4. Energy regulation
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The Danish Energy Regulatory Authority (DERA) is an authority independent of any sector interests and makes decisions independent of the Minister. The seven members of DERA are appointed by the Danish Minister for Transport and Energy for a term of four years - the present term expires end 2007. The members represent expertise in legal, technical, economic, environmental and consumer matters. The Danish Competition Authority (DCA) functions as secretariat for DERA. The overall work of DERA involves supervising the monopoly companies in the energy sector. The Authority must help to ensure that consumers - households and enterprises - are charged with reasonable and transparent prices within reasonable, uniform and transparent terms of supply. DERA regulates the district heating sector (prices etc.) and the infrastructure of the electricity and gas sectors as well as access to this infrastructure. For supply obligation electricity companies, the Authority is also responsible for price control, partly on the basis of requirements for security of supply. Furthermore, the Authority carries out benchmarking of the regulated grid enterprises. If it is a matter of transparency, DERA regulations can also apply for areas subject to competition, e.g. publication of prices and terms. Average duration of case handling, Energy 2002-2005 (months)
DERA's competence is laid down in the three energy supply acts - the Electricity Supply Act, the Natural Gas Supply Act and the District Heating Supply Act - as well as the energinet.dk Act. The DCA prepares cases for decision by the Authority and makes decisions in accordance with the practices and guidelines stipulated by DERA. Production figures, Energy 2002-2005
4.1 Tasks within individual sectorsThe electricity sector The Electricity Supply Act is the foundation for regulation of the electricity sector. The Act lays down the framework of how to achieve consumer protection, environmental concerns and security of supply in the liberalised electricity market. The key focus of the Act is to promote efficiency in the electricity sector, by partly using benchmarking. The sector comprises about 130 enterprises. Liberalisation of the sector has necessitated a new company structure in the sector. Today, therefore, enterprises are divided into companies for power generation, grid, system operation, transmission, and trade. At the same time, a number of new players have appeared on the market. DERA's responsibilities are limited to the parts of the sector where electricity supply companies have been granted a monopoly. These are grid and transmission companies. Grid companies are subject to special regulations. If a company is part of a larger group, the company must be separated as an independent unit in order to apply appropriately to regulation. Regulation covers regulation of the companies' prices and thus their income, control of their new investments and measures to ensure open access of generator companies to the grid. The regulation covers both the distribution grids and the regional transmission grids. Finally, DERA's responsibilities also include suppliers of electricity with a supply obligation to deliver electricity to customers not using the open market, households and smaller enterprises. These suppliers are subject to maximum prices, calculated on the basis of the market prices. The regulation is described in greater detail under activities in 2005. The natural gas sector The Natural Gas Supply Act is the foundation for regulation of the natural gas sector. Regulation covers transmission, storage and the distribution companies. There are only few companies in the individual submarkets. The sector accounts for a total of ten companies. DERA supervises that the companies supply gas at reasonable prices and on reasonable terms. This applies for enterprises which have been granted a supply obligation to supply customers who do not want to change to a new supplier of gas. The Authority also supervises access to the transmission grid and sees that access to gas storage facilities is granted at reasonable prices and on reasonable terms. Finally, the natural gas distribution companies are regulated. Since early 2005, the companies have been subject to revenue framework regulation, which puts a ceiling on the companies' income. The companies are also subject to efficiency requirements encourageing the companies to be more efficient through consequentially lower distribution prices. The district heating sector The district heating sector is separate from the other two sectors. The liberalisation which has taken place in the natural gas and the electricity sectors has not taken place in the heating area. It is uneconomical to transport district heating over long distances. Since most of the transmission grid is not interconnected, it is difficult to create a market. Thus, the district heating sector is comprised by a large number of local monopolies. The sector comprises about 600 enterprises. DERA ensures that supplies are provided at reasonable and transparent prices and on reasonable terms. According to the District Heating Supply Act, district heating must be sold at the cost of production and distribution, the "non-profit" principle. In this context, DERA decides the necessary costs to be included in heating prices. Energinet.dk In 2005 the state-owned company energinet.dk was formed as a result of the energy-policy agreement in 2004 by the merging of Eltra, Elkraft System, Elkraft Transmission and Gastra. At the same time, two subsidiary companies were established: Eltransmission.dk A/S and Gastransmission.dk A/S. The merger took place retrospectively from 1 January 2005. Energinet.dk has an overall responsibility for the electricity and gas system in Denmark. The company is supposed to contribute to organising the energy market to intensify competition to the benefit of society and the consumers. The company owns the overall gas transmission grid and the electricity grid. Some of the foreign activities of the company are subject to supervision by authorities in countries outside of Denmark. In accordance with the special regulations for energinet.dk, DERA supervises some of the company's activities. 4.2 New legislationIn 2005 the Authority issued two new executive orders, one concerning publication by electricity supply companies of prices, tariffs, discounts and terms, and a second concerning publication by natural gas companies of prices, tariffs, discounts and terms (executive orders nos. 770 and 771 of 8 August 2005). In 2005, too, an executive order was issued concerning revenue framework regulation and opening balances for natural gas distribution companies (executive order no. 38 of 14 January 2005). 4.3 Activities in 2005New regulations for price control for the supply obligation area On 1 January 2005 an amendment to the provisions in the Electricity Supply Act on DERA's regulation of the price of supply obligation electricity entered into force. This replaced the ex-post efficiency regulation by a price control. The prices for supply obligation electricity apply for a quarter-year at a time and the suppliers of electricity with a supply obligation must notify these to DERA before the prices enter into force. Customers buying supply obligation electricity are primarily private households and smaller enterprises. When companies report their prices, DERA is required to check that the prices do not exceed the market price level for corresponding consumer segments and terms of supply. If the prices reported are above the market price, the Authority must immediately order the companies in question to reduce their prices. The market for supply obligation electricity The prices notified for supply obligation electricity cannot be considered an expression of a competitive price level in the market. There are several reasons for this:
In order to conduct the price control required by the Authority, the DCA has therefore developed a method to provide a real indicator of the price level in a competitive market. The market price model The market price model is based on the prices offered by various suppliers to consumers outside their local market. These prices are available to DERA on the website: elpristavlen.dk. On the basis of the prices on elpristavlen.dk, each quarter-year, DERA identifies the supplement (mark-up or gross margin) included in the consumer prices displayed on the website, i.e. the difference between the wholesale price of electricity and the prices on the elpristavlen.dk website. If the prices notified by the supply obligation companies contain a higher supplement, the Authority subsequently orders the companies to reduce the prices. Appeals On behalf of a number of suppliers of electricity, the Association of Danish Energy Companies has appealed against price control by DERA to the Energy Board of Appeal on the grounds that the Authority's method of identifying the price level for the market has no statutory authorisation. Furthermore, a major complaint relates to the fact that control is too rigid and thus detrimental to a well functioning market. The Energy Board of Appeal has yet to decide on the matter. Publication of prices on websites DERA has laid down procedures for electricity supply companies publishing prices, tariffs, discounts and terms. The rules entered into force on 1 September 2005. The rules are meant to help consumers understand prices and terms of different suppliers. Therefore, consumers are in a better position to exploit their right of free choice of supplier. Subsequently, there are requirements for electricity supply companies to publish their standard prices and terms on their own websites. Electricity supply companies must also report their prices to the consumer portals on the Internet designated by the Authority. The Association of Danish Energy Companies' portal www.elpristavlen.dk is currently the portal designated. On this portal (primarily) private consumers can compare the prices of different suppliers. New charge rates for all three energy sectors DERA has laid down charges for reminders, enforcement proceedings, disconnection etc., applicable until the end of 2006. The charges apply for all three supply areas so that consumers are exposed to uniform charges, irrespective of whether they are within electricity, natural gas or district heating. The charges will lead to simpler regulation and help ease administration for companies. When notifying terms and prices under the three supply acts, companies must state whether they apply the recommended rates. DERA recommends that companies apply the new charges so that a charge in accordance with the standard charges will be deemed reasonable according to the energy supply acts. Version 1.0 April 2006 • © Danish Competition Authority. | ||||||||||||||||||||||||||||||||||||||||||||
