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Annual Report 2005April 2006

ContentsThe open market needs a helping hand 2The work of DERA Tasks within individual sectors4Other authorities in the energy areaNew legislationTopical themes The liberalised energy market8Identification of barriers to better functioning marketsFuture-oriented initiativesThe electricity sector An outline of the electricity sector14Supply obligationPublication of prices on websitesErrors and omissions in exchanging meter dataSubmission of information by energy companiesThe natural gas sector An outline of the natural gas sector22Incentive regulation for natural gas distribution companiesInvoicing instructions for natural gasThe district heating sector An outline of the district heating sector26Random reviews of the district heating sectorPrice caps on heat from waste incineration plantsNecessary costs of buying strawNew charge rates New charge rates for all three energy sectors31International cooperation Framework32International activities of the DERA SecretariatDERA and the DERA Secretariat DERA35The DERA SecretariatUser surveyThe Energy Board of AppealBudget and Finance 40Members of DERA 42Danish Energy Regulation Authority · Annual Report 2005

The open market needs a helping handTransforming the energy market into an efficient market with effectivecompetition as anticipated by liberalisation of the energy sector is acomplicated and long-term project. Developments in 2005 clearlydemonstrate that there is still a need for DERA’s continued active, forward-lookingsupervision of monopoly companies in the Danish energysector.Uffe Bundgaard-JørgensenChairman of DERAIn the 2005 Annual Report, DERA focuses on some of the challengesfacing the energy market during the year. The Annual Report describesthe most important initiatives and activities carried out or launched bythe Authority as part of its endeavours to support liberalisation. Finally,we reveal plans for our efforts in 2006.The protracted matter of reporting metering data from grid companiesto trading companies is a good illustration of the fact that the marketcannot regulate itself. Errors and omissions in data have distorted thecompetitive framework for the commercial trading companies andnecessitated close follow-up by DERA in order to help solve problemsand enable the market to function.Developments in 2005 have also shown that various characteristics of theretail market for both electricity and natural gas mean that the marketscould work better. The theme section of the Annual Report points to variousreasons which also emphasise the importance of DERA taking anactive part in the market so that consumers do not pay too high prices.A modern DERA cannot exist in isolation; it must be in constant dialoguewith its surroundings – the authorities, sector organisations, energycompanies and consumers. A new element this year is that we haveallowed a large commercial customer to have a word in our annualreport. We have asked Dansk Supermarked A/S to describe how, as asignificant user, they have experienced liberalisation of the electricitymarket. Their views on the market confirm that there is still some wayto go before the electricity market for commercial customers is fullydeveloped.In connection with regulation by DERA of the monopoly enterprises,access to appeal against decisions by DERA to the Energy Board ofAppeal is very important. For various reasons, for some time during2005 the Energy Board of Appeal was not in a position to process asmany cases as usual. As many of the pending cases are matters of principlefor the future regulation of the energy markets, the lack of a decisionhas led to an unfortunate insecurity for market players.2 Danish Energy Regulatory Authority · Annual Report 2005

In 2005, as previously, the DERA Secretariat was involved in internationalcooperation. In this regard we are trying to promote work toimprove access to transmit electricity to and from Denmark as well asinitiatives to make the retail market for electricity and natural gas moreefficient.After the general election in Denmark in February 2005, DERAchanged from being the responsibility of the Minister for Economicand Business Affairs, and we are now under the Minister for Transportand Energy. 2005 also brought a new structure to the Authority’sSecretariat. The Secretariat function is now carried out by the Centerfor Energy, a unit in the Danish Competition Authority and DERA continuesto receive very efficient secretariat services.In 2006 DERA will continue its work to create the best possible frameworkfor the energy sector and the liberalised energy markets. We willdo this by taking initiatives, partly inspired by the contribution fromDansk Supermarked A/S, which can help create the necessary transparencyin the markets. We have identified lack of transparency as asignificant barrier between the situation as it stands now and a wellfunctioning,liberalised market. In 2006 we will also direct our attentiontowards the district heating sector. In mid-2006 we expect the firstconclusions of the sample survey of the sector which was under preparationat the end of 2005. In addition to reporting on the activities for2005, the matters we have decided to address in our Annual Report alsoherald future tasks and initiatives for the Authority.Numerous challenges and barriers face a well-functioning energy market.Efforts by DERA alone cannot ensure fully efficient markets in theenergy sector. In this perspective DERA will work for more extensiveand stronger cooperation with other relevant authorities, sector organisationsand enterprises. We have come a long way in 2005. In 2006 andsubsequent years we will intensify this dialogue.Uffe Bundgaard-JørgensenChairman of DERADanish Energy Regulation Authority · Annual Report 20053

The work of DERAThe overall work of DERA involves supervising the monopoly companiesin the energy sector. The Authority must help ensure that consumers– households and enterprises – are charged reasonable andtransparent prices under reasonable, uniform and transparent terms ofsupply. This includes environmental considerations.DERA regulates the infrastructure of the electricity and gas sectors aswell as access to this infrastructure. For the supply obligation of electricitycompanies, the Authority is also responsible for price control,partly on the basis of requirements for security of supply. Furthermorethe Authority carries out benchmarking of the regulated enterprises.If it is a matter of transparency, DERA regulations can also apply forareas subject to competition, e.g. publication of prices and terms.DERA’s competence is laid down in the three energy supply acts – theElectricity Supply Act, the Natural Gas Supply Act and the DistrictHeating Supply Act – as well as the Energinet.dk Act.Tasks withinindividual sectorsThe electricity sectorThe Electricity Supply Act is the foundation for regulation of the electricitysector. The Act lays down the framework for how consumer protection,environmental concerns and security of supply can be achievedin the liberalised electricity market. The object of the Act is to promoteefficiency in the electricity sector, partly by using benchmarking. Thesector comprises about 130 enterprises.Liberalisation of the sector has necessitated a new company structurein the sector. Today, enterprises are therefore divided into companiesfor generation, grid, system operation, transmission, and trade. At thesame time, a number of new players have appeared on the market.DERA’s responsibilities are limited to the parts of the sector whereelectricity companies have been granted a monopoly. These are gridand transmission companies. Grid companies are subject to specialregulations. If a company is part of a larger group, the company mustbe separated as an independent unit in order to apply regulations appropriately.The regulation activities cover the companies’ prices and thustheir income, control of their new investments, and measures to ensureopen access of generating companies to the grid. The regulation coversboth the distribution grids and the regional transmission grids.Suppliers of electricity with a supply obligation deliver electricity to4 Danish Energy Regulatory Authority · Annual Report 2005

customers who do not use the open market: households and smallerenterprises. These suppliers are subject to price control, on the basis ofthe market prices. The regulation is described in more detail in the section“supply obligation”.The natural gas sectorThe Natural Gas Supply Act is the foundation for regulation of the naturalgas sector. Regulation covers transmission, storage and distributioncompanies. There are only few companies in the individual submarkets.The sector accounts for a total of ten companies.DERA supervises that the companies supply gas at reasonable pricesand on reasonable terms. This applies for enterprises which have beengranted a supply obligation to supply customers who do not want tochange to a new supplier of gas. The Authority also supervises accessto the transmission grid and that access to gas storage facilities is at reasonableprices and on reasonable terms.Finally, the natural gas distribution companies are regulated. Sinceearly 2005, the companies have been subject to revenue cap regulation,which puts a ceiling on the companies’ income. The companies are alsosubject to efficiency requirements which encourage the companies tobe more efficient with consequential lower distribution prices.Energinet.dkIn 2005 the state-owned company Energinet.dk was formed as a resultof the energy-policy agreement in 2004 by merging Eltra, ElkraftSystem, Elkraft Transmission and Gastra. At the same time, two subsidiarycompanies were established: Eltransmission.dk A/S andGastransmission.dk A/S. The merger took place retrospectively from 1January 2005.Energinet.dk has overall responsibility for the electricity and gas systemin Denmark. The company is to contribute to organising the energymarket so that competition can act in the best interests of society andconsumers. The company owns the overall gas transmission grid andthe electricity grid. In other countries, some of the tasks carried out byEnerginet.dk are the responsibilities of the country’s supervisoryauthority.In accordance with the special regulations for Energinet.dk, DERAsupervises some of the company’s activities.Danish Energy Regulation Authority · Annual Report 20055

The district heating sectorThe district heating sector is separate from the other two sectors. Theliberalisation which has taken place in the natural gas and the electricitysectors has not taken place for the heating sector. It is uneconomicto transport district heating over long distances. This means that thereis no interconnected transmission grid for district heating, except in theCopenhagen area, the Aarhus area, the Esbjerg area, and the Vejle-Fredericia-Kolding area (TVIS). Thus, the district heating sector is constitutedby a large number of local monopolies. The sector comprisesabout 600 enterprises.DERA ensures that supplies are at reasonable and transparent pricesand on reasonable terms. According to the District Heating Supply Act,district heating must be sold at the cost of production and distribution;the “non-profit” principle. In this context, DERA decides which necessarycosts can be included in heating prices.Other authoritiesin the energy areaThe work of DERA borders up to other authorities which also havecompetence in the energy area – the Minister for Transport and Energy,who is ultimately responsible for the energy area, the Danish EnergyAuthority, the Energy Supplies Complaint Board, the Energy Board ofAppeal and the Danish Competition Council.The department of the Ministry of Transport and Energy is responsiblefor contact with the Danish Parliament, including the Parliament’sStanding Committee on Energy, and it is responsible for legislation forthe area etc.The Danish Energy Authority under the Ministry of Transport andEnergy establishes the correct framework and tools for the energy area,ensures security of supply of energy, and makes sure that developmentsare appropriate in an economic, environmental and health context.The Energy Supplies Complaint Board and DERA are provided withsecretariat services by the Danish Competition Authority. TheComplaint Board deals with private complaints about purchase andsupply of services from energy supply companies. The ComplaintBoard was set up on 1 November 2004 as a private complaint boardunder the Consumer Complaints Act (Lov om forbrugerklagenævn).The Energy Board of Appeal processes appeals against decisions by theauthorities in individual cases and appeals regarding misinterpretationof the legislation.6 Danish Energy Regulatory Authority · Annual Report 2005

The Competition Council is responsible for ensuring that liberalisedenterprises comply with the competition legislation. If this is not thecase, the Competition Council can intervene. At the end of 2005 theCompetition Council has intervened in price fixing by Elsam A/S. Justas for DERA and the Energy Supplies Complaint Board, the DanishCompetition Authority acts as the secretariat for the CompetitionCouncil.No new legislation significant for DERA was adopted in 2005.New legislationIn 2005 the Authority issued two new executive orders, one on publicationby electricity supply companies of prices, tariffs, discounts andterms, and a second on publication by natural gas companies of prices,tariffs, discounts and terms (executive orders nos. 770 and 771 of 8August 2005).In February 2006 a bill was presented to the Danish Parliament onamendments to a number of provisions in energy legislation, includingthe Electricity Supply Act, the Natural Gas Supply Act, and the DistrictHeating Supply Act. The bill is mainly a follow-up to the energy policyagreement on energy-savings efforts of 10 June 2005, but it also authorisesDERA to impose daily or weekly fines as a coercive measure.DERA’s request for authority to issue default fines is described in moredetail on page 16 of the Authority’s Annual Report for 2004.Danish Energy Regulation Authority · Annual Report 20057

Topical themesThe liberalisedenergy marketsOver recent years, the Danish energy market has been liberalised sothat ordinary market mechanisms have become increasingly influentialon the market. Well functioning markets help ensure that society’sresources are used as efficiently as possible and that the goods andservices supplied to consumers are no more expensive than necessary.In this way well functioning markets promote welfare and growth.Well functioning marketsWell functioning markets help ensure that society’s resources are usedas efficiently as possible and that the goods and services supplied toconsumers are no more expensive than necessary. Well functioningmarkets are characterised by effective competition between suppliers,and good market information for customers which enables them tomake rational consumer choices.Effective competition helps ensure that enterprises actively marketthemselves to customers in the market and competitive pressure fromthe other players in the market makes enterprises develop new productsand production processes, services etc. at the lowest possiblecost. This ensures the most efficient production and turnover ofgoods and services.Without effective competition, enterprises will be able to achievehigher returns than normal for the industry. These higher returnscould, for example, be paid to the owners as dividends or trickledown to the costs of the enterprise as higher salaries, luxury offices,or similar.Good market information allows consumers to act in the market. Itrequires easy access to correct information about products and producers,low costs of information acquisition, good transparency andthe ability to compare products, prices and terms etc. so that there isconfidence in the market.In connection with liberalisation of the electricity andIn connection with liberalisation of the electricity and natural gas markets,statutory requirements were placed on separation of companiesbetween commercial activities (production and trading companies) andmonopoly activities (distribution and transmission companies). Thishas opened the door for new players (trading companies) in the commercialareas.8 Danish Energy Regulatory Authority · Annual Report 2005

Most trading companies are still owned by grid companies. Therefore,with the statutory requirement for separate companies, they are often inthe same group as their primary supplier and only superficially explorethe market for new suppliers.An important goal for DERA is to help develop well functioning andefficient markets in the energy sector. Partly through initiatives whichcontribute to establishing the best framework for competition, for exampleby ensuring free and equal access to the infrastructure (transmissionand distribution grid), and partly by helping ensure transparency ofprices, tariffs and terms of supply etc., which enables consumers to actin the markets and make rational choices of products and suppliers.Another important role for the Authority is direct regulation of theareas where competition cannot be established or where competitionhas not yet been sufficiently developed.In 2005, partly with initiatives regarding exchange of meter databetween grid companies and suppliers of electricity, DERA contributedto improving the framework for a well functioning market. In 2005 theAuthority also made decisions which increase the transparency of electricityand natural gas markets, partly through requirements regardingpublication of suppliers’ prices, tariffs and terms of supply, and partlythrough setting invoicing regulations for natural gas companies.However, there are indications that there remains a need for initiativesto ensure well functioning markets.Salary distortion in the energy sectorIn a report published in autumn 2005, the Danish Economic Councilconcludes that competition in the Danish energy market is poor and theproblems will only become worse in future years. The report shows thatsalary distortions (i.e. the differences in salary between employees indifferent sectors carrying out the same type of work and with the sameseniority etc.) in the energy sector are very high and this may be anindication of a lack of competition.Consumers rarely change supplierIn the electricity area, all Danish consumers have had a free choice ofsupplier since 1 January 2003. Very few of the smaller electricity consumerswith non hourly-metered consumption of less than 100,000KWh/year, primarily private households, have decided to take advantageof this opportunity. These are usually called template (or load-pro-Danish Energy Regulation Authority · Annual Report 20059

Topical themesfile) customers because their consumption is billed in accordance withthe same yearly template for all customers in contrast to the large customerswhose consumption is calculated hour by hour.Figure 1Percentage of hourly-meteredelectricity customerschanging supplier60%50%40%30%20%10%0%Source:Association of Danish Energy CompaniesFigure 2Percentage of template customerschanging supplier10%8%6%4%2%0,0%2003200320042004Jan - June 2005Jan - June 2005Source:Association of Danish Energy CompaniesThe larger hourly-metered consumers of electricity, i.e. consumers ofmore than 100,000 kWh/yr, have taken advantage of the free choice ofsupplier to a much greater degree. As many as 48 per cent of thehourly-metered electricity consumers changed supplier in 2003 and 21per cent changed in 2004, cf. figure 1.Template customers and hourly-metered customers generally had thesame electricity prices up to 1 January 2005 and these were controlledby DERA. The reason customer mobility has been so different for thetwo customer segments, template customers as opposed to hourlymeteredcustomers, is primarily that template customers have nowherenear the same advantages of an open electricity market as hourlymetered(larger) customers. This applies to both lower electricity pricesand the savings potential from changing supplier.In 2003, two per cent, or about 60,000 template customers chose tochange electricity supplier, while only one per cent of template customerstook advantage of the possibility in 2004, cf. figure 2. Note thatthe ‘y’ axis is different from figure 1.The data for the natural gas sector is not as comprehensive as that forthe electricity sector. It should also be noted that liberalisation of thenatural gas area started later than for the electricity area and thereforeit may be too early to assess the effects of liberalisation. It is unlikelythat the full impact on consumer and supplier behaviour has yet madeitself apparent.There are two groups of natural gas consumer. Hourly-metered customersare customers with an annual consumption of more than300,000 m 3 natural gas, while template customers (not hourly metered)are the remaining customers with lower consumption.About 30 per cent of hourly-metered customers decided to change gassupplier during 2004. In comparison just less than 0.25 per cent of templatecustomers changed supplier, cf. the table below:Change of gas supplier Hourly-metered customers Template customersPercentage of consumerschanging supplier in 2004 30 0.24Source: Danish Competition Authority. The percentages are exclusive of intra-group changes of supplier.10 Danish Energy Regulatory Authority · Annual Report 2005

Hourly-metered customers have had free choice of supplier since 1 July2000, whereas the market for template customers was not liberaliseduntil 1 January 2004. However, this does not fully explain the large differencein the number of changes of supplier. The figures reveal that,just as in the electricity market, when template customers change supplierthey do not benefit from lower prices or material savings in the liberalisedmarket in the same way. Otherwise there would be a larger numberof changes as most customers use natural gas for heating and thereforeit represents a relatively large proportion of the annual budget.As described above, the retail markets for electricity and gas couldwork better for template customers, i.e. primarily private consumerswho generally only take advantage of the free choice of supplier to avery limited extent.Identification ofbarriers to betterfunctioning marketsOne reason is undoubtedly lack of information about the open electricityand gas markets. So far, advertising and information campaignsfrom suppliers to template customers have been very limited, despitethe fact that it is now three and two years respectively since the electricityand gas markets for template customers were liberalised.Studies show that a large proportion of template customers know aboutthe possibilities to change supplier. That the majority still do notchange supplier may be because they do not perceive the possiblefinancial benefits as sufficiently attractive. Ignorance about other suppliersor the practicalities in changing supplier may also discouragecustomers from changing.A factor significant to the lack of mobility of template customers istherefore limited financial incentive to change electricity supplier. Themarket is asymmetric, so the financial significance is small for theindividual consumer, but it is very important for the income of the companies.A template customer who lives in a flat for example, will typicallyconsume 2,000 kWh of electricity per year. Such a customer willtypically be able to save about DKK 0.03 per kWh by changing fromthe absolutely most expensive supplier to the absolutely cheapest, correspondingto an annual saving of just DKK 60. For a company with100,000 customers, however, DKK 0.03 per kWh means that annualincome is increased by about DKK 6 mill.DERA has analysed the influence of the price of supply obligation oncustomer mobility. In a well functioning end-user market, customersshould be more inclined to change from an expensive electricity sup-Danish Energy Regulation Authority · Annual Report 200511

Topical themesplier than from a cheap supplier, but this has not been the case in 2003-04. DERA’s study has demonstrated that it is very random whether templatecustomers subject to high or low electricity prices decide tochange to another supplier. Template customers do not, therefore, seemto make decisions on the basis of price signals from the market.With regard to the price of electricity, transparency is also limitedbecause the price of electricity itself only accounts for about 20 per centof the total price for template customers. The remaining 80 per cent ismade up of VAT, taxes and a grid payment. This means that a templatecustomer achieving a saving of 10 per cent by changing electricity supplier(a typical saving from changing from the absolute most expensiveto the absolute cheapest) only saves 1 1 /2 - 2 per cent of the total endprice. This conceals the market’s price signals and reduces the templatecustomer’s incentive to change supplier.There is a similar situation for consumers of natural gas. Although theprice of natural gas represents a larger proportion of the total end-userprice than is the case for electricity, VAT, taxes and grid payments stillaccount for more than 50 per cent.There can also be problems for commercial customers:Future-orientedinitiativesIn 2006, DERA will continue to work on initiatives to promote structuraldevelopment and price formation in the energy markets for thebenefit of enterprises and households.In the electricity area DERA will formulate invoicing rules to improveconsumers’ possibilities to understand the prices and terms set by differentsuppliers in order to make it easier to see whether items on theinvoice relate to the annual bill or the on-account bill. This initiativeaims at alleviating one of the problem areas raised by Dansk Supermarkedin their article.The Authority will also initiate work on a new model for benchmarking,which can provide the basis for efficiency requirements for theregulation year 2008.For natural gas, the Authority will improve transparency by preparingnatural gas price statistics to provide consumers with better informationabout suppliers’ prices and terms. In order to promote the efficiency ofthe natural gas market, the Authority will conduct an analysis of thepayment structure in the natural gas transmission system.12 Danish Energy Regulatory Authority · Annual Report 2005

Dansk Supermarked A/S’ experienceas a user of the open electricity marketby Simon Lodberg, Dansk Supermarked A/SAs one of Denmark’s larger consumers of electricity,we had high hopes that the open electricity marketwould lead to lower electricity prices and reducedtransmission costs as a result of grid companies’opportunities for rationalisation/greater efficiency.We also expected that invoicing from grid companieswould be standardised and simplified.The reality has been somewhat different!In the first year following the reform, electricityprices were moderate and price levels were primarilybased on electricity generated at Swedishand Norwegian hydroelectric power stations.The change in the CFD supplement* has unfortunatelymeant that Danish electricity prices areincreasingly based on the high prices in northernGermany because of the developments in prices foroil and gas.Moreover, there is the further increase resultingfrom CO 2 allowances which gives rise to a doublepayment because the CO 2 costs are both includedin the electricity-exchange price and it is paid asCO 2 tax.Costs of transmission have also been much higherthan expected.From the start of the energy reform there have beenvery large price differences between the individualgrid companies and the expected reductions incosts have not been achieved, amongst other thingsbecause the energy authorities have set revenuecaps which are very favourable for grid companies.In addition to this is the considerable increase in thePSO supplement** during the period.The very favourable revenue caps for grid companieshave contributed to retaining the currentstructure in the grid area and electricity consumershave therefore not obtained the expected reductionin grid costs because the rationalisation benefitshave not been realised.Under the old “non-profit” principle, from thepolitical perspective it has been possible to controldevelopments in the electricity area. This controlpossibility disappeared when the legislatorsreleased the electricity companies’ tied-up reservesof an estimated DKK 20 - 25 bn. without ensuringthat these funds were transferred to their rightfulowners; that is electricity consumers who hadfunded the reserves, primarily through paymentsfor energy. Instead, the majority of the funds wereinvested in superfluous broadband networks. Afew grid companies have, however, spent some ofthese funds on reducing grid tariffs.As Dansk Supermarked A/S is a nationwide company,we receive electricity bills from about 50 differentelectricity companies. These bills are vastlydifferent from each other. Grid companies haveoften added costs for the system, transmission,PSO, grid and taxes together as one or moreamounts. There should be a requirement that allitems on the bill are broken down, but the greatestbenefit of rationalisation for consumers would beachieved if electricity companies had uniforminvoicing.Liberalisation of the energy area has therefore farfrom resulted in an open electricity market, partlybecause the legislators have mixed energy policywith environmental policy and economic policy andbecause the entire transmission side still, in principle,runs on the “non-profit” principle without anydemand on more efficiency and uniform invoicingthrough control of the monopoly.* The CFD supplement is the difference between the Danish andNorwegian wholesale price on the electricity exchange.**The PSO (Public Service Obligation) supplement covers statutorypayment for research, development and promotion of environmentallyfriendly energy etc.Danish Energy Regulation Authority · Annual Report 200513

The Danish Energy Authority has granted a number of companies asupply obligation licence. This means that the individual company hasa duty to supply electricity to all customers in their area at preset prices.Supply is to customers who have not taken advantage of the open electricitymarket. DERA controls companies with a supply obligation. Thenumber of companies and their size are described in the table below.Trading Number Customers % Amount supplied %Supply obligation companies 37 97 50Other trading companies 17 3 50Source: Association of Danish Energy Companies, Dansk Elforsyning – Statistics 2004, as well as estimates by DERAGrid companiesThe Danish Energy Authority has granted a licence to the electricitycompanies which own the grid in a specific area, and thus the monopoly,to transport electricity in their area. There are three groups of gridcompanies:• Energinet.dk, which owns the overall 400 kV grid of more than 6,000 km,• 12 regional transmission companies, which own grids with a capacityof 150 – 30 kV of about 9,000 km,• About 120 local distribution companies, which own grids with acapacity of 20 – 0.4 kV with a total length of more than 150,000 km.Energinet.dk is responsible for overall system operation. This meansthat Energinet.dk is responsible for ensuring sufficient electricity in thegrid.Energinet.dk is a state-owned company responsible for ensuring thatthe technical side of the electricity sector works, including ensuringsecurity of supply and overall maintenance of the electricity grid.Energinet.dk is organised as a special public-sector company (SærligOffentlig Virksomhed), and the system operator activities must be nonprofitmaking.As the system operator, Energinet.dk administers the regulations pertainingto grid companies’ public obligations. Energinetnet.dk also hasauthority to require that the owners of the transmission grids make specificinvestments and maintain the electricity grid. In return for this,Energinet.dk pays the owners of the grid for making capacity availablefor the system operators.16 Danish Energy Regulatory Authority · Annual Report 2005

The 12 regional transmission companies transport electricity from themain transmission grid to the distribution grid.The 120 distribution companies are the final link to the consumers.They are therefore responsible for measuring the consumption of electricityat the individual customer as well as collecting taxes and chargesfor the state. If the consumer is a customer with a trading company witha supply obligation, the distribution company will collect the totalinvoice, including the price of both transport and the electricity. If, onthe other hand, the customer receives electricity from a trading companywithout supply obligation, the customer will usually receive twoseparate invoices, one from the trading company and one from the distributioncompany.In 2005 DERA decided several cases on revenues for grid companies andthe regional transmission companies. The companies’ prices were frozenin real terms at the level notified at 1 January 2004. The legislation isvery clear on this point, but it means that the companies which had notincluded all the relevant costs in their prices seem to have problems.New regulation on price control of the supply obligation areaOn 1 January 2005 an amendment to the provisions in the ElectricitySupply Act on DERA’s regulation of the price of supply obligation electricityentered into force. The prices for supply obligation electricityapply for one quarter at a time and the suppliers of electricity with asupply obligation must notify these to DERA before the prices enterinto force. Customers buying supply obligation electricity are primarilyprivate households and smaller enterprises.Supply obligationWhen companies report their prices, DERA is required to check thatthe prices do not exceed the market price level for corresponding consumersegments and terms of supply. If the prices reported are abovethe market price, the Authority must immediately order the companiesinvolved to reduce their prices.The market for supply obligation electricityIn the opinion of DERA, the prices notified for supply obligation electricitycannot be considered as an expression of the price level for themarket for all the prices. There are several reasons for this:• in reality, the individual suppliers of supply obligation electricity arelocal/regional monopolies within their area,• customers are not very mobile because the financial benefits fromDanish Energy Regulation Authority · Annual Report 200517

changing supplier are very small,• the taxes on electricity conceal the price signals from the market,• it is difficult for customers to obtain information about the market asit is difficult to compare different electricity products, i.e. productswith different terms and supply times,• lack of knowledge about suppliers – see the topical theme articles,• and there are considerable barriers to new suppliers entering the market,for example it is difficult to establish a profitable customer base.In order to conduct the price control required of the Authority, DERAhas therefore developed a method which can provide a real expressionof the price level in a competitive market.The DERA market price modelThe DERA price model is based on the prices offered by various suppliersacross the areas. These prices are made available to DERA on thewebsite, Elpristavlen.dk.On the basis of the prices on Elpristavlen.dk, each quarter DERA identifiesthe supplement (mark-up or gross margin) included in the consumerprices displayed on the website, i.e. the difference between thewholesale price for electricity and the prices on the Elpristavlen.dkwebsite. If the prices notified by the supply obligation companies containa higher supplement, the Authority orders the companies to reducethe prices.Supply obligation prices and spot prices40 øre/kWh35 øre/kWh30 øre/kWh25 øre/kWh20 øre/kWhQ1 2005 Q2 2005 Q3 2005 Q4 2005Notified priceApproved priceNord Pool priceNote: The graph shows the notified/approved supply obligation prices excluding taxes etc.(i.e. only the price of the energy itself is shown).18 Danish Energy Regulatory Authority · Annual Report 2005

AppealsOn behalf of a number of suppliers of electricity, the Association ofDanish Energy Companies has appealed against price control byDERA to the Energy Board of Appeal on the grounds that theAuthority’s method of identifying the price level for the market has nostatutory authorisation. Furthermore there is a complaint that control istoo rigid and is therefore damaging for a well functioning market. TheEnergy Board of Appeal has yet to decide the matter.DERA has laid down rules on how electricity supply companies are topublish prices, tariffs, discounts and terms. The rules entered into forceon 1 September 2005.Publication of priceson websitesThe rules are to help consumers understand prices and terms of differentsuppliers. Consumers are therefore better able to exploit their rightof free choice of supplier. There are requirements that electricity supplycompanies publish their standard prices and terms on their ownwebsites. In the unlikely event that an electricity supply company doesnot have a website, it can publish its prices and terms in another way.Electricity supply companies must also report their prices to the consumerportals on the Internet designated by the Authority. TheAssociation of Danish Energy Companies’ portal www.elpristavlen.dkDanish Energy Regulation Authority · Annual Report 200519

is currently the portal designated. On this portal (primarily) privateconsumers can compare the prices of different suppliers.The publication rules should be considered in the perspective of theregulations concerning consumer protection issued by the DanishEnergy Authority. These contain requirements regarding the content ofthe contracts between electricity suppliers and consumers, requirementson disclosing price increases, requirements on methods of payment,etc. DERA deals with complaints about non compliance withthese regulations.DERA has issued similar regulations for the natural gas area. The regulationsare described below in the section on the natural gas sector.Errors and omissions inexchanging meter dataA major electricity supplier for Danish agriculture, DLE has previouslycomplained that several grid companies have not submitted meterdata to the company’s operator. These data form the basis for DLE’sbills to its customers (see Annual Report 2004, page 15). These problemsrestrict competition in the area as they put trading companies suchas DLE at a competitive disadvantage compared with the grid companies’own trading companies.With this background, in December 2004 DERA asked a firm of consultantsto analyse the problems connected to exchanging meter databetween grid companies and electricity suppliers. Partly as a result ofthis report (a summary of which is available in English on DERA’swebsite), in mid 2005 the Authority authorised the Secretariat to workwith the Association of Danish Energy Companies in implementing anumber of short and long-term initiatives to ensure proper exchange ofmeter data in the future. The Association of Danish Energy Companieswas asked to carry out monthly monitoring of all errors and omissionsby electricity companies and send the results to DERA. Furthermorethe supervision aspects of meter and market requirements were to beclarified, together with the possibility to impose default fines. Finally,the possibility of making the entire process of changing supplier morestraightforward was to be investigated.Further to the decision, a number of initiatives were also implementedwithin the sector. The sector is trying to improve exchange of meterdata between electricity companies’ different IT systems. Another goalrelates to quality assurance of the basic data on electricity consumers(i.e. the consumption data etc. required by an electricity supplier inorder to administer a consumer). Finally, the sector is working inter-20 Danish Energy Regulatory Authority · Annual Report 2005

nally to ease electricity suppliers’ access to the customer number (aftagenummer)of consumers, which is to be disclosed when changingsupplier.DERA will continue to monitor the exchange of meter data very closely.The statistics received so far indicate that the number of errors andomissions is falling, but there is still much work to be done before allthe technical problems have been solved and the management systemsof all the electricity companies follow up effectively all errors andomissions in meter data.Investigations after the turn of the year 2006, when many meter readingstake place, have revealed an error rate for DLE’s customers of 2.6per cent. This is much better than at the turn of 2005, when the errorrate was 33 per cent. However, DERA still considers an error rate of 2.6per cent as unsatisfactory, and clearly exceeds the tolerance limit of 1per cent previously reported by the Association of Danish EnergyCompanies.DERA has contacted the enterprises with most errors in order to reducethe error rate.Regulation of the individual sectors is very much based on information,particularly financial information, which companies submit themselvesto DERA. The Authority sets the framework for what information isrequired. The regulation depends on the reliability and quality of theinformation submitted to DERA. Much of the information requires anauditor’s report, although not all. However DERA is of the impressionthat companies do not always do enough to ensure that information isof the required reliability and quality.Submission ofinformationby energy companiesThe Authority has taken this issue up with, amongst others, the Instituteof State Authorized Public Accountants in Denmark and sector organisationsin the energy area.Danish Energy Regulation Authority · Annual Report 200521

The natural gas sectorAn outline ofthe natural gas sectorThe Danish natural gas sector includes production, transport and tradingin natural gas. Production takes place in the North Sea. Pipelinessend the gas ashore at Nybro. From here the gas is transported throughthe Danish transmission and distribution grid to Danish customers.Danish production of natural gas exceeds domestic consumption, andtherefore a significant proportion of gas production is exported toGermany. A small amount is also exported to Sweden. At the sametime, individual suppliers and large consumers buy gas from Germany,and therefore there is also a small amount of imported natural gas.From the beginning of 2004, all Danish natural gas customers have hada free choice of gas supplier. There are currently about ten suppliers onthe Danish gas market. The sector has a turnover of about DKK 3 bn.and employs in the region of 750 people.Supply obligation price including subscription, VAT and taxes (2005)Forsyningspligtpriser, inkl. abonnement, moms og afgifter10 DKK/m 38 DKK/m 36 DKK/m 34 DKK/m 32 DKK/m 30 DKK/m 3JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberOpening the market has meant restructuring the old natural gas companies.The regional natural gas companies are divided into distributioncompanies, responsible for distribution; supply obligation companies,responsible for supplying customers not wanting to change to a newsupplier; and trading companies.Similarly, DONG A/S has been split up, and it continues to play a dominantrole in the Danish natural gas sector. DONG has separated itstransmission activities into the Gastra company, now part ofEnerginet.dk, which is owned by the Danish state.The gas activities of the DONG group now cover production, distribu-22 Danish Energy Regulatory Authority · Annual Report 2005

tion and storage services in separate companies. There are also otherenergy activities, including electricity.Incentive regulationfor natural gasdistribution companiesNatural gas distribution companies transport natural gas from the transmissiongrid out to consumers.From the start of 2005, natural gas distribution companies were subjectto revenue cap regulation. DERA implements this revenue cap, whichlays down what the companies can earn in a given period.Previously, the companies were subject to non-profit regulation wherethe costs of the companies, no matter how high, were covered by thetariffs, while it was not possible for the companies to make a profitfrom their activities. This type of regulation gave the companies nodirect incentive to reduce costs.On 1 January 2005 the regulation was changed to revenue cap regulation.This regulation provides a direct incentive for natural gas distributioncompanies to reduce costs. This is because a natural gas distributioncompany which can maintain lower costs than the authorisedincome (revenue cap) may keep half of the difference. However, if thedifference is more than 10 per cent of the revenue cap, the companymay only keep one-quarter of the difference.Under the previous non-profit regulation and the initial development ofthe Danish natural gas market, companies built up debts of about DKK10 bn. because the energy prices at that time and the companies’ customerbase could not ensure viable commercial operation of the companies.Interest and repayment of these debts is a significant element inthe annual revenue caps issued by DERA.Efficiency requirementsDERA can impose an efficiency requirement on natural gas distributioncompanies. The efficiency requirement is composed of a generalrequirement for all companies, and a company-specific requirementbased on a comparison of companies’ operating costs.In October 2005, DERA decided to impose on all companies an annualgeneral efficiency requirement of 1.5 per cent for the regulationyears 2006-2009. One company is also subject to an annual companyspecificefficiency requirement of 1 per cent, i.e. a total efficiencyrequirement of 2.5 per cent.24 Danish Energy Regulatory Authority · Annual Report 2005

However, for the regulation year 2005, DERA decided not to impose anefficiency requirement on the companies as the Authority deemed thatthe companies could not reasonably be expected to implement any costreductions when the efficiency requirement could not be set before mid2005, cf. the Act.DERA has issued regulations on publication by companies of pricesand terms. These regulations entered into force on 1 September 2005.The regulations stipulate that companies must publish their prices andterms on their own websites and report their prices to Energinet.dk’sgas-price guide at www.gasprisguiden.dk.Invoicing instructionsfor natural gasDERA is now about to lay down regulations on invoicing and specificationof costs by natural gas companies. The regulations will be stipulatedin dialogue with the sector, consumer representatives, and otherstakeholders.The invoicing rules aim at enhancing simplicity and clarity so that theindividual items on invoices are clear, comprehensible and checkableby the consumer. The rules are to apply for all natural gas companiesand they will aid transparency regarding prices and terms in the naturalgas markets. Improved transparency aids a well functioning natural gasmarket.Danish Energy Regulation Authority · Annual Report 200525

The district heating sectorAn outline of thedistrict heating sectorAbout 60 per cent of dwellings in Denmark are heated from public supplyof hot water - district heating. Public supply is primarily in areaswhere dwellings or businesses are situated close together, i.e. in citiesand towns. The remainder are heated by individual systems such as naturalgas, oil, or biofuel boilers.District heating consumers can either receive heat from a heating stationor from a combined heat and power (CHP) station.Establishment and operation of the grid as well as sales of district heatingare usually organised under one enterprise. In smaller areas this willoften be a consumer-owned company, while in larger towns the enterpriseis often owned by the municipality. So, there is a large and veryvaried district heating sector in Denmark. There are about 600 districtheat supply facilities. By far the majority generate both electricity andheat for public supply.Fuel consumption by the district heating sector in 2003 was as follows:Natural Gas 29%Waste 24%Coal 23%Biomass 18%Oil 7%About 75 per cent of district heating production is at CHP plants.Combined production of electricity and heating at CHP plants meansmore efficient fuel consumption compared with production of the twoproducts at separate plants. The 55-60 largest enterprises supply 60 percent of district heating. Total sales of heating amount to about DKK 13-14 bn. per year. It has not been possible to ascertain the precise numberof people working in the sector, but DERA estimates the figure atbetween 2,000 and 3,000.Heating production is managed by the planning provisions in theDistrict Heating Supply Act, one of the objects of which is to promotecost effective and environmentally friendly use of energy for heating. Inorder to meet these objectives, municipalities can place demands on thetype of fuel to be used. Similarly, municipalities can obligate consumersto link up to the district heating grid.Danish District Heating conducts annual price surveys. The average26 Danish Energy Regulatory Authority · Annual Report 2005

annual cost of heating a house of 130 m 2 with annual heating consumptionof 18.1 MWh in the last five years has been between DKK12,700 and 13,000.Random reviews of thedistrict heating sectorEnterprises have a statutory duty to report to DERA any changes inprices, budgets, accounts, and other price-based data. Furthermore,changes in articles of association, terms of supply and other aspects ofimportance to the relationship between the enterprise and its customersmust also be notified. At least once a year, the approximately 600 districtheating plants report changes to DERA’s heating register.The National Audit Office of Denmark is concerned that DERA has notcomplied with the requirement in the District Heating Supply Actregarding setting up a public register of prices fixed by district heatingplants, and that it has not prepared periodic analyses of the income andexpenditure of district heating suppliers. Lack of resources has meantthat it has not been possible to review systematically financial statementsfrom all the district heating plants every year. Therefore, theAuthority has decided to initiate sample reviews of the reports fromdistrict heating suppliers. The sample reviews will be initiated in 2006.The sample review will concentrate on budgets and accounts. This isbecause full notification of prices and the basis for these prices is oftenoverlooked by district heating suppliers.DERA will also intensify work to make reports from heating suppliersto the heating register more accessible for consumers. An IT solution isbeing developed to promote transparency of prices and terms of supplyin the area.Price caps on heatfrom wasteincineration plantsWaste incineration plants are very important for the supply of districtheating. Up to 20 per cent of district heating comes from these plants.Joint production presents special problems for price setting.Waste incineration plants provide three products: waste incineration,electricity and heat. Heat producers cannot charge more for heat fromtheir consumers than the necessary costs, and therefore calculationsmust be performed to distinguish between costs associated with collectionand incineration of waste, costs linked to electricity generation,and costs arising solely from heat production.The former Gas and Heat Price Committee developed the substitutionprinciple in the 1980s as a tool for a practical and manageable solution28 Danish Energy Regulatory Authority · Annual Report 2005

to the problems in allocating the costs. This principle has formed thefoundation for the way the Committee dealt with cases on price settingfor heat from waste incineration plants. In the absence of price caps,this principle has also been applied by DERA.With the amendment to the District Heating Supply Act in 2000, theMinister was authorised to set regulations on a price cap and on costallocation for waste incineration plants.In mid-2005, DERA sent to hearing a draft executive order on settingprice caps and maximum prices for services from waste incinerationplant. According to the proposal, the price caps will act as a supplementto the substitution price principle, and therefore, in practice it will beespecially important in cases where it is difficult to set a substitutionprice or where such a price does not even exist.The price cap itself must be notified by DERA. The first price caps areexpected to be announced on 1 October 2006, to take effect from 1January 2007. The price cap is calculated on the basis of heating productionprices reported by enterprises to the Authority.Three price caps are set which reflect the fuel waste incineration substitutes,if an equivalent amount of heat were produced from a plantbased on natural gas, a fuel other than natural gas (biomass), or heatfrom central CHP plants.Under the District Heating Supply Act, amongst other things DERAhas to determine what necessary costs are. In heating plants based onstraw, it is often the owners themselves who supply the necessary strawfor incineration at the plant. Sellers and buyers are the same group ofpeople.Necessary costs ofbuying strawUsually, the “arm’s length” principle applies for costs so that prices aredetermined by a third party. If this is not the case, it will therefore benecessary to assess the prices on the basis of market prices. However,there is no real market for straw with a clear market price which can beused as the basis for this assessment. Therefore, the Authority haslooked at other ways of assessing the market price.The sector organisation Danish District Heating represents the greatmajority of district heating plants (including straw-based plants) andfor many years it has collected and published the prices of memberplants’ purchases of different fuels.Danish Energy Regulation Authority · Annual Report 200529

In guidelines to agricultural straw producers, the Danish AgriculturalAdvisory Service has made a “cost plus” calculation, which has beenpublished. These guidelines show that Danish District Heating’s averageprices are more or less in line with the calculations in the guideline.In the absence of a better basis, DERA considers that the fuel statisticsfrom Danish District Heating for straw can be used in assessing thenecessary costs in cases where the owners themselves supply the strawrequired.30 Danish Energy Regulatory Authority · Annual Report 2005

New charge rates for all three energy sectorsAll three sectors.Standard charges for 2005 og 2006 (DKK)Letters of reminder* 100Recovery notification* 100Disconnection visit* 375Reconnection in normal business hours 375Payment scheme* 100Enforcement proceedings, external 330Card for customer meter readings, reminder 65Visit to read meter 270Final bill when moving – customer reading 65Final bill when moving – visit to read meter 270Removal of meter 600Reinstallation of meter 600Extraordinary meter reading with invoice 200Copy invoice 35Examination of meter on site 335Delivery of meter 165DERA has laid down charges for reminders,enforcement proceedings, disconnection etc.,applicable until the end of 2006. After this,they can be reassessed on the basis of negotiationswith the sectors. The charges apply forall three supply areas so that consumers areexposed to uniform charges, irrespective ofwhether they are for electricity, natural gas ordistrict heating.The charges will lead to simpler regulationand ease administration for companies.When notifying terms and prices, under thethree supply acts, companies must statewhether they apply the recommended rates.DERA recommends that companies apply thenew charges. That is, a charge in accordancewith the standard charges will be deemedreasonable under the energy supply acts.If they so notify, companies may also demandthe actual costs. However they must be ableto validate the relevant circumstances whichcause the higher costs than the standardcharges.The charges are the result of work by a groupof employees from the DERA Secretariat andrepresentatives from the three supply sectors.The working group made detailed calculationsof the cost basis for the charges in the energyarea directed towards the companies' consumersin order to set and standardise theaverage reasonable costs for the charges.*Exempt moms (VAT)Danish Energy Regulation Authority · Annual Report 200531

International cooperationFrameworkAt a meeting in December 2005, EU energy ministers debated developmentsin the electricity and gas markets under the heading “Betterregulation”. The meeting emphasised the increasingly important role ofnational regulative authorities in the development of the markets. Inparticular, the ministers pointed to the need for close cooperationbetween the regulatory authorities, partly because energy trading andenergy transport must take place without barriers and across nationalborders.The opinions expressed are the basis for international cooperationbetween the national regulatory authorities. This occurs within theorganisations CEER, ERGEG and NordREG, and this cooperation iscurrently undergoing great development.CEER – the Council of European Energy Regulators – is an associationestablished by the European regulatory authorities in the energy area.The object of the Council is to help better integrate the European energymarket. Through exchanges of experience and common projects, theCouncil works to ensure that the EU energy market regulations areimplemented reasonably uniformly. Only in this way will the barriers toenergy trading and energy transport across borders be minimised.ERGEG – the European Regulators Group for Electricity and Gas – isan advisory body established by the European Commission. In additionto the Commission, the EU’s regulatory authorities take part. Theobjective is to help the Commission, within the framework of EU legislation,to ensure as uniform implementation of the EU energy marketregulations as possible.In principle, therefore, the CEER and the ERGEG have the same overallobjective – and to a large extent the same membership. While theCEER is a voluntary cooperation, the ERGEG is based on a CommissionDecision. The two organisations coordinate their work.Usually, the CEER completes basic analyses and carries out the earlyphases of the work on new initiatives, while the ERGEG makes morespecific proposals for the Commission.NordREG is a cooperative body between the Nordic energy regulatoryauthorities. The need for a special Nordic body arises primarily fromthe traditional close cooperation on energy between the Nordic countries.Secondly, Nordic energy ministers have adopted very ambitiousplans on realising one common Nordic energy market. This was mostrecently mentioned in a declaration from the Nordic Council of Min-32 Danish Energy Regulatory Authority · Annual Report 2005

isters in June 2005, which talks about the vision as a borderless Nordicmarket with efficient trade with surrounding countries.The activities in the CEER, ERGEG and NordREG were extremelyextensive in 2005. It has therefore been important that the Secretariatset precise priorities for the efforts in more than 30 working groups sothat energies are concentrated exactly where they will reap the greatestcontribution to realising the Secretariat’s overall goals.International activitiesof the DERA SecretariatSpecial focus has been on work on:• common guidelines for payment for transiting electricity• convergence of principles for tariffing electricity transmission• common guidelines for managing bottlenecks in the electricity grid.Completing this work is vital for making the European wholesale marketfor electricity more efficient. Specifically, this work can help developelectricity trading between Denmark and Germany. It could alsohelp remove the frequent barriers in electricity trading betweenDenmark and Sweden, when the Swedish transmission system operatorcompany restricts transfer capacity in order to maintain a single commonprice level throughout Sweden, despite internal bottlenecks in thetransmission grid. This work is expected to continue in 2006.The nature and scope of information made available to the market bythe transmission system operator companies is also crucial for a wellfunctioning wholesale market. The same applies for the harmonisationbetween countries of the role in the market of these companies.Therefore, the Secretariat has worked hard on these issues in both theCEER/ERGEG and in NordREG. In autumn 2005, the Nordic Councilof Ministers assigned NordREG to submit proposals for common definitionof the core tasks of the system operator transmission companiesby 1 March 2006.One of the most important tasks for the Secretariat in the gas area hasbeen involvement in international benchmarking of gas transmissioncompanies. The Secretariat considers this an important contribution tofuture economic regulation of transmission activities for both gas andelectricity.International focus has so far been on integration of the electricity andgas markets at wholesale level. In 2005 work began to concentrate onterms for making the retail markets more efficient. The Secretariat hasDanish Energy Regulation Authority · Annual Report 200533

also taken part in this work. This may provide inspiration for makingthe Danish energy market more efficient. In the ERGEG a workinggroup has published reports on changes of supplier, transparency ofprices, and consumer protection. On the basis of these reports, over thenext few months, proposals for common “good practice” in the countrieswill be made. NordREG has prepared a comprehensive report onchanging supplier. This is currently being followed up in analyses ofhow to work towards a single common Nordic retail market for electricity.This work has been assigned to NordREG by the Nordic Councilof Ministers.34 Danish Energy Regulatory Authority · Annual Report 2005

DERA and the DERA SecretariatWith the change in ministry after the general election in February 2005,DERA moved from the Ministry of Economic and Business Affairs tothe Ministry of Transport and Energy. Secretariat services are managedby the Danish Competition Authority, which belongs under theMinistry of Economic and Business Affairs, see below.DERA processes and decides leading cases in the energy area. Thismeans cases of significance for society or cases with economic/financialimportance. DERA normally meets once a month, except in July.The Authority’s decisions are published on DERA’s website:www.DERA.dk, once the parts involved have received the decision.The table below shows the number of cases DERA processed in 2004and 2005. The cases are divided into sectors, and cases related to electricitycontinue to fill most of the Authority’s programme. Case processingfor cases requiring a decision takes on average 7.8 months. In2004 the average was 7.9 months. In connection with restructuring theSecretariat in autumn 2005, initiatives were implemented to reduce thetime taken for case processing, see below.2004 2005Decision Information Decision InformationDERAMissionDERA works to secure efficientand transparent energymarkets in Denmark.VisionDERA is to be a visible andcompetent regulatory authoritythat acts from an overallperspective and on the basisof positive dialogue with theenergy industry, its users, andstakeholders.Electricity 30 11 27 6Natural Gas 5 3 11 0District Heating 12 1 13 2Cross sector 10 9 3 13Total 57 24 54 21The DERA Secretariat prepares cases for decision by the Authority.The Secretariat makes decisions in accordance with the practices andguidelines stipulated by DERA.The DERA SecretariatThe DERA secretariat function is administered by the DanishCompetition Authority. Secretariat services are provided from theAuthority’s Center for Energy, which is a unit in the Authority’s organisation.The Center cooperates closely with another unit in theAuthority which is responsible for the parts of the energy sectorexposed to competition as well as the administrative area.During a change in the Secretariat in the autumn, Finn Dehlbæk joinedthe Danish Competition Authority as deputy director general, and hisDanish Energy Regulation Authority · Annual Report 200535

area of responsibility includes DERA. The Secretariat also received anew head of division, partly to enhance the legal quality of the work ofthe Authority.The Secretariat is now divided into three areas:Finn Dehlbæk, deputy directorENR 1 ENR 2 ENR 3Nils Jan Hansen, head of div. Niels Fugmann, head of div. Merete Rasmussen, head of div.Electricity, including regulation Natural gas, international work Heating, legal quality assuranceof transmission and grid com- etc. in the natural gas area and and assessments, the Energy Boardpanies. Energinet.dk (electricity), Energinet.dk (natural gas), of Appeal, including appeals statinternationalwork as well as supply obligation electricity, istics, preparation of defence etc.,issuing replies to hearings and development/analyses and complaints and appeals, EU comallocatingcases etc. GASELVA munity law and the Energy suppliesComplaint BoardAs part of the restructuring, the Secretariat has implemented a numberof new initiatives to improve the legal quality of decisions etc.2004 2005New cases 801 760Decided cases 873 797Cases being heard 541 504This table shows the number of cases processed in 2004 and 2005. Theaverage processing time for cases dealt with by the Secretariat has fallenfrom 4.2 months in 2004 to 4.0 months in 2005. Targets have beenset for case processing times and these are regularly tightened in orderto achieve the shortest possible case processing times.In 2005 a survey of users/stakeholders was completed by the DERASecretariat.User surveyThe user survey was carried out by an independent consultancy bureauwhich telephoned 45 enterprises and six lawyers, all of whom had beeninvolved in energy cases decided in the preceding year.36 Danish Energy Regulatory Authority · Annual Report 2005

Each user was asked 14 different questions. A total of 75 per cent werepositive in their assessment of the Secretariat’s work in 2005. This isless than 2004, but remains satisfactory. The results of the survey areavailable at the website www.DERA.dk, and the main results are reproducedbelow.Number of positive replies in % 2004 2005Case processing time 67 56Reason for decision 82 71Information issued during case 80 85Telephone contact 91 86Reply to calls 95 91Level of service generally 83 80Comprehensibility of letters 80 78Legal competence 74 81Financial competence 68 68Knowledge of sector 81 71Ability to explain law/regulations 69 70Presentation of the facts of the case 75 71DERA responsiveness and courtesy 87 78Result of case 74 58Overall (average of all replies) 79 75There is a great deal of satisfaction with the legal competence of thearea. Users are less satisfied with the Secretariat’s ability to explainenergy law.Satisfaction fell in 2005 for case processing time and reasons for decisions.The Authority expects that the extra resources and enhancedlegal competence arising from the organisational changes carried out inthe autumn will help improve these areas.Satisfaction with the responsiveness and courtesy regarding meetingswith the Secretariat fell by nine percentage points. Many users wouldlike to be able to have more meetings and more dialogue with theSecretariat.This may in part be due to the many changes in the law and regulationswhich have taken place in the energy area. The Secretariat will thereforespend more resources in future on meeting users.Danish Energy Regulation Authority · Annual Report 200537

The Energy Boardof AppealAmong other things, the Energy Board of Appeal processes appealsagainst the decisions by DERA. The parties to a decision have fourweeks from the decision to bring an appeal before the Board of Appeal.The table shows processing of appeals against DERA’s decisions by theEnergy Board of Appeal.In 2005 a total of 44 cases were brought before the Energy Board ofAppeal. This is considerably less than the previous years. The reductionreflects the fact that a number of appeals by consumers, which previouslywere dealt with by the Authority, have been transferred to theEnergy Supplies Complaint Board. Decisions by the Board of Appealare final.Number of cases 2004 2005Brought before the Board of Appeal 65 44Decided by the Board of Appeal 54 12Of theseUpheld 32 6Annulled/amended/remitted 12 3Concluded without judgment 5 2Dismissed by the Board of Appeal 5 1Rate of cases reversed 22% 27%The rate of cases reversed for 2005 is a little higher than the rate for2004. However, only few cases were decided by the Board of Appeal in2005. The rate of cases reversed could change if more cases were decidedby the board of Appeal. The rate of cases reversed is calculatedas the total number of cases annulled/amended/remitted divided by thetotal number of cases decided less cases dismissed.38 Danish Energy Regulatory Authority · Annual Report 2005

Budget and FinanceIn accordance with the three energy acts, the costs of DERA's work arepaid by the enterprises subject to supervision. The detailed regulationsare in the executive orders for the individual sectors.The key figures in the operating accounts are listed in the table:DKK ‘000 2004 2005Salaries 16,927 17,521Other operating costs 13,418 10,914Total expenditure 30,345 28,435The accounts for 2005 are based on records of staff hours spent on caseprocessing for electricity, natural gas and heating. These records areused to allocate the Secretariat’s expenses to the three energy sectors.On 31 December 2005, there was a staff of 31 in the Secretariat, handlingcases involving the three energy acts.Expenses also include remuneration for the members of DERA (aboutDKK 3,600 per meeting). Remuneration may also be paid on an hourlybasis when members represent DERA in relevant situations. In 2005,total expenditure on remuneration was just over DKK 547,000.“Other operating costs” include amounts spent on travelling, projects,and the Legal Adviser to the Danish Government. In addition there isjoint expenditure (with the Competition Authority) on, for example,rent, IT, switchboard, and canteen. In 2005, the Secretariat's share ofthe joint expenses amounted to 30 per cent.40 Danish Energy Regulatory Authority · Annual Report 2005

Below is the statement of energy fees to finance DERA’s activities:DKK ‘000 Electricity Gas Heating TotalAccumulated unspent feesb/fwd -228 -3,975 -2,081 -6,284Fee income 2005 20,990 8,189 6,427 35,606Total available for 2005 20,762 4,214 4,346 29,322Expenditure in 2005 15,917 6,637 5,881 28,435Accumulated unspent feesc/fwd 4,845 -2,423 -1,535 887In 2005, DKK 35,606 thousand was collected for the DERASecretariat, and this is added to accumulated overspending from previousyears of DKK 6,284 thousand. A total of DKK 29,322 thousandwas available in 2005. Total expenditure amounted to DKK 28,435thousand, leaving unspent fees of DKK 887,000 to carry forward to2006. There is no requirement to balance fees charged and expenditureby the DERA Secretariat in a specific year, but they should be equalledout over a four-year period.An amendment in the executive orders during 2006 is expected to meanthat the deficits in fees will be recovered at the end of 2006 and feescollected will be adjusted to the actual activity in the three energyareas. The changes are being held within the current financial frameworkfor DERA, but they will result in a different allocation betweenthe energy areas.Danish Energy Regulation Authority · Annual Report 200541

Members of DERADERA was established in 2000 as an authority acting without instructionsfrom the Minister and independent of sector interests and otherauthorities.DERA comprises a chairman, six members, and two deputies appointedby the Minister for Transport and Energy for a period of four years.The members of the Authority represent expert knowledge in legal,economic, technical, environmental, business and consumer matters.The Authority currently has the following members:Uffe Bundgaard-JørgensenMSc (Economics), PhD,director (chairman)Jacob Erik HolmbladMSc (Economics),director (vice chairman)Preben SchouBusiness economist,director42 Danish Energy Regulatory Authority · Annual Report 2005

Anders LarsenMSc (Economics),deputy directorJens Sejer SørensenMSc (Economics)Lone JohnsenMA, directorUlla Neergaardassociate professor,PhD, lecturer incommercial lawJørgen AamandBSc (Engineering),Business economist,directorTorben RiberMSc (Engineering),directorDanish Energy Regulation Authority · Annual Report 200543

The Danish Energy Regulatory AuthorityAnnual Report 2005This publication is available from:Danish Energy Regulatory AuthorityNyropsgade 30DK-1780 Copenhagen VPhone: +45 72 26 80 70Fax: +45 33 32 61 44E-mail: et@dera.dkwww.dera.dkThis publication can be found on the website of the Ministry of Transportand Energy www.trm.dk and at the website of the Danish EnergyRegulatory Authority www.dera.dkNo. of copies: 200ISBN printed Danish edition 87-7029-347-3ISBN electronic Danish edition 87-7029-346-5ISBN printed English edition 87-7029-350-3ISBN electronic English edition 87-7029-348-1Photos: Scanpix, Photo Gallery and DONGMinistry of Transportand EnergyFrederiksholms Kanal 27DK-1220 Copenhagen KPhone: +45 33 92 33 55Fax: +45 33 12 38 93E-mail: trm@trm.dkwww.trm.dkDesign: Poul SchouPrinted in Denmark, April 2006 by Gershof Grafisk ApSWeb: Schultz ITTranslation: GlobalDenmark a/sDanish EnergyRegulatory AuthorityNyropsgade 30DK-1780 Copenhagen VPhone: +45 72 26 80 70Fax: +45 33 32 61 44E-mail: et@dera.dkwww.dera.dk44 Danish Energy Regulatory Authority · Annual Report 2005

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