Equal treatment in the open electricity market

Triniti

The full opening of the Estonian electricity market on January 1, 2013 will bring about the establishment of competition, mainly between producers and sellers of electricity. Network operators on the other hand will remain natural monopolies also in the open electricity market, meaning that consumers will not be able to choose their network operator. This places additional obligations to network operators, primarily regarding the principle of equal treatment.

Open competition has its unavoidable limits

The opening of electricity markets in Europe serves the goal of achieving a secure and well-functioning internal European electricity market. One of the prerequisites for this goal is the establishing of free competition in the electricity market. But competition cannot be established in all parts of that market. For example, it is usually economically inexpedient to construct a second, third or sixth distribution network along the first one, and the Electricity Market Act even prohibits several network operators from operating in a single service area – for instance, OÜ Elektrilevi cannot operate in the city of Narva as this is the service area of OÜ VKG Elektrivõrgud. This means that no competition between network operators will occur upon the opening of the electricity market and the existing network operators will remain natural monopolies because they own, posses or operate infrastructures that are economically inexpedient for other persons to duplicate but without access to which it would be impossible to operate in the market.

Network operators cannot discriminate other market participants

Thus, it is important to ensure that the electricity networks of network operators are equally available and usable for all market participants, in order to achieve an efficient internal electricity market in Europe. This requirement stems from article 25 (2) of the Directive concerning common rules for the internal electricity market,* pursuant to which an operator of a distribution network cannot differentiate between network uses or groups thereof, especially for the benefit of its related companies. In other words, network operators must not prevent free competition in other parts of the electricity market. To enable all market participants to have an equal opportunity to use the existing electricity grid, the network operators must follow the principle of equal treatment in their activities. This requirement is also prescribed in the first section of the Electricity Market Act, which states that electricity market relations must follow the principles of cooperation, equal treatment and transparency.

In simple language, the equal treatment principle means that equal situations must be handled identically. For a network operator, the following of the principle of equal treatment in its electricity market relations means that the network operator must enable all market participants to have equal opportunities – if the network operator enables some market participant to act in a certain way, then it must also enable other market participants to act in the same way in equivalent conditions. For example, if a network operator offers some benefits or advantages to an electricity seller who is active in its service area, then that network operator must also offer those benefits or advantages to other electricity sellers active in that service area under the same conditions, in order for electricity sellers to have a genuine possibility of competing with each other in the electricity market.

One bill instead of two will make a difference

A real-life example of this is the opportunity stated in § 85 of the Electricity Market Act, i.e. a network operator and an electricity seller may agree that the electricity seller will also settle the network services provided by the network operator under the network contract and will thus issue a single invoice to the consumer, containing separate lines for the electrical energy fee and the network services fee. For a consumer there is a big difference between getting one or two monthly bills, so the electricity sellers who sign the relevant agreement with the network operator have a competitive advantage over other electricity sellers. But this kind of competitive advantage violates the free competition principle of the open electricity market if the network operator does not enable other electricity sellers to invoice the network service fee in the same way. If the network operator does not do that, it violates the principle of equal treatment as well because it has arbitrarily granted advantages to one or several electricity sellers.

One of the prerequisites of an open and well-functioning electricity market is the respecting of the principle of equal treatment intended to facilitate the establishing of free competition between electricity producers and electricity sellers upon opening the electricity market. In turn, free competition facilitates the achieving of an efficient internal European energy market. Thus, any arbitrary advantages granted by network operators as natural monopolies to some market participants, violating thereby the principle of equal treatment, are unacceptable and hinder the achievement of an efficient and well-functioning open electricity market.

* Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC.

Leave a Reply

Your email address will not be published. Required fields are marked *