Friday, June 1, 2012

Michal Hudec: Remarks about new proposals of energy acts

The Parliament will comment the proposals of energy and regulation acts for the second time in this year. Slovakia as a member state of the EU needs to transpose so called 3rd energy package into domestic legislation as soon as possible, because former government missed original deadline (March 2011) and later in early 2012 it failed to gain support in national parliament.

Current proposals are (formally) based on previous ones, submitted by former Minister of Economy Mr. Juraj Miškov. When it comes to energy act proposal, not many changes were done, only some details and one paragraph related to 10-year plan for development of the electricity transmission grid. On the contrary, the draft of regulation act seems to have completely new wording and in many fundaments also the meaning.

Personal union of chairmen of regulatory bodies

Experts are divided for example in view on personal union between chairmen of Regulatory Office (first-level regulatory authority) and Regulatory Council (appeal authority). Chairman of any institution is its supreme representative in internal as well as in external way. Not only from the legal but also from the practical point of view, there is a question if there could be any unbiased and impartial appeal procedure also in case that chairman would have not the right to vote. He chairs all meetings, leads the collective, steer the work of the members of Regulatory Council and has other related responsibilities.

And the problem arises here: the same person should act as a chairman at Regulatory Office in the first level and at the same time as a chairman at Regulatory Council in the second one. The same person should therefore lead the body, which sets the price limits for regulated energy companies as well as the body that is responsible for matter-of-fact reviewing those decisions.

All in all, under the current proposal of regulation act, Regulatory Office would have very strong position in energy sector. In principle it is not bad, but on the other hand independent authority needs some effective controlling mechanism. Strong energy regulator without an effective checks and balances could easily become the entity that will not only regulate the energy market, but also manage it and disrupt the competition. And that’s risky.

Fuel Poverty

The future regulation act defines the term of "fuel poverty". In a wording of current proposal, fuel poverty is a status, “when the average monthly household’s expenditures on electricity, gas, heating and hot water represent significant part of the average monthly household’s income”. It opens very broad space for interpretation. There is no reference on special legislative document (secondary or tertiary legislative act), which would clarify the evaluation criteria linked to “fuel poverty”. Therefore current proposal includes a potential risk of very individual or heterogeneous interpretation of the term “significant part”, which might be very easily misused for example for political purposes.

Electricity for SMEs: Will the price be regulated again?

The new law proposal assumes repeated price regulation of electricity deliveries for small and medium enterprises. This segment of customers has been deregulated since the past. Nowadays, on Slovakian market there are enough electricity suppliers, every customer has the right to choose and move to the competing company, which offers more favorable conditions or price. All in all, the price regulation for electricity deliveries for SMEs is necessary any more.

Also it is a fact that the prices of electricity jumped in comparison with the previous year. But at the same time the question might be, if the price jump cannot be the result of regulatory framework setting – in other words if the price jump can or cannot be interpreted as a failure of the market and whether the competition can or cannot effectively control the prices. In addition to this, the final price is composed of six items. Among them, the electricity as a commodity represents just one among them; the others are linked to services provided by natural monopolies, so they would be regulated or defined directly by the legislation continuously.

Clear and transparent final price

The draft of energy act retains the status quo, when it comes to the structure of the final price of electricity for households and SMEs. According to the third energy package, the consumer should have the right for clear and transparent price and its structure. It is not transparent to join various services under one item, like distribution and transmission just under “distribution” or system operation, renewable energy support and the subsidies for brown coal mining under the “TPS”, which states for “system operation tariff”.

Each consumer should have been given clear, transparent and detailed information about the final price, which he or she pays according the invoice. It means also the awareness about the amount of money paid for each service as well as money paid for the other purposes like renewables or brown coal mining.

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