Increase of Electricity Prices in the Liberalization Era

Increase of Electricity Prices in the Liberalization Era

The short- and long term consequences of the electricity market liberalization are not yet known to the consumers. The methodology of the determination of the tariffs for electricity consumption and the consumers’ rights to defend themselves in case of electricity price increases remain uncertain also. However, the role of Public Power Corporation S.A. ( DEI S.A.) is well known as it is the biggest supplier of electricity in Greece owned by the Greek State. DEI’s main aim has been to keep prices low and to protect its dominant position on the Greek market. This goal though, is not in accordance with the current rules of free market that mandatory apply for the supply of electricity in the European Union. According to these rules, each Member State has to take measures in order for new entrants to be able to sell electricity at prices which are competitive, and allow them to survive by covering their costs and acquiring an acceptable profit.

Despite the latest developments pursuant to the Greek Law on the liberalization of the electricity market, the price catalogues on which DEI bases the charges to its customers for electricity consumption are not valid if they are not approved by the State a priori. The tariffs for selling of electricity to certain customers, the so called eligible customers, constitute an exception to that rule. They are called eligible customers because they have the right to select their electricity supplier freely. Since 1 July 2007 all consumers, i.e. industrial who consume big amounts of electricity, but also small consumers like household customers, are considered to be eligible customers. DEI has the right to apply or to amend its tariffs for the selling of electricity without the prior state approval and after an agreement with the respective customers. The latter can then decide if they are going to conclude a contract with DEI or with another supplier. Nevertheless, DEI continues until today to apply its tariffs only after state approval, thus violating the respective provisions of national and European law. This behaviour caused European Commission’s reaction against Greece. Electricity is considered to be a product and therefore its supply conditions must be subject to negotiation between the parties. The enhancement of competition in this sector and the supply by different companies can lead to a decrease of prices for certain consumer categories and to an improvement of service quality.

Particularly with regard to the tariffs for household customers, DEI changes its tariffs without a prior agreement with the customers. The question arises in this case, whether the customers are obliged to accept a unilateral electricity price increase or whether they can refuse to pay arguing that the increase is not justified and thus illegal. One should expect that in the near future electricity prices will increase legitimately to certain extend, as the prices are very low for some customer types in Greece (especially small customers). This will be the result of the tariffs becoming independent from the prior state approval which keeps the levels low and hinders the entry of new suppliers in the market as new entrants, e.g. producers and suppliers of electricity are not able to cover their costs when selling at the current low prices applied by DEI. On the other hand, the potential unilateral and arbitrary tariff increase by DEI or other suppliers will lead to conflicts with their customers.

In case of conflict, the Greek Courts and the Competition Authority will be responsible to assess the legality of price increases. In other Member States the courts have already dealt with such cases which draw the interest of consumer associations. In Germany, it was accepted that the consumers can oppose unjustified tariff increase by their supplier. According to German jurisprudence, the consumer has the right to refuse the payment of the increased amount and to pay only the sums that were to be paid before the revision. At the same time, one can find its way to the court and request the recognition that the respective increase has been implemented unreasonably and in violation of the legal provisions by the supplier. One shall ask that the court determines what a fair increase should be after taking into consideration competitive tariffs of comparable suppliers within and outside the country. The court will control all data that led to the increase, which the supplier is obliged to submit, and has the power to oblige the supplier to reimburse to the consumer the amounts illegally paid since the beginning of the liberalisation of the electricity supply market.

A similar control can take place in Greece as well. Until a court ruling on such a potential conflict, the customer is not obliged to pay the increased electricity price and the supply company has the burden of proof that the new price is justified. DEI has taken action against the companies Aluminiun of Greece S.A. (an aluminiun producer) and Larko (a ferronickel producer) requesting outstanding amounts for their electricity consumption. Also in these cases and pursuant to a party’s request, the court’s assessment could include the methodology of tariff determination by DEI which has to apply tariffs acceptable in a liberalised electricity supply market and according to criteria set by law.

Dr. Markela Stamati, LL.M., Senior Associate
Energy & Competition Law Team

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