Prime Minister Vladimir Putin holds a conference on the development of the retail electricity market
4 may 2012
Vladimir Putin’s opening remarks:
Good afternoon. As you know, yesterday we discussed improvement of the business climate with our colleagues from the government and from the business community at the venue of the Strategic Initiative Agency. One well-known issue has to do with the electricity industry, or rather connection to power grids and its many related problems – use, price formation and tariffs. There are many costs and a great deal of burdensome routine that serve only to harm the economy. In effect, the balance of interests now favours the suppliers. This has largely distorted the market – one or two power supply companies have monopolised about 80% of the market in almost every region. In the estimate of the Ministry of Economic Development, this leads to overpricing for consumers by about 5%-7%.
We need to take effective steps to upgrade competition at the retail electricity market. Energy companies require stable, predictable conditions, steady and predictable demand and (this is obvious) guarantees for the return of investments, which are quite considerable. According to expert estimates, about three trillion roubles will be channeled into the development of generation and grids in the next three years. In the last few years we have somewhat improved the situation on the energy market.
I’d like to recall what we have done. We have strictly regulated price formation procedures for energy suppliers and established higher demands for the transparency of their operation. We have also ceased differentiating between consumers based on their peak hour/off peak hour usage. We have introduced a common hour to determine the volume of power at the wholesale and retail markets and eliminated the take-or-pay principle of electricity payments for minor and medium-sized consumers. All these measures are aimed at shutting out the unjustified increase in consumer prices. At the same time, at the conference that was organised last December at the Sayano-Shushenskaya hydro-electric power plant, we spoke about the need to take further steps in order to improve the situation at the electricity market.
Today, let’s talk about this and also about what has been done, about what you have agreed at the governmental level and in dialogue with the business community.
I mean the adoption of new rules for the retail electricity market. The rules regulate relations between energy suppliers and consumers and include some basic changes.
The main of them are as follows. First, the restrictions for changing suppliers are lifted for electricity consumers. Formerly, a change of electricity supplier or getting access to the wholesale market were very difficult. A consumer had to get approval from regional and federal regulatory bodies. In addition, the supplier had the right to charge the consumer a fee for switching to another supplier. As a result, in the past four years only 400 large, or rather the largest, corporate consumers succeeded in establishing direct relations with producers. Under the new rules, a consumer has no need to obtain various approvals anymore. Small and midsize consumers with capacities up to 1.8 megawatts do not need to pay any fee. Large consumers will pay no fees for switching suppliers starting in the beginning of the year. This will make it possible for a consumer to switch to a supplier with better terms. However, we should think about both energy suppliers and electricity companies. Large consumers plan their operations in advance and can take a timely decision.
Second, the rules establish a transparent procedure for installing and reading electricity meters. In the past the installation of modern meters led to lower electricity bills. Thus the suppliers were losing revenue and were not interested in installing modern meters. As a result, consumers experienced some hardships because suppliers sent them unfounded bills calculated on the basis of average consumption, take it or leave it. Under the new rules, the requirements for electricity meters are restricted, and power grid companies are responsible for installing electricity meters. I think this is fair, and those grid companies, those suppliers that fail to do this will simply be excluded from the market.
Third, consumers often received requests for additional payments from suppliers for various services, for instance, for installing, servicing and sealing metering devices. This is generally called imposed services. New rules directly ban imposed additional payments.
Fourth, suppliers shall lose their status as second-tier guaranteed supplier if they fail to meet the requirements of the legislation. In fact, the status of second-tier guaranteed supplier establishes the service territory in the hold of a single supplier. These companies were required to install modern metering devices and operate on the wholesale market even several years ago, but in most cases these companies failed to meet these requirements. In addition, some of these suppliers bought electricity from other suppliers and resold it to their consumers at a mark-up. Thus the consumer paid, in fact, double extra charge and could not switch suppliers. The new rules provide a solution for this problem too.
Finally, there is one more important point. Consumers will gain the ability to reduce the price of capacity. Formerly the calculation of capacity was taken at the hour of peak personal consumption, so it was unprofitable for consumers to optimise their electricity consumption schedule. Starting this year, the capacity calculation will be conducted in the hour of peak regional consumption – this will make it possible for enterprises shifting their power consumption from the morning and evening periods to the afternoon and night periods to save significantly. According to expert assessments, a consumer can save up to 20% on the final power bill.
When we take measures in favour of consumers, we cannot forget, as I said, the problems of electricity suppliers. These are primarily payment discipline and offenses in power accounting – these should be excluded. The new rules include significantly higher consumer responsibility for unaccounted consumption or consumption without a prior contract. In extreme cases, the offenders will pay fines that are triple their electricity bills. We hope that the new rules for the retail market will protect the interests of legitimate consumers and suppliers of electricity, and will make it possible to guarantee a high level of competition while maintaining reliable electricity supplies. In addition, it is necessary to create an efficient common payment system. It is important, including from the standpoint of improving investment attractiveness of electricity as a type of activity. Please report today on concrete proposals on this issue. Moreover, Mr Sechin (addressing Deputy Prime Minister Igor Sechin), I ask you and the Minister of Energy, all colleagues, to work on this issue in the short-term and report on the results of this work within ten days.
In conclusion, I want to stress, that we will doubtless continue our system-wide efforts to formulate convenient and civilised rules on the retail electricity market in close cooperation with the business community.
I want to thank the Ministry of Energy, all colleagues who have worked on this issue, Deputy Prime Minister Igor Sechin. I realize the scale of this work and the difficulties it involved, and still this task was accomplished on time (I asked to have it done by May, now it’s early May, so let’s say it was done on time).
And now let’s speak about this in greater detail.