only once the money is actually in Elering's accounts. According to Rasmus Ruuda, press spokesman of the Ministry of Economic Affairs and Communications, the use of cross-border capacities is so hard to predict that the resulting revenue can't be treated as sufficiently certain.

"Because of that, it is reasonable that based on this revenue the network fees only decrease once the profits are actually made, for instance through covering investment costs like that, and not before," Ruuda said.

The aim of the amendment, according to Ruuda, is to make the pricing regulation for the operator's network fees more precise.

Competition Authority: Monopolist can't increase earnings without distributing profits

The Estonian Competition Authority disagrees. Elering, as a state-owned monopoly, needs to pass on its increased revenue to consumers—in this case in the form of a reduction of network fees.

"Current legislation makes this possible, but the amendment would get rid of this option," the authority's press spokeswoman, Maarja Uulits, told ERR.

Director General Märt Ots points out that the Estonian Competition Authority doesn't deem the change to be appropriate. Elering is a monopolist, and if the company earns more money, this, however positive as an economic development, needs to be passed on to consumers.

"A monopolist can shape their pricing policy in such a way that they can cover all of their costs, and make justified profits on top of them, but this has to be reasonable," Ots said. "If they get additional revenue, this share would be too high."

Proposed change would torpedo Competition Authority's role

Ots added that if the amendment should enter into force, the authority's role as a regulator of Elering would be defeated. In the current situation, the authority looks at Elering's pricing including the additional revenue, and checks if they have subtracted an appropriate amount from the network fee.

"Once the law enters into force, we can't calculate it like this anymore, and the money remains in the hands of the company," Ots said.

The Competition Authority submitted its assessment on Aug. 21, and is hoping that the ministry will take their findings into account.

Bill remains obscure where reasons for the change are concerned

According to Ots, just why the ministry wants to change the existing law isn't quite clear, and not explained in detail in the bill either. His assumption is that Elering needs the money to build up a financial buffer.

This, on one hand, is understandable, as with the upcoming effort to synchronize the Estonian electricity grid with that of Europe rather than the Russian one will mean plenty of investments that need to be covered.

"On the other, it is the point of view of the Competition Authority that we're still looking at additional revenue, and we certainly think that such additional revenue needs to be distributed to the consumers," Ots said.


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Editor: Dario Cavegn

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