Competition and the Electric Power Market

 Following a recent warning report from the Competition Council of Romania, the present fee system for the distribution of electric power in Romania, which is distributed differently according to geographical areas, negatively affects competition depriving the consumer of benefits, unjustified even by the security of the national power grid. The head of the Competition Council, Bogdan Chiritoiu, told us about the measures taken to protect consumers and ensure transparency in the electric power sector:

 “This analysis offers us an image of the electric power sector, and what we saw was the full half of the cup: the fact that the liberalization of the electricity market entailed a rise in competition and lower prices for industrial consumers, at least the ones that function under a liberalized system. Moreover, the market is still marred by a number of problems, such as the lack of predictability, you cannot conclude long term contracts, which is why our main recommendation is to improve the energy stock market, the instrument that transacts energy, which right now does not have enough facilities to allow for long term contracting.”

 For Romania, 2014 was the best year in the last decade in terms of electric energy production and export. Green energy also reached a record level. Therefore we asked if home consumers could expect a lower price. Bogdan Chiritoiu:

 “Unfortunately, I don’t see that happening. Home consumers already get electricity at a fairly low price. They get electricity from the cheapest providers, Nuclearelectrica, which sells electricity made in the sole nuclear power plant in Cernavoda, and Hidroelectrica, which manages big hydro power plants such as the one at the Iron Gates on the Danube. I can’t see how the price can go lower than that, considering. In Romania we have issues in the areas where there is no competition. The regulated area is not competitive, I mean the distribution prices, I’m referring to the conveyance of electricity to Transelectrica, and the fees for conveyance through the cables owned by various distribution companies throughout the country; that area is regulated by the National Energy Regulatory Agency. This is an area where we could see a drop in prices, in terms of conveyance and distribution of electricity.”

We asked if the electricity market was sufficiently regulated at this point. Bogdan Chiritoiu told us this:

 “There’s always room for improvement, we have to make sure that the fees in the monopoly area, the conveyance and distribution area, are as low as possible, to make sure there are no losses, and to create predictability in prices, to allow long term contracts, so that a large scale energy consumer may know what will come in a few years, not for about a year or less in the future. There may be an even simpler solution. We could sign contracts for a few years. We don’t do this in Romania right now, we force everyone to work through the stock market, which is a Romanian exception, that doesn’t happen in other countries. Why do we do this? Precisely because we’ve had problems in the past, suspicions of corruption, contracts for preferential prices, state-owned companies sold electricity cheaper to some intermediaries or industrial consumers, which is why the Romanian state forces everyone to deal on the stock market for a period of time. Once again, this is an exceptional situation, we may eliminate this obligation at some point, but for the time being, until the suspicions of corruption are clarified, and the market proves fair, these exceptional measures are needed.”

We recall that the Competition Council in Romania last year fined 53 entities, the fines amounting to a total of 185 million lei, about 42 million Euro, twice higher than in 2013, six times higher than in 2012. In 2014, the Competition Council drew the line on 21 investigations and other such activities in enforcing fair competition rules, of which 16 inquiries into possible violations of the competition law, two violations of contractual obligations, two sector investigations, and a survey. Eight of the investigations finalized in 2014 were on violation of the national and EU legislation. In 2014, the Competition Council had 180 court worthy cases. They accounted for 86% of the cases that the Council actually took to court, with 96% wins, by 3% higher than in 2013.