Legal Updates

Legal updates covering current topics.

Legal Updates / 05.02.2016

Price Increases by Network Operators Cause Market Turmoil and New Legislative Initiatives

A number of Finnish electricity network operators have recently announced increases in transfer prices. The largest electricity distribution company Caruna intends to increase prices by an average of nearly one third, while Helsinki based Helen will increase prices by some nine percent. The second largest distribution company Elenia says it faces pressure to increase prices but has not yet announced any new tariff prices.

Caruna justifies the price increases by investments into improving its electricity network, such as installing underground cables to lower the risk of power cuts from storms. The Electricity Market Act, which was amended in 2013 after serious disruptions in supply due to heavy storms, imposes an obligation on the network operators to develop the electricity system and provides various incentives for investments into quality, efficiency and security of supply.

Reactions among the general public have caught the attention of the Energy Authority, the Government, the Parliament and the Consumer Ombudsman.

Currently, the Finnish regulator, i.e. the Energy Authority, does not have any immediate powers to intervene in the announced price increases, but supervises the fairness of the pricing of the network companies periodically in four years intervals by applying predefined company specific regulation methods. The Energy Authority recently issued the regulation methods for the current regulatory period running from 2016-2019 and the authority will, accordingly, be in a position to scrutinise the reasonableness of the pricing as a whole (based on a reasonable return for the companies) only in 2020.

The Energy Authority has now delivered a report to the Ministry of Employment and the Economy setting out a number of proposals for development of the current regulatory regime. Such proposals include, inter alia, the setting of a cap on the level and frequency of individual transfer price increases and a minimum term for implementing same. Notably, the report also includes proposals to regulate the distribution of certain items such as dividends, group contributions and the like to the owners of the network company and the sufficient allocation of income to investment and development activities. Caruna has responded that such measures would prevent it from fulfilling the requirements of the Electricity Market Act as to security of supply applicable as from 2028.

The Finnish Government will process the matter further based on the Energy Authority’s report. Also the Commerce Committee of the Finnish Parliament has publicly stated that it will evaluate the need for amending the current legislation.

The Consumer Ombudsman has issued a statement, according to which the price increases by Caruna have been implemented in an unreasonable manner. The Consumer Ombudsman does not have powers to intervene in the level of the network prices but may judge the reasonableness of the manner in which the price increases are implemented. The Consumer Ombudsman may, inter alia, file group complaints and bring class actions on behalf of a large number of consumers.

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