Energy 18 February, 2019 10:00 am   

Sakławski: All scenarios on energy prices are possible (INTERVIEW)

By the end of March, an amendment to a statute aiming to stop energy bill prices from going up in 2019 is to be prepared. Jan Sakławski, legal counsel, partner of the Brysiewicz i Wspólnicy office, stated in an interview with z that now “all scenarios are possible.” Minister of Energy Krzysztof Tchórzewski announced an urgent amendment to the Energy Price Act. He said that the act interfered too much with the rights of the Energy Regulatory Office. Is it really so?

Jan Sakławski: Yes, it is. The Energy Price Act, imposing some kind of muzzle on distribution system operators, virtually deprives the President of the Energy Regulatory Office (ERO) of the possibility to check what kinds of costs such enterprises incur and, in turn, what distribution tariffs are reasonable. The regulated nature of the energy market consisted in that the President of ERO checked reasonable operational costs of enterprises. Now, he cannot check whether the rates put forward by operators meet the statutory criteria for reasonable costs. The President of ERO has been set an upper price limit to which he must adapt. His discretionary power has been limited. After all, the President of ERO took into consideration guarantee of profit to these enterprises and the fact that they invest in infrastructure so they need means to do it. It is difficult for them to invest if their revenues are considerably limited. As a result, their statutory function becomes limited. On the other hand, if the regulator has no say because the price up to which they may allow operators to charge fees is blocked as a matter of statutory law, what is the regulator’s role in evaluating reasonable costs?

Tariff applications filed by companies last year in November are still waiting for the decision of President Bando. What can the President of ERO do in such a situation?

President Bando had some doubts as to the act even before work on it started. According to him, reasonable costs will have to be corrected. When the act entered into force, all he could do was turn to the legislator for urgent amendment to the act, which he did. The rights and obligations arising from the energy law, and indirectly from the directive concerning collective terms of the energy market, and the provisions of the Act amending the Excise Tax Act and other statutes contradicted one another. Basically, we had two legal regimes which the President of ERO was subject to. He had doubts as to which one to follow. To some extent, they oppose each other.

There is still one other aspect to tackle. Do you think that energy price compensations are state aid? Is it possible that it turns out to be prohibited?

Yes, it is. There are many concerns and doubts as to the compliance of such compensations with the EU law, related for instance with distribution fees. As a rule, state aid in the European Union is prohibited, but it is allowed under certain conditions. The government claims that the solution introduced by the act is not state aid. The first, fundamental question which Brussels will have to answer, and is probably in the process of doing so after talks with Poland, is: “is it state aid?” And if so, then: “is it allowed?” It is difficult to answer these questions without direct knowledge of the arguments of the European Commission. According to me, there is very high risk of recognising the introduced mechanisms as state aid. The government defends itself by saying that the act is not selective. It applies to all market players in the same way. Therefore, it does not distort competition on the market. Is it truly so? I have my doubts about it.

How does the uncertainty about the act impact the Polish market?

There is chaos in the field of price formation and it will not end until, firstly, the amendment takes effect and, secondly, a regulation is introduced indicating the weighted-average price of electric energy on the wholesale market and manner of its calculation. Therefore, we will not know what volume of compensations energy supply enterprises can count on under the act.

The amendment is to be ready by the end of March. What trade-offs will Poland have to agree to?

In my opinion, the interference will undoubtedly concern the rights of the regulator in terms of tariff shaping. The government will be eager to strengthen these rights. It is difficult to take a stance on the mechanism defined in the act as this is a solution so non-standard and innovative that all scenarios are possible. It seems that the act should put an end to using threshold values, that is the maximum level to which prices can be raised. It might be worth introducing additional criteria for the regulator that could allow them to adapt prices under the energy law so that they do not burden Poles too much. Nevertheless, this is coping with effects of some events on the energy market, not with their causes. I think that we will come back to this topic many a time.

Interview by Piotr Stępiński