SUPPLIER OF LAST RESORT – EUROPEAN PRACTICE AND LEGISLATION

Promoting loyal competition and easy access to various suppliers is of paramount importance to Member States in order to allow consumers to take advantage of the options provided by the liberalised internal electricity market, in line with European legislation. Currently in Bulgaria, high-voltage and medium-voltage non-household consumers purchase electricity at freely negotiated prices. From the beginning of June, amendments to Bulgarian energy legislation have been initiated, which provide for yet another group of non-household consumers – of the low-voltage network – to enter the free electricity market.

These consumers do not have market experience and most probably, they have many diverse questions among which, for instance, are: what will happen if they fail to choose electricity supplier within the legally prescribed periods, or if, in the course of time, an emergency situation with their provider prevents the supply of electricity negotiated. For cases like that the European practice and Bulgarian legislation have put in place the figure of a supplier of last resort, with whom you can familiarise yourself in the publication herein.

A supplier of last resort – functions

Directive 2009/72/ЕC on the general rules for EC’s electricity market (the Electricity Directive) introduced also the figure of a Last Resort Supplier in the context of the universal service so that consumers would be protected upon supplier’s bankruptcy.

The revised Electricity Directive 944/2019 (Article 27) did not alter this concept. Member States should guarantee that all household customers and small enterprises take benefit of the universal service, namely, of the right to have electricity supplied to them at a certain quality on their territory, at competitive, easily and clearly comparable, transparent and non-discriminatory prices. To ensure universal service provision, Member State may appoint a supplier of last resort. However, even this new Directive did not give a concrete description of the responsibilities and functions of this supplier of last resort.

The majority of Member States have introduced a ‘Supplier of Last Resort’ (SLR) mechanism, covering various functions, the broadly applied among being the one that protects consumers in case of supplier’s bankruptcy or withdrawal of supplier’s license. This protection is considered to be SLR ‘universal function’ even though it is not explicitly laid down in the Directive.

The figure below shows other SLR functions in some European states, apart from the one mentioned earlier, which is the most widespread.

Source: ACER Market Monitoring Report 2018 –Consumer Empowerment Volume

How are SLR prices determined?

European legislation does not provide guidance as to the manner in which SLR prices are to be determined by Member States. Two main approaches are used, based on who assumes the initiative:

Top-down approach, where the national regulatory authority or the legislations defines SLR tariff;
An approach, where the initiative comes from the supplier.

SLR offers a price to the national regulatory authority seeking its approval, or follows a predefined framework.

For example, SLR prices may be directly linked to the average day-ahead market price of a specific electricity exchange, published at the website of the electricity market operator (Latvia). Alternatively, the framework may determine that SLR price is legally linked to the exchange spot price and a predefined add-on, approved by the regulator (Denmark). In other Member-States, SLR prices have to be approved or adopted by the regulator, sometimes under a competitive selection procedure (the UK).

In the majority of European states, SLR prices are, on average, higher than prices paid by consumers serviced by other providers. This can mean that SLR is compensated for taking on additional tasks. Besides, there is no Member State where the energy sold by SLR is cheaper than a reference standard product. ACER finds this to be a good practice since it stimulates consumers to move towards a supplier, different from SLR. If SLR price is lower than the average market price, there will be a risk of market distortion because it discourages consumers to terminate relationships with SLR and look for a supplier in the free market. However, in some Member States SLR prices depend on the specific case as they are not determined by the national regulator and/or normative documents, but rather by SLR itself. Other Member States have no experience with SLR as yet because no such supply mode has been applied.

Figure: SLR energy price compared to conventional energy prices in EU MSs and Norway – 2018