The Competition Authority approved Elektrilevi OÜ’s application concerning network charges on 28 June 2024
On 28 June 2024, the Competition Authority approved Elektrilevi OÜ’s application concerning network charges. The cost and profitability information on which the application was based was submitted by Elektrilevi OÜ to the Authority for analysis on 3 November 2023. While in its application submitted in November 2023 the network operator requested an average increase of 9.3% in network charges, on 28 June 2024 the Authority approved network charges increased by an average of 7.1%. The change in charges was primarily due to increased network maintenance and repair costs, as well as higher network investments.
However, the network operator’s costs are predominantly fixed costs that do not depend on electricity consumption volumes – for example, labour costs, network maintenance and modernisation. When approving network charges, the Competition Authority checks, among other things, that the costs the network operator has included in the fixed charges are of a permanent nature for the undertaking, reflecting the actual structure of the network service costs.
In addition to ensuring network reliability by covering fixed costs, the purpose of monthly charges is to motivate consumers to assess the transmission capacity they actually need for their network connection – the higher the capacity, the more expensive it is. If a consumer has a subscription with a specific transmission capacity, the network operator must take this into account when planning the network. If, for example, only half of the agreed transmission capacity is used in reality, a situation may arise where on paper it appears that the network’s full capacity has been reached, but in reality, significantly less energy is transmitted through the network. This situation can, in turn, lead to unnecessarily expensive investments, which could be avoided if consumers assessed the actual need for the capacity specified in the network contract and chose a transmission capacity that better meets their actual consumption needs.
The implementation of a fixed charge is a common practice in various countries, including Latvia, Lithuania, Finland and Sweden. The Figure shows a comparison of the costs of network charges for consumers in our neighbouring countries.
The increase in network charges by more than 7% for a large proportion of household consumers is due to the network operator’s decision to implement a monthly fee for all network service users from 1 October 2024, thus implementing a monthly fee for all customers means moving towards more cost-based pricing.
This right is granted to the network operator by clause 3 of subsection 1 of § 71 of the Electricity Market Act, which entitles the network operator providing the network service to charge for ensuring the possibility to use a network connection. This means that it is not important whether electricity is consumed from the grid at the point of consumption or not, but that the possibility to consume electricity from the grid at any time is ensured. It is up to each individual to decide whether to actually use this possibility, i.e. whether to consume electricity from the grid. When a monthly fee is established, the costs of maintaining and improving the electricity network are divided among all users of the network service. This means that people who do not consume electricity from the grid also help cover network costs. In a situation where the cost of network service would depend only on the amount of electricity consumed (i.e. if no electricity is taken from the network, then there is no need to pay for the network service), all costs of maintaining the electricity network would be borne only by those consumers who actually consume electricity from the network. This pricing would lead to a situation where in case a customer has installed their own electricity generation device (for example, solar panels), they would only be charged for the network service if it is not possible to generate electricity with this generating installation.
On 31 December 2024, the Competition Authority rejected Elektrilevi OÜ’s application of 22 November 2024 for approving higher network charges
Elektrilevi OÜ’s request concerning network charges was related to changed charges of the network service purchased from the transmission system operator Elering AS. The Competition Authority analysed the situation and found that granting Elektrilevi OÜ’s application of 22 November 2024 would not be justified, as it would lead to an unjustified increase in network charges.
As Elektrilevi OÜ is naturally a monopoly, its consumers do not have the opportunity to choose another service provider, even if Elektrilevi OÜ’s decision to incur or avoid expenses and consequently whether to increase the price of the service or not does not take into account the interests of consumers. Elektrilevi OÜ is in a dominant position on the market, so it is important to check that the company does not include excessive costs in the price of its service. The Authority found that Elektrilevi OÜ could significantly reduce the costs of the purchased network service by changing its price package with Elering AS (by approximately 5 million €) and thereby control the increase in network charges.
On 30 January 2025, the Competition Authority commenced supervisory proceedings concerning the activities of Elektrilevi OÜ to verify whether Elektrilevi OÜ has used the agreed maintenance and repair funds of the network tariff for the intended purpose (including for power line maintenance) and whether business continuity is ensured. In addition, the Authority will check whether the undertaking’s process of preventing and fixing power outages has become faster and more efficient compared to what was stated in the precept of the Competition Authority of 21 December 2023, taking into account the large-scale power outages that have occurred throughout Estonia since 11 January 2025. The supervisory proceedings are still pending.