Thursday, July 26, 2012

Price regulation and open markets cannot coexist in long term


„Open markets with well-functioning competition cannot in the long-term coexist with regulated end-user energy prices,“ the European Commission (EC) assessed in 2010 in its staff working paper

Based on position of European regulator´s group ERGEG, as predecessor of current ACER agency, the EC agrees that price regulation can act as a barrier for access of higher number of suppliers, i.e. bigger competition, and therefore should be “transitional”.

Slovak Regulatory Office for Network Industries (URSO) and a member of ERGEG/ACER in its 2011 annual report claims that the electricity and gas market in Slovakia was „truly functional“. Yet there is no sign of temporary character of price regulation in the draft of Act on regulation in network industries.

URSO annual report even says that 2012 represents „a new milestone in the market liberalization process“ due to deregulation of energy prices for small-sized companies.

Nevertheless, the draft of new Act includes a proposal for re-introduction of the end-price regulation for SME´s.

The regulator advocates necessity of end-user price regulation as a tool of consumer protection against excessive prices otherwise demanded by suppliers. Also the European Commission agrees that “protecting vulnerable customers will remain necessary in competitive markets, but not necessarily in the form of regulated prices“. According to the EC tools „must work in line with and support the pre-requisites of open, competitive markets“.

Traditional as well as alternative suppliers believe there is no need for further price regulation in Slovakia. If it remains it should only apply to well defined group of customers, not for the whole segments of market.

„In many countries, the co-existence of regulated and market prices is clearly not a transitory measure,“ ERGEG said already in 2007. Together with the EC they recommended EU member states which still had regulated prices to publish a roadmap containing specified steps how to remove the need for continued end-user price regulation.

Court of Justice of the EU confirmed in 2010 that state determination of the price level is allowed for a period that is necessarily limited in time (Case C-265/08).

However, the proposed draft of Act assumes that price caps determined by URSO will be valid for couple of years and not even for one year as today.

There are some indicators how to measure the liberalization and maturity of competition in open market, for example so-called switching rate. It shows the number of extraction points with the changed suppliers to the total number of extraction points in a given year.

Here you may find figures for switching of gas and electricity supplier in recent years (Source: URSO 2011 annual report)


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