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Competition and Consumer Authorities draw Conclusions on Electricity Market Opening



The Competition Council (CC) of Latvia has concluded a sector inquiry into the electricity market, while the Consumer Rights Protection Centre (CRPC) has evaluated offers and draft contracts by electricity traders, as well as has received the first complaints from consumers regarding the opening of the electricity market in Latvia.

The CC stresses – in general, the opening of electricity market can be evaluated positively. However, for the further successful development of the market it is necessary for consumers to actively use their rights to choose the best offer in order to promote the competition. Furthermore, in order to receive a broader and favourable offer, the state has to maintain an environment for undertakings to operate within an equal and fair competition.

While analysing the playing field, the CC did not recognize any restrictions for new market participants to enter the market, although, there are some significant risks that might reduce willingness of businesses to start trading the electricity. As the main risks for the equal competition the CC sees dominance of AS Sadales tīkls, as well as its excessive link to AS Latvenergo.

All the electricity traders must sign an agreement with AS Sadales tīkls, however, there is a lack of mechanism that protects interests of traders and AS Sadales tīkls is able to impose conditions in its favour.

It is entrusted to AS Sadales tīkls to maintain a database with required information for traders on clients, consumption, change of traders and other indicators. Nevertheless, in fact, operation with the very database is provided by AS Latvenergo, thus, guaranteeing itself access to data of all the clients of competitors and restricting the competition. Similarly, while operating within the market, AS Latvenergo is able to benefit from advantages because of its historical recognition. Despite the fact that a separate subsidiary company of AS Latvenergo – SIA Elektrum Latvija – is established thus formally eliminating the risks of cross-subsidization, in practice offers to consumers are prepared by AS Latvenergo, using customers’ confidence to the recognizable brand.

Experience of other countries in the context of the market liberalization allows to predict slow, but steady increase of the competition in favour of consumer interests. Since the price component in which the traders are able to compete is low, undertakings can compete for the choice of consumers with more favourable agreement conditions and with the quality of their services. Furthermore, the maximum awareness of consumers and a simple exchange procedure of traders is substantial. Especially consumer mobility can draw the greatest competition pressure to market participants of the electricity market.

Conclusions of the sector inquiry (in Lavian)

The CRPC has evaluated offers and draft contracts by all traders that offer electricity for households – AS Latvenergo (Elektrum), SIA Baltcom TV, SIA WIN Baltic, and SIA 220 Enerģija. Various inconsistencies to different regulations of electricity market and consumer rights protection were detected within all the draft contracts. Still, active negotiations both in writing and orally are currently ongoing with electricity traders in order to prevent such inconsistencies.

Examples of detected unfair terms within draft contracts:

  • the contract provision, which provides for inappropriate fee on early termination of a contract;
  • the contract provision, which provides for automatic extension of the contract without informing the consumer on expiry date of the agreement;
  • the contract provision, which provides penalty to the consumer if trader changes agreement terms in the first two year period of the electricity trading;
  • the contract provision, which provides too wide rights for trader to unilaterally terminate the contract;
  • the contract provision, which restricts rights of the consumer to submit a complaint regarding trader’s invoice.

While evaluating the draft contracts, the CRPC has found that there are many unclear and inaccurate contract provisions included.

Furthermore, the CRPC found that electricity traders do not include in their offers all the information required by the 21.01.2014. Cabinet of Ministers Regulation Nr.50 “Regulations Regarding the Trade and Use of Electricity” Paragraph 31 and 33. For example, actions by the consumer in order to terminate the contract, information on the settlement procedure, how and where meter reading is to be transferred, information on the review process of issues and complaints etc.

The CRPC highlights that during contract evaluation process it is impossible to predict all the situations when contract provisions may be applied. Therefore, even prima facie fair contract provision in certain situations and circumstances might be assessed as unfair. In this case, such provision is to be declared invalid and trader is not entitled to apply it in the particular situation or form.

During the past three months, the CRPC has received six written complaints, as well as almost 30 e-mails where consumers wanted a consultation regarding actions of the electricity trades and other confusions. Basically, complaints and consultations are related to problems to reach or communicate the trader, settlement procedure, meter readings and its transferring, as well as misunderstandings on receiving the most suitable offer and signing an agreement.