Insights

25/04/2013

Feeling the jolt

On 20 March 2013, the Finnish government issued its much-awaited proposal for a new Electricity Market Act and an amended Natural Gas Market Act. It also sent to the parliament a separate supervision act.

The proposal implements the European Union’s third Electricity and Natural gas Directives to the Finnish legislation. It also includes numerous nationally prepared amendments and changes.

The proposed acts may have significant impacts for undertakings operating in the energy sector, including operators of electricity systems and energy producers (such as entrepreneurs developing wind power). The new legislation is intended to enter into force as soon as possible, most likely during the summer or fall 2013.

Different types of electricity systems

The proposed new Electricity Market Act’s terminology is brought into line with the EU Directive 2009/72/EC on rules concerning the internal market in electricity. The regulation of transmission system derives mostly from EU legislation and includes numerous changes. Other types of electricity systems recognised by the proposed act are high-voltage distribution systems (ex regional system operators), distribution systems and a separate new sub-category of closed distribution systems. 

Operations in closed distribution systems are subject to licence and most of the obligations of a system operator apply to such operators, too. The regulation of closed distribution system brings several electricity systems within geographically confined industrial, commercial or shared services sites within the scope of application of the proposed act.

Standard of delivery reliability tightened

The proposed act requires that power outages deriving from storms and heavy snow loads may not cause interruptions exceeding six hours in town plan zones or 36 hours in other areas in distribution systems. These requirements enter into force step-by-step during the next 15 years and, while the exact measures to be taken are left to the operators, in practice it is estimated that investments in excess of EUR 3.5 billion on, for example, underground cabling and construction of looped and back-up systems are required. 

This may have impacts on the Energy Market Authority’s methodology to regulate the reasonableness of pricing. 

Electricity system operator obligations

The content of several central obligations are also clarified. Some criteria used to assess the obligation to develop the system in the Energy Market Authority’s practice are now included in the preparatory materials. The transmission and distribution system operators are required to prepare and submit a specific development plan. 

A new general principle of impartiality clarifying the requirements of equitability and non-discrimination in electricity system services is included in the proposal. The distribution system operators are also obliged to prepare for fault situations by as swift repair works and returning to normal operations as possible. They are also obligated to inform customers of outages.

Obligations to connect electricity consumption and generation sites and to transfer energy now implement in full the third-party access principle deriving from Directive 2009/72/EC and EU caselaw.

Promoting wind power

The proposal includes changes tailored specifically to promote the position of developers of wind power and other renewable energy generation. 

A single service line may now serve several power plants instead of one, making it possible to connect several wind power parks through a single service line to the electricity system. This development lowers the actual connecting costs and thus investment costs of the developers. It also clarifies that the general obligations relating to electricity system operators are not applied in service lines serving several undertakings. 

Service lines may also connect power generation plants located outside the country borders to the Finnish electricity system, thus making it possible to construct wind power parks further off-shore.

Changes to electricity generation and markets

On the retail market side, the proposed act further promotes the position of electricity consumers by, for example, making the change of seller easier, clarifying rules on billing and rising the maximum amount of standard compensation payable due to outages.

On the wholesale market side, the proposed new act on Surveillance of Electricity and Natural Gas Markets Acts includes also provisions on the Energy Market Authority’s co-operation with other national and European authorities. National provisions regarding the EU Regulation on wholesale market integrity and transparency (REMIT) on monitoring and prohibiting market manipulation and insider trading at electricity and natural gas wholesale and derivative markets will be enacted separately.

Enhanced supervision and sanctioning

The most significant change in supervisory powers relates to the Energy Market Authority’s power to propose to the Market Court that it should impose fines up to 10 per cent of the undertaking’s relevant turnover for violations or neglects of certain provisions of the new acts. The Market Court’s decision imposing fines may be appealed to the Supreme Administrative Court. 

Fines may be proposed in, for example, instances of failure to fulfil the requirements of the central system operator’s obligations. It is noteworthy that in the future market manipulation and insider trading in wholesale markets may be sanctioned by a similar fining process, as well as possible criminal sanctions for individuals.

While proposals to impose fines are expected to be low in number, this possibility underlines the importance of complying with this sector-specific regulation. To enable effective supervision of compliance with the expanding regulation, the Energy Market Authority’s resources are increased.

Read more about the recent developments in Energy Market Authority’s regulation of reasonableness of pricing: Setting the right charge in electricity distribution.