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Nordic harmonisation of universal service supply obligations

Nordic Energy Regulators

(NordREG)

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Report 3/2013

NordREG c/o Norwegian Water Resources and Energy Directorate P.O. Box 5091 Majorstua N-0301 Oslo, Norway Tel. +47 22 95 95 95 Email: [email protected] Internet: www.nordicenergyregulators.org March 2013

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Table of content Preface .....................................................................................................................................................................5

Executive summary ...............................................................................................................................................6

1. Background and introduction .....................................................................................................................8

2. Objective and description of the task .......................................................................................................10

Out of scope .....................................................................................................................................................11

3. Definitions ....................................................................................................................................................11

4. Existing legislation on default supply in the Nordic countries ............................................................12

4.2 Denmark .....................................................................................................................................................12

Terminology ................................................................................................................................................12

Scope .............................................................................................................................................................12

The standard product .................................................................................................................................13

DERA’s regulation of prices ......................................................................................................................13

Current discussion in Denmark ................................................................................................................14

4.3 Finland .................................................................................................................................................15

Terminology ................................................................................................................................................15

Scope .............................................................................................................................................................15

4.4 Norway ................................................................................................................................................17

Terminology ................................................................................................................................................17

Scope .............................................................................................................................................................17

Current discussion in Norway ..................................................................................................................18

4.5 Sweden .................................................................................................................................................18

Terminology ................................................................................................................................................18

Scope .............................................................................................................................................................18

Why a supplier of last resort/default supplier? ......................................................................................20

Regulator´s suggestions to the Government ...........................................................................................20

4.6 Summary of today´s situation .................................................................................................................21

5. Which problem do we want to solve? ......................................................................................................24

5.1 Identified problems and affects ...............................................................................................................24

5.2 Moving in and out .....................................................................................................................................25

Stakeholder comments ...............................................................................................................................25

Possible solutions ........................................................................................................................................25

Summary of the Moving in and out situation ........................................................................................26

5.3 How do we avoid that a customer who has once been active in choosing a supplier does not

enter into a default supply situation when current contract expires? .....................................................27



Summary of Current contract expires situation .....................................................................................28

5.4 How do we take care of vulnerable customers who might face being rejected from a supplier? .29


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Summary of Vulnerable customers rejected from a supplier ...............................................................30

6. Neutrality of DSO: s ........................................................................................................................................30

7. Summary of recommendations .................................................................................................................32

8. Changes in relation to current legislation in each country ...................................................................33

9. Concluding remarks ...................................................................................................................................33

Annex 1: Abbreviations ......................................................................................................................................35

Annex 2: Questions to and answers from stakeholders .................................................................................36

Annex 3: Denmark – Existing regulation of the supply obligation price ....................................................44

Annex 4: Denmark – regulators´ suggestion to the government ..................................................................45

Annex 5: Supplier switching and suppliers in the Nordic countries ...........................................................48

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Preface

The Nordic Energy Regulators (NordREG) have for several years been promoting the idea of a

harmonised Nordic electricity market. This includes both the wholesale and the retail markets.

NordREG has been given the task by the Nordic ministers for energy to create common Nordic

solutions to further harmonise the retail markets.

To make this work possible NordREG set up the framework for the project organisation during the

autumn of 2010. This work is now in full progress. The target market model has been determined as

the supplier centric model and now the more detailed issues are being analysed. One of these issues is

the model for universal service obligations which are the topic of this report.

During the drafting of this report several stakeholders have been able to present their input to the text.

A public hearing that was open for anyone to attend was also arranged.

The following NordREG representatives have contributed to the report:

Gunilla Eng Åbrandt (project manager), Ei

Karl Magnus Ellinggard, NVE

Mari Salo, EMV

Jan H. Pedersen, DERA

Peder Söderlund, Nordic Energy Research

Daniel Norstedt, Ei

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Executive summary

The cornerstone for achieving a common Nordic end-user market is the supplier centric model. It

implies that the customer should contact the supplier in a majority of cases on the electricity market.

Today, there is a possibility for the customers in some Nordic countries, to contact only a DSO in

order to have electricity supply. All Nordic countries have systems – with different features – where

there is a default supplier for those customers who choose not to make an active choice in the retail

market. This study recognises the risk of not needing to be active on the retail market as the one of key

issues that needs to be looked into more closely. How do we make the customers active? What if they

are not?

NordREG regards that the regulation of universal service provisions are of national concern and

NordREG will therefore not issue any recommendations on a single harmonised Nordic model for

universal service. However, NRAs should regard the effects on the harmonised Nordic end user

market when developing the universal service obligations. Further, NordREG has found it important

to issue recommendations on DSO neutrality and customer activity which is of great importance for

the competition in the market.

The purpose of this report is to contribute to a lowering of the barriers for establishing a common

Nordic end-user market by focusing on the customers default supply situation, and more specifically

on the moving in and out situation, expired contracts and vulnerable customers. We also present to

what extent legal acts need to be changed in the Nordic countries in order to achieve harmonisation.

While discussing these situations and its problems, we realised that the neutrality of DSO: s is crucial,

so we extended the area somewhat to also encompass energy service companies and the customers

need for general advice in the market. In this purpose the NordREG hereby issues the following three

recommendations:

Electricity supply: If by a mistake there happens to be contacts between customer and DSO

concerning electricity supply (e.g. moving in/out, switching), the DSO shall in a neutral manner

inform the customer that he/she needs to contact a supplier in order to make a supply contract.

The DSO must not under any circumstances advice on any particular supplier.

Energy services: In contacts between customer and DSO concerning energy services performed

by ESCO: s as defined in the Energy Efficiency Directive1, the DSO shall in a neutral manner

inform the customer that he/she needs to contact an ESCO. The DSO must not under any

circumstances advice on any particular ESCO.

1 Energy service means the physical benefit, utility or good derived from a combination of energy with energy-efficient technology or with

action, which may include the operations, maintenance and control necessary to deliver the service, which is delivered on the basis of a

contract and in normal circumstances has proven to result in verifiable and measurable or estimable energy efficiency improvement or

primary energy savings. Directive 2012/27/EU on Energy Efficiency.

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General questions on the electricity market: In contacts between customer and DSO concerning

general questions on the electricity market, the DSO shall in a neutral manner inform the

customer on the possibility to receive advice from the single point of contact (defined by each

country).

NordREG recognises that in order to create effective and well-functioning retail market it is important

to encourage customers to make active choices. Even if NordREG doesn’t find it necessary to

harmonise universal service obligations within the Nordic countries at this stage, all Nordic countries

should try to remove from their universal obligations such existing features which unnecessarily

support customers’ passivity. In this purpose NordREG hereby issues the following recommendation:

Customers’ activity: Universal service obligations in Nordic countries should be developed

towards a model where all customers are encouraged to actively choose and make a contract with a

supplier.

During the work with this report NordREG also analysed the issue of vulnerable customers.

NordREG does not consider the handling of vulnerable customers as critical regarding the need for

Nordic harmonization for a common market. The circumstances for vulnerable customers should be at

the responsibility of national consideration. We regard that this has to be done within a broader scope

than the electricity acts, as is already the case in the Nordic countries today.

In the report NordREG also comments on the situation when a contract expires and a new contract

has not been signed. NordREG finds that it today is not necessary to issue recommendations on

handling of these situations. However, the expiring contract issue may need to be further investigated

later if found critical by NordREG.

In order to get input NordREG sent a draft version of this report in September 2012 to stakeholders

(the in-put team of the NordREG Customer Empowerment Task Force), and held a stakeholder

hearing in October 2012. The in-put received was very valuable, and in this final version, we have

taken into account several of those comments and ideas.

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1. Background and introduction

The Nordic energy ministers emphasize the following regarding a common Nordic end user

market: ”The development of a common Nordic end user market is a natural prolongation of the

harmonisation of the Nordic en gross market for electricity. The ministers support the

implementation plan set out by the Nordic regulators (NordREG). The ministers are positive to the

regulators’ ambitious timeline of a common Nordic end user market by 2015. The implementation

of a common Nordic end user market should be seen in connection with the development in the

EU.”2

During the autumn of 2011 NordREG published two reports, one report on the future billing

regime in the Nordic end user market and one report on allocation of rights and obligations

between suppliers and DSOs. Based on these reports and consultations with stakeholders,

NordREG decided to recommend that the harmonised Nordic market should be based on a

supplier centric model, which means that the supplier has most of the customer contact, and that

all suppliers should perform combined billing of supply and network charges. The supplier centric

model is the main pillar of the Nordic retail work.

One part of the Nordic electricity market that NordREG has found important to scrutinise within

the scope of a common Nordic retail market is the universal service systems concerning default

supply (or obligation to supply). The universal service obligations that exist in our Nordic

countries ensure that all customers are provided with access to the electricity grid and supply. The

supplier who serves a customer when the customer has not made an active choice is known as a

default supplier.

Obligations for such forms of supplier duties are in place for several reasons: the customer cannot

find a supplier on the market, customer moves in without choosing a supplier, customers contract

expires or the customer does not choose a supplier (for instance when a market opens).

These obligations have a significant impact on how the retail market performs, and the possibility

for a supplier on the market to gain new customers. This study recognises the issue about the

possibility (or risk) for a customer not to be active on the retail market, as the key issue. How do

we make the customer active?

With regards to this study, the Nordic energy ministers decided in Helsinki 2011 to empower the

position of the consumers in the Nordic electricity market, to assign an external review which

2 Status of harmonisation in the Nordic Electricity market 2012. Status and developments following the Nordic Council of Ministers’ Action Plan for a

borderless electricity market. Memo from the Nordic Electricity Market Group, 10.09.2012

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should provide overall review of how the Nordic electricity market works. On May 15th 2012 the

report "The Nordic Electricity Market and how it can be improved" was completed, prepared by

the Danish consultancy Ea Energy Analysis in collaboration with the Swedish consulting company

Hagman Energy. The memo from the Nordic Electricity Market Group (EMG), 10.09.2012, states

the following on default supplier:

“Ways to improve the system of default suppliers.

In theory, the consumers’ free choice of supplier and of price-products should bring two benefits:

Reduced costs and contracts that are better adapted to their needs and preferences. However, most

consumers in Denmark and Finland remain on default supply, whilst in Sweden more than 20 %

are on default supply despite the very high mark-up for this service compared to other market

products. In Norway the share of consumers on default supply is only 2-3 %.

One reason for the high share on default supply is that it is difficult to be a rational buyer of

electricity. For the ordinary consumer it is difficult to understand the dynamic of electricity prices

and to act rationally in the market. For the smallest consumers the benefits provided by the market

do not appear to be sufficient to stimulate any great interest in the market. This may require new

thinking in the way competition is encouraged in the market as experiences from Sweden indicate

that very small consumers may be exposed to profiteering from default suppliers. This has

resulted in calls for price regulation of default supply as is currently the practice in Denmark. This

is not desirable as it goes against market principles and price controls in Denmark have resulted in

higher prices for consumers when compared to market prices.

We recommend that the Nordic countries focus on how competition in the retail market can be

improved so that market benefits are passed on to small consumers without exposing them to

unreasonably high price mark-ups from suppliers. This could be achieved through alternative

market products and/or introducing competition for providing default supply.”

The Nordic Electricity Market Group concludes:

”The report suggests improvements of the system of default suppliers and regulation of

distribution companies in the Nordic countries. EMG considers both recommendations as a matter

of national concern. EMG encourages the national regulators to take action according to the

conclusions in the report.”

NordREG recognises and agrees to EMG: s consideration that the NRA: s should take action

within national concern as regards the system of default suppliers and regulation of distribution

companies. NordREG finds though, that it is of value to discuss how to improve existing default

supplier systems, as to encourage competition in the Nordic countries. One side of the coin is also

to find a way of avoiding the customer to get into a default supply situation in the first place. This

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focus is truly important since it touches upon the heart of the supplier centric matter: the customer

shall contact a supplier - not a DSO - when choosing a supplier.

In order to get input NordREG sent a draft version of this report the 25th September 2012 to the in-

put team of the NordREG Customer Empowerment Task Force. We furthermore held a

stakeholder hearing in Stockholm the 22nd October 2012. The in-put received was very valuable,

and in this final version we have taken into account several of those comments and ideas. We have

also been responsive to comments and discussions on areas that according to stakeholders ought

not be regulated within the electricity acts or harmonised.

We are truly grateful for the participation of the various Nordic stakeholders.

2. Objective and description of the task

The purpose of this report is to

present a detailed mapping of existing legislation on universal service supply obligations

for electricity in the Nordic area (chapter 3);

analyse the need for harmonisation of legislation on universal service supply obligations

for electricity in the Nordic area, taking into account customer processes of market actors;

And if Nordic harmonisation of legislation is deemed necessary the report should:

identify and define a common Nordic way to carry out the universal service supply;

conduct a high level analysis of which changes in relation to legislation that need to be

made in each country to implement the common Nordic solution for universal service supply.

This report, as well as all retail studies conducted by NordREG, aim at supporting the supplier centric

model and combined billing and do furthermore have regard to the following general objectives for

the harmonised Nordic retail market:

Customer friendliness: One of the objectives of the common Nordic retail market is to increase the

customer friendliness of the market and to make it easier for the customer to be active in the market.

Well-functioning market: The goal is to have a well-functioning harmonised electricity market for

both wholesale and retail.

Improved competition: Improving competition among suppliers is an important objective, for

instance through low entry and exit barriers.

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Improved efficiency: The society at large and especially customers must benefit from improved

efficiency in the market.

Compliance with EU regulation and development: The development of a harmonised Nordic retail

market must comply with the general development in the EU and with existing and future EU

regulation.

Neutrality of DSOs: Since the DSOs shall function as market facilitators, it is crucial to ensure that

the DSO neutrality towards customers and suppliers are kept.

Out of scope

Grid connection: Universal service generally includes both the right to have access to the grid and

the right to be supplied with electricity. This study is only concerned with the customers’ right to

supply.

3. Definitions

Customer: Within the scope of this report, a customer is a household customer or a

small/medium sized customer.

Universal service: The right for all household customers, and, where Member States

deem it appropriate, small enterprises to be supplied with electricity of a specified quality

within their territory at reasonable, easily and clearly comparable, transparent and non-

discriminatory prices.3

Default supply: Nationally the following terminologies are used4 regarding default

supply:

Denmark: Forsyningspligtig virksomhed

Finland: Toimitusvelvollisuus

Norway: Leveringsplikt

Sweden: Anvisningsleverantör

3 Directive 2009/72/EG, Third Energy Package 4 Cf. also ERGEG: Status review of the definitions of vulnerable customer, default supplier and supplier of last resort (Ref: E09-CEM-26-

04, 16 July 2009).

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4. Existing legislation on default supply in the Nordic countries

The Nordic countries do not have a unanimous legislation on default supplier today. To quote Ea

Energy Analysis and Hagman Energy:5

”In broad terms there are two models; one model provides an assurance that consumers

have access to a retailer with price protection for consumers. The second model only

provides an assurance that all consumers can purchase electricity from a predetermined

supplier. The two options may appear very similar, but seen from a market perspective the

two models are quite different. The first model actively attempts to influence the market

and send a benchmark price signal to consumers. The second model allows the market to

set the price of default supply and provide an incentive for consumers to actively

participate in the electricity market.”

4.2 Denmark

Terminology

Denmark uses the term “Forsyningspligtig virksomhed”. It means a licensed electricity supplier

obliged to supply electricity to customers that do not exercise their right to choose another supplier or

whose supply agreement with another supplier has expired.

Scope

Companies with a supply obligation licence are obligated to supply electricity to all customers within

their area, who have not changed electricity supplier.

There are two supply obligation products. One product is aimed at households and smaller

businesses. For this supply obligation product, the Danish Energy Regulatory Authority (DERA)

regulates the price to ensure that the mark-up on supply obligation products is not higher than the

mark-up on corresponding products in the free market.

The other supply obligation product is aimed at large businesses and hourly metered customers. The

price of this supply obligation product corresponds to the hourly spot price in the price area in which

the customer buys electricity, added to a balancing and administration contribution. The maximum

balancing and administration contribution is determined by DERA. In the following, focus will be on

the market for households and private customer prices etc.

5 "The Nordic Electricity Market and how it can be improved" by the Danish consultancy Ea Energy Analysis in collaboration with the

Swedish consulting company Hagman Energy, 2012.

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In Denmark, the suppliers can be active under the obligation to supply scheme where a specific

supplier operates as the default supplier of a certain grid area. There are also suppliers who are only

active in the competitive commercial market. Suppliers acting only on the free commercial market are

not regulated by DERA due to the fact that they are only active on the free market where competition

should be the driving force. In this case, the Danish Competition and Consumer Authority are

empowered to intervene against market abuse.

Presently, around 60 suppliers in total are operating in the Danish electricity market. About 27 are

commercial suppliers without the obligation to supply. The suppliers acting under the obligations to

supply scheme are obligated to notify their prices to DERA (see below). The suppliers acting under

the obligation to supply scheme have to be licensed by the Danish Energy Agency (DEA) every fifth

year (cf. sections 33-34 and 50 of the Electricity Supply Act). In 2012 33 suppliers have been assigned a

concession area.

The standard product

Since 1 January 2005, the standard product has been supply obligation electricity, which is supplied

by a number of electricity trading companies with supply obligation licences (supply obligation

suppliers). More than 85 per cent of the households buy a price-regulated supply obligation product.

Electricity trading companies with a supply obligation licence supply electricity to all household

customers in their licence area who have not chosen a supplier in the free market. The supply

obligation licence, which is granted by DEA, covers a specific geographical area which typically

corresponds to the grid areas of the distribution companies.

The price of the supply obligation product is set before every quarter and is regulated by DERA.

DERA’s regulation of prices

The legal basis for DERA’s regulation of the supply obligation product is section 72 of the Danish

Electricity Supply Act:

“§72.-(1) The price of electricity supplied from a company in its capacity as a supply obligation

company to non-hourly metered commercial consumers and non-commercial consumers shall be

notified by the supply obligation company, every quarter and no later than ten working days before

the start of a new quarter. The price shall correspond to the market price level for equivalent

consumer segments and supply conditions.”

The objective of price regulation of the supply obligation product is to ensure customers who do not

use the free market, electricity at prices which correspond with the prices the customers can obtain on

the free market.

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However, the regulation is not intended to give customers, who buy the supply obligation product,

better prices or conditions than those obtainable on the free market. It is also important to stress that

the regulation does not in itself protect customers against price increases, since the price of the supply

obligation product must correspond to the prices on the free market which correspond with the prices

the customers can obtain on the free market.

DERA has developed a model for price regulation of the supply obligation product, see Annex 3.

The model is therefore based on the prices applying for equivalent consumption segments, products

and supply conditions in the free electricity market. These prices (in the form of the mark-up on these

products, see the description of the price regulation model above) constitute the yardstick against

which DERA evaluates the prices set by the supply obligation suppliers. Therefore it is the prices in

the free market which set the cap for the prices of the supply obligation product.

Current discussion in Denmark

The regulation therefore takes account of customer protection, i.e. ensuring customer fair prices, and

the principle of least intervention, i.e. intervening as little as possible in the free market and in pricing,

which in this case would have a negative effect on the well-functioning market. Price regulation of the

supply obligation product therefore closely follows the free market and pricing in the free market. If

there is strong and effective competition in the market, pushing down prices and mark-ups, this will

result in lower prices and mark-ups for the supply obligation product as well. On the other hand,

weak competition with high prices and mark-ups will also affect prices and mark-ups for the supply

obligation product.

However, regulation of the price of the supply obligation product also affects competition in the free

market. The existence of a supply obligation product subject to price regulation limits the benefits of

changing supplier and will, all things being equal, reduce customers financial incentives to act in the

market. Regulating the price of the supply obligation product ensures that customers do not pay more

than the general market price level, although there will be prices in the market which are lower than

the regulated price of the supply obligation product. The supply obligation regulation entails

regulating the future quarterly price in advance. It has been argued that it would be appropriate to

change regulation procedures, so that the quarterly notified supply obligation price is not regulated.

Danish regulation of supply obligation prices is an expression of a specific balancing of customer

considerations and considerations for the effective competition of the free market. In a market

economy, specific regulation of e.g. prices etc. is normally avoided. This is because an unregulated

market with efficient and effective competition, and active and well-informed customers, on the

whole, provides the best conditions for customers (in the form of low prices and a varied product

supply) as well as for the economy in general (in the form of efficiency in the production and

allocation of products/services and innovation). In a market economy such as Denmark, the ultimate

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objective is to ensure the establishment of market terms which render regulation of prices and similar

unnecessary.

It is therefore essential to see the current price regulation of the supply obligation product in the

electricity market in the context of the development of competition in the retail market for electricity

for private households/smaller businesses. Naturally, it is difficult to determine when a market is

sufficiently mature and well-functioning to allow price regulation to be abandoned without harming

customers. In the final analysis, this will depend on a specific political assessment.

To view an example of the regulated prices of the supply obligation product for the first quarter 2013,

please use this link:

http://energitilsynet.dk/el/priser/godkendte-el-forsyningspligtpriser/forsyningspligtpriser-1-kvt-2013/

During 2012, DERA has carried out a comprehensive review of the supply obligation regulation,

including advantages and disadvantages of regulating prices for price stability and a review of the

method which DERA applies in its calculation of financial price regulation. The analysis discovered

many problems related to the existing national retail market of electricity. A change of the existing

licence system of the default supplier companies to a tender procedure is recommended in the report.

Afterwards the minister has introduced a bill to the parliament with the purpose of changing the

license system by the introduction of a tender procedure by January 2013. The minister has also

appointed a new working group (the so-called “Reguleringsudvalg”). The group shall evaluate the

present default supplier price regulation along with the regulation of the electricity market by May

2013.

For further details regarding the new Danish development please see Annex 4.

4.3 Finland

Terminology

Finland uses the term “toimitusvelvollisuus”, which means obligation to supply. The obligation to

supply-regulation is for the customers who haven´t been active in the market but in a way also for

economically challenged customers to ensure that everyone can get a contract with at least one

supplier. The supplier with obligation to supply is called incumbent supplier.

Scope

The Finnish Electricity Market Act is based on the idea of the competitive electricity market but at the

same time it has been recognized that the change can´t happen overnight. The incumbent supplier

system is in place to ensure customers right to have electricity supplied at least by one supplier. Also

http://energitilsynet.dk/el/priser/godkendte-el-forsyningspligtpriser/forsyningspligtpriser-1-kvt-2013/

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it includes regulation that ensures electricity supply to customers in situation where the supplier is

unable to fulfil its existing contracts. The incumbent supplier system is thought to be a temporary

arrangement when looking at it through competitive perspective.

One of the obstacles for the competitive electricity market is thought to be metering related costs. It

has been presumed that those costs can hinder end users enthusiasm to change supplier. It is therefore

presumed that once the metering related costs will diminish considerably for the account of the

technological development, the customers´ will become increasingly active which hence reduces the

amount of customers still buying their electricity from their obligated supplier without ever being

active.

The Electricity Market legislation presumes that end users are active players in the market. This

means that in Finland the customer must have one contract with the DSO of his/her network area and

also one with a supplier in order to start electricity supply. The customer also needs a network

connection contract in cases where the connection is new. This principle applies also to the obligation

to supply customers. The rules concerning obligation to supply are in the Electricity Market Act´s

(386/1995) paragraph 21 and 22. Also there are other paragraphs were the obligation to supply

customers are taken into consideration.

According to Finnish Electricity Market Act paragraph 21 obligation to supply means that a supplier

with a major market position in certain DSO´s network area is obligated to deliver electricity at

reasonable prices to the consumers and customers whose consumption places are equipped with main

fuses of 3-63 Amperes at maximum or receives annually less than 100 000 kWh of electricity. In case

there isn´t in the DSO´s network area a supplier with dominant market position, the obligations of an

retailer in a major market position shall be applied to an retailer whose market share is the largest,

counted in numbers of customers.

As stated above, obligation to supply is meant to protect household customers and other small scale

energy users right to have electricity supplied to them at reasonable price and also to guarantee that

above mentioned groups including economically challenged customers can have at least one supplier.

2011 there were 67 incumbent suppliers in Finland, and most of them are so called local suppliers that

used to be parts of (not legally separated from) the local DSO: s.

According to The Electricity Market Act paragraph 22 an electricity retailer in a major market position

must have terms of retail sale and prices, and the criteria underlying these that are publicly available

to customer and to the customers encompassed by the retailer’s obligation to deliver. Those shouldn´t

include any unreasonable conditions or limitations that would restrict competition within electricity

trade. The supplier must deliver above mentioned information to the Finnish regulator EMV

(Energiamarkkinavirasto) before the supplier starts applying them.

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EMV does not regulate the obligated retail prices as such. The only precondition according to The

Electricity Market Act is that prices for the end users under obligation to supply must be reasonable.

This doesn´t mean that prices from incumbent suppliers must be lowest in the market. In practice,

most of the obligated suppliers offer their normal until further notice products as the obligation to

supply product. So price wise there is in practise no such a product as "obligated supply product" in

Finland.

The rules concerning the default supplier are to be found in the paragraph 27 h of the Finnish

Electricity Market Act. According to the paragraph 27 h cases where the supplier suddenly goes out of

business or is otherwise incapable of fulfilling its obligations the local DSO can act for a while as a

default supplier. If that happens the local DSO is obligated to supply electricity to all the customers of

the supplier in question in its network area for minimum three weeks’ for the active end users and for

the end users under obligation to supply until the EMV has appointed a new supplier with obligation

to supply. In this situation the DSO doesn´t necessarily take care of the supplying itself though. The

DSO can instead enter into contract with a supplier of its choice and arrange that the supplier in

question takes care of electricity supply to the customers during this period. This, though, has never

happened in Finland.

4.4 Norway

Terminology

Norway uses the term “Leveringsplikt”. According to the Energy Act, DSOs are given the role as the

supplier of last resort within their network area, and are obliged to supply electricity to all customers

without an ordinary supplier.

Scope

In Norway the supplier of last resort and the obligation to supply is not separated. 2.6 per cent of the

households were on universal service in the second quarter of 2012. Both customers who are not able

to get an ordinary supply contract (for instance due to insolvency) and customers who are temporarily

without a supply contract (for instance if they have just moved to a new address or their former

supplier has gone bankrupt) are included under the DSOs obligation to supply.

The DSO has the duty of informing end users supplied by the obligation to supply scheme about

available suppliers within the network area(s) of the DSO. If an end user has not chosen a supplier

and is on an obligation to supply tariff, the DSO shall without delay and every third month inform the

customer of the terms and conditions for this particular tariff and at the same time give an overview of

all available suppliers. The information letter shall be based on a template made by NVE.

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The obligation to supply tariff is regulated for the first six weeks. The price must be set according to

the Nord Pool Elspot area price plus a maximum of five øre/kWh for the first six weeks (does not

include taxes). After those first six weeks the obligation to supply tariff should give the customer an

incentive to get an ordinary supply contract (implying that this tariff should be higher than market

based prices). Any profit from customers on an obligation to supply tariff is regulated within the

yardstick income regulation, so the DSO has no incentive to set a very high price.

Still, the prices vary significantly across the DSOs, and the mark-up on the Elspot area price ranges

between 5 and 20 øre/kWh (assuming a yearly consumption of 20 000 kWh). Since January 2012, DSOs

are required to message the former supplier if the customer moves or acquires a new installation

without notifying a supplier. NVE assumes that this will lead to less customers on universal service as

well as to improved market functioning.

Current discussion in Norway

NVE is considering changing the universal service provisions in order to support the supplier centric

model. Previous analyses suggest that a universal service provider (supplier) could be appointed

through an auction. This would allow all electricity supply to be performed by suppliers and not by

DSO: s. This would in turn clarify the roles in the market and allow suppliers to compete on equal

level terms, with less neutrality issues related to universal service.

The auction could be performed with suppliers entering bids consisting of a price and contractual

terms. This would ensure both that customers are given a fair price and adequate customer protection.

In addition, the regulation should be developed to ensure customer protection and effective

competition.

4.5 Sweden

Terminology

Sweden uses the term Anvisningsleverantör. The significance of the Anvisningsleverantör is that it a)

supplies electricity to all customers that do not make an active choice of supplier, and b) supplies

electricity to customers that get into a situation where the chosen supplier cannot operate any more.

This supplier is appointed by the DSO of the geographical area concerned.

Scope

In Sweden the supplier of last resort and the obligation to supply is not separated. The Electricity act

states that a DSO shall appoint a supplier of last resort/default supplier. There are no rules or

legislation on how the DSO appoints a supplier of last resort/default supplier. In practise, the DSOs

appoint the supplier within the company that the grid belongs to.

19

The contract between the Anvisningsleverantör and the customer is normally called

“Anvisningsavtal” or “Tillsvidareavtal”. The electricity price paid by the customer is often called

“Tillsvidarepris”, but there are also other ways of naming it (such as “Normal price” and “Apartment

tariff”). Until the customer actively signs a contract, the billing of the passive contract will continue.

There are no rules concerning the price setting of electricity supply. This also goes for the supplier of

last resort/default supplier. Thus, the supplier of last resort/default supplier is free to set any price for

the customers that have not made an active choice.

The Electricity Act stipulates what information the DSO must send to its customer as soon as the

electricity supply has started. The DSO shall, among other things, inform the customer on the

company name of the supplier of last resort/default supplier and what that implies, as well as

informing on the rules concerning supplier switching. The aim is of course to make the customer

aware of the fact that a supplier of last resort/default supplier has started to provide electricity and

how the customer can switch supplier.

The Electricity Act also stipulates which information the supplier of last resort/default supplier must

send to the customer. It shall, without delay, inform the customer on the conditions for the supply and

the date of the day when the supplier intends to start the supply according to the contract. These

requirements are more specified in the General Terms and Conditions (agreed between the Swedish

Consumer Agency and Swedenergy). They state that when a supply contract has been signed, the

supplier must as soon as possible, in writing, confirm the contract to the customer and also inform on

its conditions; starting date, price, methods of payment and billing alternatives. If there is a billing fee,

the amount of that must also be stated.

The Electricity Act also has parts that indirectly affect supplier of last resort/default supplier. All

electricity suppliers must inform the customer, on the up-coming bill, when the price has increased. It

shall also be clearly stated when the raise came into force and in what way the price has been

changed. This is valid for all supply contracts – passive as well as active. A supplier who intends to

change conditions for a contract must inform the customer on the change. This shall be done through

a specially assigned message to the customer, and it must clearly state that the customer has the right

to break the contract because of the change. New conditions cannot come into force until at the earliest

two months after the assigned message has been sent. If there is a change of price in a contract

connected the spot price no message has to be sent, as long as the change is due to changes in the spot

price. But if the method for calculating the variable price contract changes or if the additional fee

changes, then a message has to be sent.

If a contract with a supplier of last resort/default supplier is constituted in the same manner as a

contract connected the spot price, no message has to be sent to the customer.

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Why a supplier of last resort/default supplier?

The main reason for having a supplier of last resort/default supplier is to ensure electricity to all

customers, also for those that do not actively establish a contract with a supplier – and to ensure that

the customers without an actively made contract pays for their electricity consumption. One million

Swedish customers have not made an active choice of supplier. The proportion of passive customers

has decreased heavily since the beginning of this century, but nowadays the proportion has stabilised

on around 20 per cent of the total sum. The profile of these customers is usually those having a low

consumption of electricity. We also note that many of these customers normally leave the supplier of

last resort/default supplier quite soon, to instead sign up for a deliberately made supply contract.

Regulator´s suggestions to the Government

To raise the awareness among the passive customers and to enhance their possibilities for making

rational choices, as well as ensuring that all customers receive similarly expressed information

concerning reference contracts, EI has in May 2012 suggested a tightening of the requirements in the

Electricity Act as concerns the by the supplier of last resort/default suppliers´ information to its

customers.

To decrease the risk of customers mixing up supplier of last resort/default supplier contracts with

other types of contracts we suggest that the market actors shall use the term “Anvisningsavtal” on the

bills and in other communication with customers.

It happens that active customers´ fixed price contracts end and are being put in a supplier of last

resort/default supplier contract. This is extremely disappointing since this contract normally has a

much higher price than all other contracts the supplier offers. In order to avoid this, Ei intends to

(together with Swedenergy, Swedish Consumer Agency and the Consumer Advice Bureau) reach an

agreement where a customer who once has chosen a contract actively never shall end up in a situation

with a supplier of last resort/default supplier contract. If an agreement cannot be reached, changes in

the Electricity Act may be considered.

Ei has furthermore analysed the possibility of appointing supplier of last resort/default supplier in a

competitive manner, through procurement, in order to force prices down. The suppliers could give

offers on an additional fee on the spot price. By doing so there would occur a competition of the

margin, for the passive customers.

The benefits of procurement are that it would be a competitive, neutral way of solving the problem,

and at the same time minimise the intervention in the market. Many previous investigations indicate

though, that the administrative costs for such a process are likely to be larger than the benefits. After

having had a dialogue with customer representatives, other authorities and the electricity business, Ei

does not see any reason to question the judgement that the procurement solution would be too

expensive, which in the end anyway will affect the customers by higher prices. Therefore, Ei does not

21

encourage rules for suppliers to be appointed as supplier of last resort/default supplier in a

competitive manner.

One way of opening up for more actors to become supplier of last resort/default supplier - and

thereby reach a more competitive like situation which could press the price levels – would be to

introduce new parts in the Electricity Act implying that the DSO appoints the supplier of last

resort/default supplier in an open, non-discriminatory and market oriented manner. A regulation

similar to this already exists when it concerns DSOs way of acting for covering net losses. The DSOs

have to procure electricity to cover net losses in an open, non-discriminatory and market oriented

manner.

Ei finds that regulation of the supplier of last resort/default supplier process is an effective way to

strengthen the competition in the electricity market and at the same time decrease the price gap

between contract forms. Ei therefore suggests that this measure introduced in the Electricity Act. Ei

furthermore suggests that the compliance of such a measure is made a part of the authority’s

regulation.

Finally, concerning contract forms: considering the major difficulties that accompany any regulation

of contract forms, Ei discourages regulation of those.

4.6 Summary of today´s situation

The way of handling the default supplier/supplier of last resort varies between our Nordic countries.

In Sweden, Norway and Denmark it is possible for a customer to have electricity supply without

contacting a supplier. An important factor to notice is the price setting and the price level´s influence

on the customers´ willingness to change from a default supplier/supplier of last resort.

Default supplier/supplier of last resort actor

Denmark: Supplier on a special licence supplies electricity to the customer who does not make

a choice or whose supply contract with another supplier has expired. The licence must be

renewed every 5th year. By January 2013 a tender procedure for obtaining the licence when the

remaining licences expire has been introduced.

Finland: Supplier that has the dominant market position in DSO´s distribution network area or

DSO for a while before the new incumbent supplier has been appointed if the original

incumbent supplier goes out of business.

Norway: DSO supplies a customer who has not entered in contract with a supplier or if the

contract expires or is terminated.

Sweden: Supplier chosen/appointed by the DSO supplies a customer who has not made a

choice or if another supplier goes out of business.

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Amount of households having default supplier/supplier of last resort

Denmark: More than 85%

Finland: No data available

Norway: 2.6%

Sweden: 19,4%

Rate of supplier switching 2011

Denmark: 3,5%

Finland: 7,5%

Norway: 11%

Sweden: 11%

Legal basis for the default supplier/supplier of last resort

Denmark: A ”supply obligation licence” is necessary, cf. §§ 33-34 and 50 of the electricity

supply act.

A price regulation is then applied, cf. § 70-72 of the act.

Finland: Electricity Market Act paragraph 21 and 22.

Norway: Energy Act ensures that all customers are provided with electricity by the DSO. If

customers receive electricity in accordance to the DSOs obligation to supply, regulations

demand that the electricity price must be set in order to give customers an incentive to get a

supplier.

Sweden: DSO choses the default supplier – there are no legal requirements on which to choose.

According to the Electricity Act the DSO has to immediately inform the customer on this

situation, and the supplier has to immediately inform the customer on the supply conditions.

Contract

Denmark: The customer does not automatically get a contract when supplied by a supplier

with a supply obligation. But if the customer demands one, it must be provided.

Finland: The customer must have a contract with the DSO as well as with a supplier when

moving in. Otherwise no electricity is delivered.

Norway: A contract it sent to the customer according to the starting date of the DSO contract.

Sweden: A contract it sent to the customer according to the starting date of the DSO contract.

Pricing

Denmark: For small customers (without hourly metering): DERA regulates the price, to hinder

too high prices compared to the free market. For large customers: Price corresponds to spot

price.

Finland: Supplier in a major market position shall deliver electricity at reasonable prices to

household customers. In practise: prices related to wholesale prices.

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Norway: The ”obligation to supply-tariff” is regulated the first six weeks – according to spot

price plus a maximum of 5 ore/kWh (taxes excluded). After six weeks ordinary supply contract

starts – with a higher price – unless the customer has chosen a new supplier actively.

Sweden: Free - often higher than other contracts.

Current national considerations and suggestions to government

Denmark: In January 2013 a new tender procedure for obtaining the licence (when the

remaining licences expire) has been accomplished, replacing the former licence system.

DERA has carried out a review of the supply obligation regulation (published in October

2012). A working group evaluates the present default supplier price regulation and the

electricity regulation in general by May 2013. See the summaries in Annexes 3 and 4.

Finland: Not applicable.

Norway: Auction or tendering procedure for appointment of a default supplier recommended

by previous analysis.

Sweden: Ei suggests market actors to use the term “anvisningsavtal” (and no other). Ei intends

to reach an agreement where a customer who once has chosen a contract actively never shall

end up in a situation with an “anvisningsavtal”. If agreement not reached, changes in the

Electricity Act may be considered. Ei suggests new parts in the Electricity Act implying that

the DSO appoints the default supplier in an open, non-discriminatory and market oriented

manner.

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5. Which problem do we want to solve?

Why are we interested in trying to find a common solution for the default supply situation? A well-

functioning electricity market is totally dependent on a market structure that enhances the

competition. Too different approaches to the design of default supply can in the worst case of scenario

turn into a disruptive element for the active Nordic electricity market. An active Nordic electricity

market consists not only of active customers´, but also active suppliers´ that are willing to operate in

the common Nordic retail market. We want to achieve satisfied customers by contributing to the

design of a good market. We want to minimise market disturbance factors.

5.1 Identified problems and affects

When observing the currently existing design of default supply in the Nordic countries one can easily

find similarities and differences between the systems. In Denmark, Norway and Sweden the default

supply system has a different approach than the Finnish system.

The underlining obstacle in all the countries seems to be that the different approaches don´t activate

customers enough. In Denmark, Norway and Sweden customer can have automatically electricity

when moving into a new location. In Denmark and Sweden the supplier acts as a default supplier

whereas in Norway the local DSO acts as one. In Finland a customer always needs a supply and a

grid contract in order to have electricity delivered to the connection point in question.

One obstacle occurs when a customer does not have to make a choice, or when the obligation to

supply price is so low or similar to the market price that the customer does not gain anything by

changing from the default supplier. Another obstacle is the customer’s lack of knowledge of the

potential of the market. This may exist due to lack of information about suppliers, the different supply

prices in the market and contract possibilities.

When analysing the need for harmonisation of legislation on universal service supply obligations for

electricity in the Nordic area have discussed several problems:

Moving in and out: How do we make the customer contact a supplier instead of the grid

company when moving in/out or changing supplier?6

How do we avoid that a customer who has once been active in choosing a supplier does not

enter into a default supply situation when current contract expires?

How do we take care of vulnerable customers who might face being rejected from a supplier?

Below we describe these problems, the stakeholder comments in brief and possible solutions.

6 This is already solved in Denmark, with the new data hub (March 2013) and the introduction of a wholesale model (October 2014) .

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5.2 Moving in and out

According to previously agreed principles regarding the preferred NordREGs customer interface in

the supplier centric model, we state that the supplier should be the “actor for the customer to contact

for initiating the moving in/out process”. How do we create a market design for this? How do we

reach a routine where signing up for electricity supply is as self-evident as signing a contract for an

apartment or house before entering it? The might be several potential solutions, more or less

attractive:

Price: The default price is so high that the customer wants to avoid it or change supplier

rapidly. Or the default price is low at the beginning and then rice above the competitive level.

Information on terms and conditions: The customer receives information on the conditions and

the benefits of making an active choice, before moving into a new house (e.g. when he/she

informs authorities of the new address).

Information on suppliers to choose from (websites etc.).

No electricity delivered: If no electricity contract is actively signed by the customer, no

electricity will be delivered (or technically expressed from the DSO perspective: no metering

point will be switched on without a supplier registered in the point).

Default electricity is only supplied for a short period (e.g. 2-4 weeks) while moving in.

The customer can choose a supplier from the competitive market before the move and may

continue with this supplier after the move.

Stakeholder comments

According to received stakeholder comments, many are in favour of “No electricity delivered”, and

sometimes with a combination of “Information on conditions” and “Information on suppliers to

choose from”.

Possible solutions

Having a multifamily house with apartments without any tenants is probably more common than for

al villa, and it can for several reasons be important that electricity supply continues during the in-

between period, especially in the winter. How can this be solved?

In both cases, villas and multifamily housing, the damages as well as the costs for no electricity

delivered, could be extensive. In countries were the customers are not used to this rule (which applies

in Finland), we might risk a situation with less customer trust for the energy market if customers face

damages because of disrupted electricity when moving – at least during a couple of years until

everyone has learnt.

The benefit for the customers when having a model where no electricity is delivered without a chosen

contract, is that the moving-in customer will never face a situation with a default supplier. The

customer will have to make an active choice of supplier. The customer will be exposed to different

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possibilities in the market – not only different prices but also different conditions concerning energy

sources (green electricity etc.), paying methods and energy services7. But we shall at the same time

recognise that the customer might not regard these benefits as high as being able to have electricity, be

it to a higher price.

The benefit for the market comes indirectly of having an active customer. The competitiveness

between suppliers will increase to be able to sign a customer, as well as the customer service offered

by the suppliers. The amount of eligible customers will increase, which also increases the willingness

of suppliers to act in the market.

The benefit for the DSO/default supply company is that the financial losses of delivering energy to a

metering point without a supply contract will decrease – no delivery from the DSO/default supply

company means no “free” electricity is supplied.

If a customer contacts a DSO/default supply company before moving in, and asks for advice on the

electricity supply, the DSO/default supply company shall in a neutral manner inform the customer

that he/she needs to contact a supplier in order to make a supply contract. The DSO must not under

any circumstances advice on any particular supplier.

As regards houses, if an owner moves out and ends the supply (and in some countries also the grid)

contracts, he/she should be informed that the house will have no electricity supply after a final date

stated by the customer. The information could be given by the current supplier or by an identity like

the DSO and as a minimum one month before disconnection. The information could also present the

most common risks concerning damages on the building, and that the owner of the house is

responsible. Also insurance companies and real estate brokers could provide this information as a

routine.

As regards multifamily houses, the heating can be taken care of thorough the maintenance bill, which

the flat owner normally pays, at least in Finland.

Summary of the Moving in and out situation

In an ideal situation a customer contacts a supplier before moving in and out, and many times this is

also the case. At the same time we know that moving in and out are situations can be very stressful. A

customer forgetting to inform the supplier, with the consequence of finding a house or apartment cold

7 “Energy service” means the physical benefit, utility or good derived from a combination of energy with energy-efficient technology or with



primary energy savings (Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency)

27

(with the possible damages), is not a situation we want to participate in risking (in Finland this is not

relevant since the customers know and are used to that they might face a home without electricity). It

is not only very negative for the customer in that very moment, inadequately informed it would also

risk to lower the customer trust for the electricity market in general. However, NordREG recognises

that in order to create an effective and well-functioning electricity retail market it is important to

encourage customers to make active choices. Even if NordREG doesn’t find it necessary to harmonise

universal service obligations within the Nordic countries at this stage, universal service obligations in

all Nordic countries should support customers’ activity during moving in situations.

NordREG finds that the best possible way of avoiding a passive moving in or out customer is to focus

on the information and neutrality aspects. When a customer moves in to a new dwelling, the customer

shall choose a supplier from the competitive market.8 In this context existing features which

unnecessarily support customers’ passivity should also be removed from the universal service

obligation models. If the customer by mistake contacts for instance the DSO for this matter, the DSO

shall act as a neutral market facilitator and inform the customer that he/she needs to contact a supplier

in order to make a supply contract. The DSO must not under any circumstances advice on any

particular supplier.

The recommendations are formulated as follows:

Electricity supply: If by a mistake there happens to be contacts between customer and DSO concerning

electricity supply (e.g. moving in/out, switching), the DSO shall in a neutral manner inform the customer that

he/she needs to contact a supplier in order to make a supply contract. The DSO must not under any

circumstances advice on any particular supplier.

This recommendation should as far as possible be realised by 2015 (if not already done).

Customers’ activity: Universal service obligations in Nordic countries should be developed towards a model

where all customers are encouraged to actively choose and make a contract with a supplier.

5.3 How do we avoid that a customer who has once been active in choosing a

supplier does not enter into a default supply situation when current contract

expires?

If a customer´s existing contract expires, the customer – who once made an active choice of supplier –

can sometimes fall into a situation that is the same as for the passive customers. A contract may

8 The customer can still choose a supplier from the competitive market before the move and may continue with this supplier after the move.

28

expire, but in those situations electricity will continue to be delivered, though sometimes on different

conditions (contract “until further notice” etc.). Can that possibly be avoided?


According to received stakeholder comments the problem can be tackled as follows:

No Universal service should be necessary. It should be a contractual issue between the

supplier and the customer as the existing supplier then should have the obligation to continue

to supply and the terms for that should be an issue for the parties to agree on in advance. This

should therefore be a part of any contractual formula delivery of electricity.

This situation can occur mostly in cases where a consumer has a fixed-term sale contract that

expires. From the Finnish consumer´s point of view, no problems usually arises, though, as the

following term is applied (term 10.2.1. of the Terms of the Electricity sales): “Unless some

other agreement has been made, a fixed-term sale contract continues to be valid for an

indefinite period after the end of the term, if no new sale contract has been concluded between

the vendor and the user or if neither party has terminated the contract at two weeks’ notice”.

Depending on the consumer´s choice, he/she can then stay with the current supplier or switch

to another supplier.

General terms of contract for electricity supply that the delivery of electricity will – after the

contract period has expired – continue by the same supplier at same price and other terms,

unless either party terminates the contract in advance or supplier announces the customer on

changed terms of contract. This could be a good approach for other countries as well, because

then the contract will not expire suddenly and supplier of last resort or other complicated

solution will not be needed.

Possible solutions

When considering the stakeholder comments, from both industry and consumer representatives, the

problem with expired contracts does not seem big enough to require Nordic harmonisation. The

customers face somewhat different situations when comparing between our countries, but to

harmonise these rules is evidently not a high topic right now when discussing needs for Nordic

harmonisation.

Summary of Current contract expires situation

NordREG finds that it is not necessary to issue any recommendation today as concerns the situation

when current contract expires. For now this circumstance is to be left to national consideration. But

NordREG is also aware of the fact that this issue may need to be further investigated in the future.

29

5.4 How do we take care of vulnerable customers who might face being rejected

from a supplier?

What if a customer is denied from buying electricity on the market and cannot sign a supply contract

with a supplier in the market? In the Nordic countries the customers who risk disconnection due to

non-payment are taken care of within the general welfare systems, but what if the customer has not

come under that umbrella yet?


According to received stakeholder comments the problem can be tackled as follows:

If the supplier by any reason ceases to supply (e.g bankruptcy) there is a need for a Supplier of

last resort. This service should not be provided by the DSO but be provided by the Supplier of

last resort/(leverandør av ventetariff).9

There seems to be no major risk that the supplier, with the obligation to supply, would deny

the supply of electricity to a vulnerable consumer. The risk for the vulnerable consumer might

rather be when demanded to give a security (deposit) to the supplier in order to start the

supply. Solving this should rather be an issue for social authorities.

According to the Internal electricity market directive (“Third package”), probably some kind of

an obligation to supply system will be needed. The vulnerable customer should contact the

obligated supplier. DSO should (if asked and for this case only) be allowed to advise the

customer that has been denied supply to contact the obligated supplier. Contracts under

obligation to supply should not be seen as somehow separate from “competitive” products,

but should use similar structures.

The protection of vulnerable customers should always be done primarily through actions in

the welfare policies, not in electricity market rules. As far as e.g. disconnection due to non-

payment is considered, the electricity rules should give the customer enough time to settle its

business with the social authorities before the disconnection would take place.

Some kind of obligation for supply should be in place, with non-binding terms (contract valid

until further notice, customer can change the product in short - 14 days’ notice) if he/she wants

to. But no need for special products or pricing especially for these customers. Standard

Suppliers' standard offering should cover relevant product alternative (terms above).

For the customers who cannot pay a deposit – and therefore need a supplier of last resort – we

could consider an auction or the like, to appoint a supplier of last resort.

9 This is already solved in Denmark, with the new data hub (March 2013) and the introduction of a wholesale model (October 2014).

Regarding the data hub, all suppliers must register to be able to use it (cf. § 72a of the Danish electricity supply act). The ”Forsyningpligtig

virkomhed” takes care of the duties related to Supplier of last resort. According to § 72, sect. 5 the ”Forsyningpligtig virksomhed” may

require a security payment of the customer and can even take initiative to disconnect the customer.

30

Possible solutions

When considering the stakeholder comments, NordREG recognizes the vulnerable customers´ needs

for a supplier of last resort. We do not see any call from the stakeholders for Nordic harmonisation

concerning that matter. We furthermore recognize that these customers are taken care of today. We

have national regulation of the process on disconnection, and we have our general welfare systems.

Having said this, we are well aware of the fact that there are customers that are disconnected because

of non-payment.

Summary of Vulnerable customers rejected from a supplier

NordREG does not consider the handling of vulnerable customers as critical regarding the need for

Nordic harmonization for a common market. The circumstances for vulnerable customers should be at

the responsibility of national consideration. We regard that this has to be done within a broader scope

than the electricity acts, as is already the case in the Nordic countries today.

6. Neutrality of DSO: s

When NordREG considers what has so far been treated in this report, we find that the issue of

neutrality of the DSO: s is crucial. This might seem a perfectly well known and accepted fact, and it is

already clear in our legislations that a DSO must not act discriminatory. But when it comes to the

implementation of the supplier centric model this neutrality has to be shown in the everyday practise,

in the daily routines, by the DSO companies. If that is not the case, the supplier centric model will

never come to life.

We have already within this report stated that a DSO must not give any customer advice on which

supplier to choose (the recommendation on electricity supply). It is also important to take into account

the increasing demand for energy services, which can be handled by a supply company, but also by

an energy service company, an ESCO. The Energy Efficiency Directive10 defines an energy service as

follows: Energy service means the physical benefit, utility or good derived from a combination of

energy with energy-efficient technology or with action, which may include the operations,

maintenance and control necessary to deliver the service, which is delivered on the basis of a contract

and in normal circumstances has proven to result in verifiable and measurable or estimable energy

efficiency improvement or primary energy savings.

10 Directive 2012/27/EU

31

NordREG issued during 2011 recommendations on allocation of responsibilities in the customer

interface11. As can be seen there, ESCO: s are in some cases mentioned alongside the supplier as

relevant actors (part 10 on demand response and part 11 on micro generation). Since we can imagine

that customers may have questions on energy services12 when by mistake contacting a DSO, we find it

relevant to include ESCO: s in a new recommendation, similar to the one on electricity supply. The

purpose is to make clarify that a DSO shall behave in the same neutral manner towards an ESCO as

towards a supplier.

The recommendation is formulated as follows:

Energy services: In contacts between customer and DSO concerning energy services performed by ESCO: s as

defined in the Energy Efficiency Directive13, the DSO shall in a neutral manner inform the customer that he/she

needs to contact an ESCO. The DSO must not under any circumstances advice on any particular ESCO.

Furthermore, customers may have general questions on the electricity market when contacting a DSO

- as we all realise, it is hard to differentiate between all the issues and questions a customer can have

connected to the electricity market. To clarify that NordREG finds it important that the DSO acts in a

neutral manner also under these circumstances, we hereby issue a recommendation with the purpose

of avoiding the DSO becoming an actor of advice bureau (apart from questions related to connection).

The recommendation is formulated as follows:

General questions on the electricity market: In contacts between customer and DSO concerning general

questions on the electricity market, the DSO shall in a neutral manner inform the customer on the possibility to

receive advice from the single point of contact (defined by each country)14,15.

These recommendations should as far as possible be realised by 2015 (if not already done).

11 The NordREG recommendations for the responsibilities in customer interface in the supplier centric market model were determined in the

report Rights and obligations of DSOs and suppliers in the customer interface (NordREG report 4/2011).

12 “Energy service means the physical benefit, utility or good derived from a combination of energy with energy-efficient technology or

with action, which may include the operations, maintenance and control necessary to deliver the service, which is delivered on the basis of a


primary energy savings.” (Directive 2012/27/EU on energy efficiency). 13 Energy service means the physical benefit, utility or good derived from a combination of energy with energy-efficient technology or with



primary energy savings. (Directive 2012/27/EU on energy efficiency) 14 Member States shall ensure the provision of single point of contact to provide consumers with all necessary information concerning their

rights, current legislation and the means of dispute settlement available to them in the event of a dispute. Such contact points may be part of

general consumer information points. (Directive 2009/72/EG, Third Energy Package) 15 Sweden: Konsumenternas Energimarknadsbyrå. Denmark: Ankenævnet på Energiområdet (Energy Supply Complaint Board). Norway

and Finland: Not defined since Directive 2009/72/EG is not implemented in Norway and Finland yet.

http://eur-lex.europa.eu/JOHtml.do?uri=OJ:L:2012:315:SOM:EN:HTML

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7. Summary of recommendations

The recommendations we issue in this report apply on the previous NordREG recommendations on

allocation of responsibilities in the customer interface16, and are a further development of them:

”Customer contact actor to initiate the switch” (1.1)

“Actor for the customer to contact for initiating the moving in/out process” (2.1)

”Answer questions, receive feedback and complaints on commercial issues (including any

technical device provided by the supplier or the ESCO)” (12.1)

”Answer questions, receive feedback and complaints on commercial issues (including any

technical device or production unit provided by a commercial market actor)” (13.1)

To sum up, within the scope of this report, NordREG issues the following three recommendations:

Electricity supply: If by a mistake there happens to be contacts between customer and DSO concerning

electricity supply (e.g. moving in/out, switching), the DSO shall in a neutral manner inform the customer that

he/she needs to contact a supplier in order to make a supply contract. The DSO must not under any

circumstances advice on any particular supplier.

Energy services: In contacts between customer and DSO concerning energy services performed by ESCO: s as

defined in the Energy Efficiency Directive17, the DSO shall in a neutral manner inform the customer that he/she

needs to contact an ESCO. The DSO must not under any circumstances advice on any particular ESCO.

General questions on the electricity market: In contacts between customer and DSO concerning general

questions on the electricity market, the DSO shall in a neutral manner inform the customer on the possibility to

receive advice from the single point of contact (defined by MS in each country)18,19.

These recommendations should as far as possible be realised by 2015, if not already done (see next

chapter).

16 The NordREG recommendations for the responsibilities in customer interface in the supplier centric market model were determined in the

report Rights and obligations of DSOs and suppliers in the customer interface (NordREG report 4/2011). 17 Energy service means the physical benefit, utility or good derived from a combination of energy with energy-efficient technology or with



primary energy savings. (Directive 2012/27/EU on energy efficiency) 18 Member States shall ensure the provision of single point of contact to provide consumers with all necessary information concerning their

rights, current legislation and the means of dispute settlement available to them in the event of a dispute. Such contact points may be part of

general consumer information points. (Directive 2009/72/EG, Third Energy Package) 19 Sweden: Konsumenternas Energimarknadsbyrå. Denmark: Ankenævnet på Energiområdet (Energy Supply Complaint Board). , Norway

and Finland: Not defined since Directive 2009/72/EG is not implemented in Norway and Finland yet.

33

Having regard to what has been presented in this report, NordREG will not issue any

recommendations on the handling of current contract that expires, or the situation for vulnerable

customers. We consider these matters as of today as premature and not critical for the harmonisation

of the Nordic electricity market.

8. Changes in relation to current legislation in each country

The three recommendations issued in this report have implications on current legislation in some of

our countries, but not all. The consequences are described as follows:

Denmark: No need for change of laws or regulations right now20. Within the framework of the hub

being introduced 2013; the supplier centric model will come into force.

Finland: No plans to change the current legislation.

Norway: Currently the Norwegian neutrality regulations require that DSOs are neutral towards all

customers and suppliers. It may therefore be necessary to include requirements that state that DSOs

shall act neutrally towards all ESCO: s as well. Although ESCO: s are not explicitly defined21 in

neutrality regulations, the regulation ensures that customers and (and their chosen ESCO(s)) are to be

treated neutrally.

Sweden: Need to incorporate the recommendations in the Electricity act.

9. Concluding remarks

When the supplier centric model with combined billing is once implemented in the Nordic countries,

the supplier is the front figure in the market towards the customer. The customer must contact a

supplier when moving in, out, switching, asking for energy services etc. We also foresee that there will

be more easily accessible customer information than today. This will lead to more confident and active

customers, and it will reduce the need for universal service to be a back-up for passive customers.

Universal service systems are necessary in order to guarantee that everyone can have electricity, and

also in the case of a supplier going bankrupt - the electricity supply is guaranteed without disruptions.

In our vision, the universal service shall not need to be a fall back service for passive customers – since

there will be no passive customers.

20 But please note the ongoing Danish work of evaluating the electricity regulation by May 2013, cf. Annexes 3 and 4. 21

Directive 2012/27/EU on Energy Efficiency has not yet been implemented in Norway.

34

Universal service is important, as defined by European law22. In practise it means that there should be

a supplier available for everyone. This tries to strike the balance between having well-functioning

markets, without market disturbances from regulation, and assure electricity for all customers. There

must be a financial support for vulnerable customers, and it shall be handled by the national, general

well fare systems.

22 Universal service: The right for all household customers, and, where Member States deem it appropriate, small enterprises to be supplied

with electricity of a specified quality within their territory at reasonable, easily and clearly comparable, transparent and non-discriminatory

prices. (Directive 2009/72/EG)

35

Annex 1: Abbreviations

DEA Danish Energy Agency (under the Danish Ministry of Climate,

Energy and Building)

DERA Danish Energy Regulatory Authority (Danish regulator)

DSO Distribution System Operator

Ei Energy Markets Inspectorate (Swedish regulator)

EMV Energiamarkkinavirasto (Finish regulator)

ESCO Energy Service Company

kWh Kilowatt hour

NVE Norges Vassdrags- og Energidirektorat (Norwegian regulator)

36

Annex 2: Questions to and answers from stakeholders

In order to get input on the default supply issue, NordREG sent a draft version of this report

the 25th September 2012 to the in-put team of the NordREG Customer Empowerment Task

Force. In brief we received the answers as presented in the table below. For full version of

stakeholder comments, please see NordREG website.

Written comments were received from

Agder Energi

Dansk Energi

Energi Norge

Finnish Consumer Agency & Ombudsman

Finnish Energy Industries

Fortum Markets

Konsumenternas Energimarknadsbyrå

Vattenfall

Moving in:

A) Price: The default price is so high that the customer wants to avoid it or change

supplier rapidly. Or the default price is low at the beginning and then rice above the

competitive level.

B) Information on terms and conditions: The customer receives information on the

conditions and the benefits of making an active choice, before moving into a new

house (e.g. when he/she informs authorities of the new address).

C) Information on suppliers to choose from (websites etc.).

D) No electricity delivered: If no electricity contract is actively signed by the

customer, no electricity will be delivered (or technically expressed from the DSO

perspective: no metering point will be switched on without a supplier registered in

the point).

E) Default electricity is only supplied for a short period (e.g. 2-4 weeks) while moving

in.

Would it be possible to regard signing up for electricity as self-evident as signing a contract

for your apartment before entering it? If you say YES to this question, what is your opinion

the possible solutions mentioned in this report (A, B, C etc.)? Do you have other suggestions?

If you say NO to the question, what could then be the solution to “the passive customer”

problem? The answers from the stakeholders are found below.

Would it be possible to regard signing up for electricity as self-evident as signing a contract for your

apartment before entering it?

Energi Norge The customer should sign for an electricity contract; the need for a

Universal service will automatically be solved. This solution would

also encourage competition.

Finnish Consumer As electricity is essential for all, signing up for electricity should be

37

Agency &

Ombudsman

made as easy and simple as possible when moving in to a new

apartment. In the Finnish systems, consumers as well as other

customers must have a contract with the DSO of his/her living area

and also one with a supplier in order to start electricity supply. This

calls for some activity from the part of the consumer; at least a phone

call to the DSO and/or to the supplier is needed. To our knowledge

this system has worked quite well, though, and those situations

where a consumer ends up with having no electricity after moving in

seem to be relatively rare. It is truth that quite many consumers are

not fully aware of the potential of the market, for example of the

different prices available on the market, but as regards to the moving

in situation, the most important thing, in our view, is that there is

always a supplier that has an obligation to supply electricity to any

consumer, vulnerable or not.

Finnish Energy

Industries

Yes, absolutely. This is the way it goes in Finland today.

Fortum Markets Yes, absolutely. This is the way it goes mainly in Finland today.

The experience has showed a lot of confusion and extra work for

customers and suppliers is caused in cases the delivery site is not

disconnected and a new customer moves in without any information

to supplier (or DSO). That is why DSO: s should disconnect the site

in the situation a customer leaves the site and no new customer has

appeared. This is a clear and also a customer friendly procedure in

the long run (=no difficult surveys afterwards). We must remember

that new automated meters enables quick and cost effective platform

also for this process with remote disconnection and connection

features.

Vattenfall Yes, if the customer has to sign for an electricity contract, the need for

a Universal service will automatically be solved. This solution would

also encourage competition.

Dansk Energi Yes, it would be possible, but it’s unlikely.

Konsumenternas

Energimarknadsbyrå

a+b. Vi tror att ”inget avtal – ingen el” d.v.s. D i förlängningen gör

kunderna medvetna om vikten av att teckna avtal för att få el.

If you say YES to question a, what is your opinion the possible solutions mentioned in this report (A,

B, C etc.)? Do you have other suggestions?

Energi Norge Alternative D in the report, "If no electricity contract is actively

signed by the customer, no electricity will be delivered".

Finnish Consumer

Agency &

Ombudsman

-

Finnish Energy

Industries

A combination of B, C and D.

Fortum Markets D, B and C together. In order to keep the process customer friendly

and cost effective. Why not A: this solution makes a moving process

38

difficult for a customer because in many cases he should come back

to contract issues later. Also from supplier perspective it is not

reasonable to maintain and manage this kind of additional product.

Product and price situation in Finland today: This kind of

interpretation of different obligated supply products vs. competitive

prices (Item 4.2. Finland / Scope in this report) doesn't exist in

practise at least in Finland. All suppliers have most of the customers

in the product that is valid until further notice. This product in

practise is at the same time above mentioned "obligated supply

product". In practise most of the customer of all Suppliers are using

this product as a standard electricity product.

There is mainly three kind of products available in Finland for

customers:

valid until further notice (14 days’ notice) product

Spot price based product

Fixed period product

When evaluating price differences of these different products the

main (only) driver is wholesale price situation. Wholesale price

situation and trend has a different impact for each of these products.

That is why the price differences reflect the wholesale price

development not the idea of "obligated supply product" having

higher price than other products. So price wise there is in practise no

such a product as "obligated supply product" in Finland.

Vattenfall D, se above.

Dansk Energi -

Konsumenternas

Energimarknadsbyrå

a+b. Vi tror att ”inget avtal – ingen el” d.v.s. D i förlängningen gör

kunderna medvetna om vikten av att teckna avtal för att få el.

If you say NO to question a, what could then be the solution to “the passive customer” problem?

Energi Norge -

Finnish Consumer

Agency &

Ombudsman

-

Finnish Energy

Industries

If the previous customer has informed the supplier on her leaving

and terminated her contract, the supplier should ask the DSO to

terminate supply to that metering point. The DSO should really

terminate the supply, if no other supplier comes there. Natural

information channels to activate moving customers are not only the

authority that receives an address change announcement, but also

real estate brokers, landlords (they have their own interest in keeping

the lights and heating on, and to avoid paying tenants’ bills), and

39

electricity suppliers. On the other hand, it is quite natural for the

customer at a moving situation to inform authorities, ordered

magazines, friends, etc. on her moving to a new address (all those

parties will not be informed by the authority that collects moving

information), why not also an electricity supplier. Existing price

comparison tools are helpful also for the moving customers. In a

supplier-centric model, it is also quite obvious that the customer

should contact the supplier instead of the DSO in order to get

electricity.

Fortum Markets -

Vattenfall -

Dansk Energi An obvious solution would be to change how the Supplier of last

resort-prices are set and thus deliberately make these prices non-

competitive. This would sooner or later animate the passive

consumers to make an active choice away from the Supplier of last

resort-product.

Konsumenternas

Energimarknadsbyrå

-

Current contract expires

If a customer´s existing contract expires, the customer – who once made an active choice of

supplier – can sometimes fall into a default supplier/supplier of last resort unless a new

active choice is made. Can that possibly be avoided? The answers from the stakeholders are

found below.

Energi Norge If current contract expires no Universal service should be

necessary. This should be a contractual issue between the supplier

and the customer as the existing supplier then should have the

obligation to continue to supply and the terms for that should be an

issue for the parties to agree on in advance. This should therefore

be a part of any contractual formula delivery of electricity.

Finnish Consumer

Agency &

Ombudsman

This situation can occur mostly in cases where a consumer has a

fixed-term sale contract that expires. From the Finnish consumer´s

point of view, no problems usually arises, though, as the following

term is applied (term 10.2.1. of the Terms of the Electricity sales):

“Unless some other agreement has been made, a fixed-term sale

contract continues to be valid for an indefinite period after the end

of the term, if no new sale contract has been concluded between the

vendor and the user or if neither party has terminated the contract

at two weeks’ notice”. Depending on the consumer´s choice, he/she

can then stay with the current supplier or switch to another

supplier.

Finnish Energy

Industries

In Finland it is the assumption in general terms of contract for

electricity supply that the delivery of electricity will – after the

40

contract period has expired – continue by the same supplier at

same price and other terms, unless either party terminates the

contract in advance or supplier announces the customer on

changed terms of contract. This could be a good approach for other

countries as well, because then the contract will not expire

suddenly and SOLR or other complicated solution will not be

needed.

Fortum Markets E.g. in Finland when fixed period contract expires, it continues

with the same price but different terms (valid until further notice),

unless a supplier informs customer about new price or customer

decides to change the contract. In practise suppliers always inform

customers latest 1month before contract expires and alternatives

after that. So expiring cannot happen by accident for a customer.

Vattenfall If current contract expires no Universal service should be

necessary. This should be a contractual issue between the supplier

and the customer as the existing supplier then should have the

obligation to continue to supply and the terms for that should be an

issue for the parties to agree on.

Konsumenternas

Energimarknadsbyrå

Beskrivningen, i avsnitt 6.2 i dokumentet, av vad som idag händer

när ett avtal/bindningstiden löper ut är inte korrekt. Idag fortsätter

elhandelsföretaget att vara leverantör i uttagspunkten med

hänvisning till leveransplikten. Kunden förs alltså inte över till

anvisningsleverantören i området i dessa fall. Frågan är alltså, som

Vattenfall skriver, en avtalsfråga.

Vulnerable customers

Is there a risk that an active but vulnerable customer is neglected to buy electricity – the

supplier says no? How do we take care of the vulnerable customer? Or is that already taken

care of in a good way? The answers from the stakeholders are found below.

Energi Norge Solution under the first question does not solve this situation as

some customers might be neglected to buy from suppliers. In this

case and if the supplier by any reason cease to supply (I.

bankruptcy) there is a need for a Supplier of last resort. This service

should not be provided by the DSO itself but this service should be

provided by the Supplier of last resort/(leverandør av ventetariff)

in these situations.

Finnish Consumer

Agency &

Ombudsman

At least in the Finnish system, when applying the obligation to

supply provision (paragraph 21 in the Electricity Market Act), there

seems to be no major risk that the supplier, with the obligation to

supply, would deny the supply of electricity to a vulnerable

consumer. The risk for the vulnerable consumer might rather come

41

up in situations where the consumer can in some cases be

demanded to give a security to the supplier in order to start the

supply.

Finnish Energy

Industries

According to the internal electricity market directive, probably

some kind of an obligation to supply system will be needed. Also

in this case, the customer should contact the obligated supplier.

DSO should (if asked and for this case only) be allowed to advise

the customer (that has been denied supply) to contact the obligated

supplier. Contracts under obligation to supply should not be seen

as somehow separate from “competitive” products, but they

should be able to use similar structures.

The protection of vulnerable customers should always be done

primarily through actions in the welfare policies, not in electricity

market rules. As far as e.g. disconnection due to non-payment is

considered, the electricity rules should give the customer enough

time to settle her business with the social authorities before the

disconnection would take place.

Fortum Markets Some kind of obligation for supply should be on place with the

terms that don't bind customers (contract valid until further notice,

customer can change the product in short (14 days’ notice) if he

wants to.

But there is no need for special products or pricing especially for

these customers. Standard Suppliers' standard offering should

cover relevant product alternative (terms above).

A good question also is, is really an action of the electricity market

rules to take care of this kind of social questions at all.

Vattenfall Solution under the first question does not solve this situation as

some customers might be neglected to buy from suppliers. In this

case and if the supplier by any reason cease to supply (i.e.

bankruptcy) there is a need for a Supplier of last resort. This

service should not be provided by the DSO but could

be administrated via the DSO signing a contract with a supplier

for providing this service to the customers. However, if a customer

is not solvent, this should rather be an issue for the social

authorities.

Konsumenternas

Energimarknadsbyrå

Här ser vi två delar av frågan. Den ena delen är att kunder som av

någon anledning nekas avtal med ett elhandelsföretag, ska ha ett

elhandelsföretag (supplier of last resort – SLR) att vända sig till.

Den andra delen är det eller de priser och avtal/villkor som

kunderna kan få hos det elhandelsföretaget. Det kan ju faktiskt

vara så att vissa kunder som av någon anledning hamnar hos SLR

42

kan få ett ”vanligt” prisavtal genom att ställa säkerhet eller dylikt.

För övriga kunder, som inte har möjlighet att ställa säkerhet,

kvarstår frågan om skäligheten i tillgängliga priser/prisavtal. Ett

upphandlingsliknande förfarande skulle kunna diskuteras.

GENERAL COMMENTS

Finnish Energy Industries

The most important question was not in the list, but referred to under the headline of chapter

6: “Which problem do we want to solve?”

The purpose of this exercise should be to create a common Nordic end-user market for

electricity. In a market both suppliers and customers have an incentive to find better

solutions for themselves. The factual result of many present or future national universal

service obligation schemes is that most customers are in fact locked outside the need or

motivation of making individual choice. E.g. the Danish market can’t be attractive to new

suppliers as long as a huge majority of customers are on regulated supply obligation

contracts with extremely low margins. On the other hand, also the Finnish obligation to

supply system creates certain inertia to the market as, although not regulated as such, price

changes are slow and costly to execute.

As a conclusion: In order to create a common market, full harmonisation of universal service

obligations is necessary. It is not very motivating to oblige suppliers or DSO’s to make each

expensive amendment in their data systems and processes, if e.g. universal service

obligations in fact prevent market entry concerning a large part of customers. The need for

any universal service obligation must be analysed thoroughly and implemented on a way

that treats every supplier in the same way not causing advantages nor disadvantages to any

of them.

Finally: (p. 10) it has to be noted, that industry in Finland has several times asked for either

abolishment or modification of the present obligation to supply system.

Fortum Markets

When evaluating different user and business situations and cases it would be benefical to

recognize, that some cases happens very seldom (like bancrups of companies or even

situations suppliers don't want some customers ) compared to cases that happens every day

(=moving, contract expiring).

All of the situations and cases must have clear rules, but the cases with high volumes need

definitely both very clear rules, but also very deep harmonisation in order to secure Nordic

level operations by suppliers. If harmonisation of the universal service obligation in big

volume user-cases is not deep enough there will be barriers for Nordic level operations.

Therefore there should not be any exclusive sale right for any party.

43

Agder Energi

Agder Energi supports the answer from Vattenfall as above, with exception of the solution of

DSO role in the point Vulnerable customers. We agree that ”This service should not be provided by

the DSO”, but we suggest that the solution must be that the Supplier of last

resort/(leverandør av ventetariff) supplies in these situations.

Dansk Energi

We didn’t as such have any comments regarding the Danish model, however I do think it’s

more correct to call the Danish “SoLR-license” a concession. (“DSO-licenses” are also granted

as concessions.)

Konsumenternas Energimarknadsbyrå

Med utgångspunkt i den framtida modellen där kunden i huvudsak har kontakt med

elhandelsföretaget skulle man kunna diskutera hur naturligt det kommer vara för kunderna

att vända sig till elnätsföretaget för att få information om vem som är SLR. I många fall

kanske kunderna aldrig har haft anledning att ha kontakt med elnätsföretaget. Ett alternativ,

eller komplement, skulle då vara att information om tillgänglig SLR finns på t.ex. EI’s

hemsida.

44

Annex 3: Denmark – Existing regulation of the supply obligation

price

The supply obligation product is a quarterly product for which the companies with supply

obligations set a price for the coming quarter before the start of the quarter. Before the price

set can enter into force, it has to be approved by DERA. In practice, this means DERA will

intervene in the case of mark-ups from the supply obligation product that are higher than the

mark-ups the companies can achieve in the free market. The regulation process is outlined

below.

1) DERA calculates the mark-up for similar products etc. on the free market. From these

calculations a mark-up limit is calculated, which is used for price control using the median of

observed prices/mark-ups as an expression of the market price level in accordance with the

rules on price regulation. This median is the mark-up allowed for supply obligation

suppliers.

2) If a company’s mark-up for the coming quarter is higher than the mark-up limit which

DERA has identified in the free market,, the difference will be deducted from the notified

prices. This is how final approved prices are set.

3) If a company’s mark-up for the coming quarter is lower than or equal to the identified

mark-up limit, DERA will approve the prices notified by the company.

Fluctuations in approved prices are due to changes in base load (i.e. changes in the price of

the electricity which the supply obligation company buys from an electricity producer) and

the costs linked to consumption profile (i.e. the supplier’s costs associated with the fact that

electricity consumption by customers is unevenly distributed across a day, month, quarter or

year, and the fact that the price of electricity fluctuates on an hourly basis throughout the

year).

New regulation

By January 2013 a tender procedure for obtaining the licence (when the remaining licences

expire – the first ones in May 2013) has been introduced, replacing the former licence system.

Thereby the regulation of the supply obligation price mentioned above will disappear with

the expiration of the remaining licences. In the new system, the supply obligation price will

only fluctuate due to changes in base load.

The consumers receiving the existing supply obligation product has to make an active choice

to receive the new supply obligation product when the remaining licence expire – if they do

not actively choose the new supply obligation product (or another product in the liberalized

market) they will be transferred to a commercial product at their existing (supply obligation)

supplier. The commercial product will be monitored by DERA though.

45

Annex 4: Denmark – regulators´ suggestion to the government

During 2012 DERA carried out a comprehensive review of the competition on the Danish

electricity retail market.23 The report contains, inter alia, an analysis of the present supply

obligation regulation, advantages and disadvantages of regulating prices and a review of the

method which DERA applies in its calculation of end user prices.

The analysis discovered many problems related to the existing national retail market of

electricity:

First, the review revealed that the supply obligation regulation reduces the competition and

thereby diminishes a central reason for liberalising the electricity sector. Households and

smaller businesses do not get sufficient incentive to use the market and to react on price

signals.

Second, the existing default supplier regulation reduces the incentive of commercial actors to

enter the electricity market, which weakens the overall competition.

Third, the current regulation removes efficiency, development of new products and the

general level of innovation of the suppliers. This effect, in correspondence with an

unchanged consumption pattern of customers, will contradict an intended increase in the

flexibility of the overall electricity grid. In other words, the current regulation reduces the

research and innovation of products of an industry, which is expected to develop intelligent

new items for homes, offices and manufacturing industry etc.

Fourth, the existing regulation may also increase the costs of a turnaround related to a better

independence of fossil energies in the future.

A change of the existing licence system of the default supplier companies is also

recommended in the report. It suggests a tender procedure for the future. This will also

increase the general unbundling level of the industry.

The analysis indicates also that to some extent it is quite unclear how the market will react on

a total phase out of default supplier price regulation. In the short run a deregulation may not

cause a reduction of the prices – actually it is more likely the prices in the short run may tend

to increase. But higher prices can on the other hand encourage new suppliers to enter the

market and along with expected reactions of the costumers to higher prices this will reduce

the electricity prices again.

23 Energitilsynet (DERA): Analyse af konkurrencen på detailmarkedet for el, October 2012. See link:

http://energitilsynet.dk/om-energitilsynet/nyheder/enkelt-nyhed/artikel/detailmarkedsanalyse/

http://energitilsynet.dk/om-energitilsynet/nyheder/enkelt-nyhed/artikel/detailmarkedsanalyse/

46

Furthermore, the report mentions that the behaviour of a minor group of household

customers might not be influenced at all by the suggested changes of the regulation as their

consumption of electricity in general is indeed very small and very inflexible.

The analysis conclude i.e., that the existing price regulation should be removed and the

current license system should be changed to a tender centred system instead of the current

licensed default supplier granted for the local geographical area which normally

corresponds to the local grid area.

Latest development

After the publication of report, the minister has introduced a bill to the parliament with the

purpose of changing the license system by the introduction of a tender procedure (when the

remaining licences expire). The new tender procedure is implemented in January 2013.

Partly based on the findings of the same report, the minister has also appointed a new

committee, a so-called “Reguleringsudvalg”. The committee evaluates the present default

supplier price regulation along with the remaining regulation of the electricity market by

May 2013.

48

Annex 5: Supplier switching and suppliers in the Nordic countries

The amount of supplier switching is an important indicator of customer awareness and

activity on the market. The figures vary between our countries. The figures below are found

in NordREGs Nordic Market Report 2012:

Denmark: 3.5 %

Finland: 7.5 %

Norway: 11 %

Sweden: 11 %

The number of suppliers operating nation-wide is as follows:

Denmark: 25 suppliers

Finland: 30 suppliers

Norway: 20 suppliers

Sweden: 100 suppliers

In 2011;

there were a total of around 100 suppliers in Norway – most of these former

incumbent suppliers. 20 of these had offers in all grid areas.

about 120 suppliers operated in Sweden. About 100 of these throughout the country.

more than 70 suppliers operated in Finland, whereof 29 operating nationwide.

around 60 retail suppliers operated in Denmark, whereof 33 were supply obligation

companies with a concession for a specific geographic region to supply households

etc. having not concluded a contract on the liberalized market (approximately 90-95

per cent). Approximately 20-25 suppliers (non-supply obligation suppliers) operated

nationwide.

49

NordREG c/o Norwegian Water Resources and Energy Directorate P.O. Box 5091 Majorstua N-0301 Oslo Norway Tel. +47 22 95 95 95 March 2013

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