Changes in energy market legislation – energy price caps

6. October 2022 | Reading Time: 3 Min

The Government has adopted Emergency Ordinance no. 119/2022 (hereafter “GEO 119/2022”) amending Emergency Ordinance no. 27/2022 on measures affecting end customers in the electricity and natural gas market during the period 1 April 2022 to 31 March 2023 (hereafter “Ordinance 27”) as well as other aspects of energy legislation.

These legislative changes were made in response to rising prices and imbalances in the energy market. Although at first glance Ordinance 27 would appear to protect end consumers by seeking to provide a degree of stability, the energy companies are of the opposite opinion, saying that the changes will create confusion and uncertainty as long as bills are issued on a daily basis, without it being possible to keep up with the new legislative changes, and that end consumers will be most affected, precisely because of the capping of energy prices.

Although the title of Ordinance 27 mentions “end customers”, electricity and natural gas follow a given path before reaching the end consumer. This new legislative act makes it obligatory for electricity generators, aggregated electricity generating entities, traders, suppliers engaged in trading, and aggregators trading quantities of electricity and/or natural gas on the wholesale market to pay a solidarity contribution or solidarity charge. The level of this contribution is to be calculated using the formula provided for in Ordinance 27 and will cover the sale of electricity for exports or intra-Community supplies.

The solidarity contribution is to be made to the Energy Transition Fund, which is declared by and paid for by the seller of electricity and/or natural gas. The energy Transition Fund is created to reconsider certain elements of the support scheme and ensure its uniform application by all energy market operators. What will the consequence of the creation of this energy transition fund be? The aim is to improve the functioning of the energy market and to ensure an adequate level of consumer protection.

To what extent is the end consumer protected by the introduction of these changes? Given that the wholesale price of energy is one of the components of the final electricity and gas bill paid by consumers, the Government has introduced price caps, with Ordinance 27 providing not only price capping/compensation on the basis of consumption but also the billing of differences in monthly consumption.

When GEO 119/2022 was adopted, it was economic entities engaged in energy trading that the Government had in its sights, and a number of measures impacting them have been legislated for, such as a) the obligation to report to the ANRE any bilateral contracts concluded on the wholesale market by direct negotiation within 2 working days from the date of their conclusion; b) any profit in excess of 2% will be considered a contribution, with traders not able to report profits higher than 2%; and c) the trading practice involving the creation of cascading higher prices that are much greater than production or purchase costs at which even traders have purchased energy from the market is actively discouraged (fines of 5% of the turnover are provided for in the case of successive sales of quantities of electricity or natural gas by traders and/or suppliers with trading activities undertaken with the clear aim of increasing prices).

The question remains as to how a “clear aim of increasing prices” will be established so that the ANRE will be able to apply the sanctions provided for in the ordinance. We expect to see maximum caution from the ANRE but also increased vigilance from energy traders.

The Government has also conferred on the Ministry of Energy the authority to give its representatives at the General Meetings of Shareholders of electricity generation companies in which it is the majority shareholder the power to request that economic operators prepare and approve, at their General Meetings of Shareholders, by 1 November 2022, their electricity generation sales strategy for the next 4 years.

The Federation of Associations of Energy Utility Companies (ACUE) and the Romanian Energy Suppliers Association (AFEER) reacted immediately to the adoption of Ordinance 27. They expect there to be a significant deterioration of the financial situation of economic operators in the field of energy supply and distribution as a consequence of the imposition of significant financial and economic losses not recognized under the reimbursement method or in the distribution tariff.

Source: Emergency Ordinance no. 119 of 1 September 2022 amending and supplementing Government Emergency Ordinance no. 27/2022 on measures affecting end customers in the electricity and natural gas market during the period 1 April 2022 to 31 March 2023, and amending and supplementing various other regulatory acts in the field of energy.

Legal Newsletter september 2022
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