4 Energy regulation
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4 Energy regulationThe Danish Energy Regulatory Authority (DERA) is the supervisory body and board of appeal of the energy sector. The Authority was set up as part of the liberalisation and legal reformation of the Danish electricity sector and commenced its activities on 1 January 2000. DERA has the services of a secretariat staffed by employees who are made available by the Danish Competition Authority, and who work solely for DERA. DERA publishes its own, more extensive annual report, which is available from the DERA secretariat at http://www.energitilsynet.dk/.
The Authority's principal task is to regulate the monopoly companies in the energy sector. This includes the grid and transmission companies, the companies with supply obligations in electricity and gas as well as the district heating companies. The Authority must ensure that grid owners do not derive unreasonable advantages from their natural monopoly status and that all consumers enjoy fair, uniform and transparent prices and conditions of supply. The aim of the Authority is to enhance efficiency and reduce the consumers' energy expenses. The Authority's tasks can be summarised under four headings:
4.1 Activities in 2003The Authority hears cases of fundamental importance or of significant social or financial interest in the field of energy legislation. A large proportion of the cases are brought in by consumers, particularly electricity consumers who are dissatisfied with charges, conditions of supply or other matters related to their energy supply. Other cases are brought in by energy companies and may concern the interpretation of laws and regulations or relationships with other companies. In addition, the Authority will take up cases of which it has become aware through notifications or the press. Finally, there are development-related cases and cases of a general, regulatory nature, such as efficiency improvements in the grid companies, international matters, consultations and ministerial cases. Examples of activities in 2003 In 2003, the Authority was engaged in work to establish electricity companies' base capital and free shareholders' equity. Determining this is an important basis for regular adjustments to electricity prices. A second task demanding many resources has been the administration of the tool to control electricity companies' costs; the so-called revenue-framework system. Preparations to incorporate the new EU directives for electricity and gas in Danish legislation have also meant a lot of work for the Authority in 2003. The "Capital Issue" When the Electricity Supply Act and the Executive Order governing revenue frameworks entered into force on 1 January 2000, the assets of the electricity sector were revalued. This revaluation took place because the legislation required the companies to follow the principles in the Danish Financial Statements Act, including establishing an opening balance sheet as at 1 January 2000. The assets were worth billions of DKK and the job of DERA is to divide the revalued assets in the opening balance sheets of the electricity companies into a part belonging to the owners (free shareholders' equity), and a part for the benefit of consumers (base capital). This is a complex and demanding task, and the Authority must decide on the amount of free shareholders' equity for a total of about 140 electricity companies. By determining specific cases, in 2003 the Authority has established generally applicable principles to calculate the amount of free shareholders' equity. However, the electricity sector is not satisfied with the Authority's decisions. The sector has brought them before the Energy Board of Appeal (an independent external body) and announced that it may go to court. At the same time, the sector is also seeking a political solution. Revenue frameworks tightened In the electricity area the Authority lays down the revenue framework for grid and transmission activities. The framework comprises a maximum amount which the company can demand each year. The main principle is that the company can keep all or part of the surplus amount as an efficiency profit, if costs for the year are less than the maximum amount. On the other hand - if revenues are higher than the revenue frameworks - the company must pay the excess charged to consumers through a reduction in electricity prices for the following period. However, experience from 2000 and 2001 seems to indicate that companies do not charge the amount they are permitted to charge according to their revenue framework. An estimate based on preliminary calculations at the end of 2003 indicates that companies have charged DKK 3-4 billion less than they were permitted. On this basis it has been decided to tighten the revenue frameworks for the years to come. In 2003, DERA commenced discussions with the Danish Energy Authority on revising the frameworks. Full opening of the natural gas market From 1 January 2004 all the approximately 300,000 Danish natural gas consumers will have a free choice of supplier. In 2003, DERA contributed to preparations for the full opening of the market. Amongst other things, DERA established the roles for the various market actors, and the procedures to be followed when a consumer wants to change supplier. A much larger proportion of the price of natural gas is open to competition than is the case for electricity. But this does not include the whole price. Taxes also comprise a significant part of the price of natural gas, and all customers, irrespective of their choice of supplier, must pay for distribution by their local distribution company. On the other hand, as a main rule the supplier is responsible for buying natural gas, as well as transmission and storage. In 2003, DERA also looked at the terms for using the natural gas grid and natural gas storage facilities. DERA wants to be involved in developing flexible and customer-oriented rules for transport of natural gas. Finally, in 2003 DERA helped prepare economic regulation of the distribution companies in the sector. The necessary regulations remain, however, yet to be completed. Version 1.0 March 2004 • © Danish Competition Authority. |
