After monitoring the heat energy procurement market on the right bank of the Daugava in Riga for almost a year, the Competition Council (CC), as an independent institution, drafted a final report, which on 15 March 2024 was electronically signed by CC council member Kārlis Piģēns and sent to all market participants and involved institutions. However, the final report was published on the CC website only three months later, and many paragraphs that might have been unwelcome to Rīgas Siltums and Latvenergo were removed from it.
“The CC has established a practice – before publishing final versions of market monitoring reports, to send them to the market participants involved and the responsible institutions (in this case – the Ministry of Climate and Energy, as well as the Public Utilities Commission). This action does not imply doubts about the CC’s competence, the information obtained, its conclusions or independence, but is implemented with the aim of obtaining broader feedback from the sector and the responsible institutions (ministries/regulator), so that the final report reflects all material market conditions and opinions as comprehensively as possible,” explains the acting head of the CC Communication Department, Anete Vitjazeva. “All opinions received are carefully and objectively assessed, in line with the CC’s competence. After evaluation, they may be included in the final report in whole or in part, rejected or clarified. The content of the final market monitoring report, together with the opinions provided by all involved parties, is additionally examined at a meeting of the Competition Council before its approval and publication,” she comments, adding that the CC’s position and conclusions between the initial and final versions have not been materially changed. But is that really the case? The quoted parts of the text are highlighted.
For example, in its initial report (point 49), the CC had stated that Rīgas Siltums (RS), in its heat energy procurement procedure, does not ensure equal conditions for all its participants, but advances the interests of Latvenergo as an undertaking in a dominant position. This point about promoting Latvenergo’s interests has disappeared from the final report.
Likewise, a whole several-page section of the initial report titled “Tariff determination for heat energy purchased from independent producers” has been removed, in which the CC, among other things, also pointed out that in the event that the heat procurement market model were to be changed by discontinuing the division of the heat energy procurement market into competitive and non‑competitive parts, it would also be necessary to assess the need for amendments to the Energy Law, providing that tariffs be set for the heat energy prices of independent heat energy producers as well. The report section on tariff setting for independent producers has been removed in full, even though the CC indicated that in its assessment, benefits for consumers could arise from maximum price regulation also for smaller but significant market participants.
Initially, point 84 of the report ended with the sentence that the Regulator (PUC) would have grounds to review the existing methodology for calculating cogeneration tariffs in the guaranteed heat energy procurement part [..]. Apparently, the CC no longer thinks so.
Initially, the CC considered (point 88 of the report) that the current model limits all market participants’ ability to compete equally for the largest possible market share, and thus market participants may not be interested in investing in new capacities and increasing competition in the market overall. By creating an opportunity for all market participants to compete for the entire procurement share, heat energy producers could have a greater incentive to increase their production capacities, thereby promoting competition in the long term. However, in the final report the Competition Council has reconsidered the issue of promoting competition and has deleted its assertion about market participants’ ability to compete on equal terms.
Finally, the biggest changes over a few months have affected the most sensitive issue – waste heat. Initially, the CC had delved into the essence and definition of waste heat, referring to a European Commission study and a Directive, particularly emphasizing that only heat from a condenser can be considered waste heat, and only under certain conditions, in specifically defined cases and on the condition that all reasonable energy efficiency measures have been implemented in the particular cogeneration plant so that the generation of such surplus heat does not arise at all. It was also indicated that Latvia has not yet transposed into its national legislation the term “waste heat” and the related legal norms.
However, all of this has been deleted, and these statements have been replaced with a caveat that the term waste heat used in the CC report is henceforth to be understood both as a by‑product and as residual heat energy or, for example, a surplus of heat energy. The CC explains that from the perspective of competition law it is not of essential importance whether it is called a by‑product or surplus heat energy, because what is most important for consumer and end‑user interests is that any heat energy that is sold or purchased is prima facie to be regarded as a single product and that one product – heat – ultimately reaches the end‑user (consumer) in the centralized supply system. It is also added that the purpose of the market monitoring is not to resolve the current issue of the definition of waste heat, even though from the producers’ perspective this is in fact one of the main points of discussion.
Apparently, contradictions began to appear here, because the initial report in point 65 contained the statement that, when assessing the opinions of heat energy market participants, one can conclude that there is a diversity of views and contradictions. It can be clearly concluded that the introduction of shorter procurement periods is not beneficial to independent heat energy producers, while the efficiency gains expressed by the Ministry of Climate and Energy, LE and RS, which supposedly will be achieved by introducing shorter procurement periods, are not substantiated by specific economic indicators and thus are prima facie shaped in the interests of introducing LE waste heat. [..] Therefore, in the long term, competition is likely to weaken. In order to avoid contradictions, the CC decided to delete its conclusion about the weakening of competition from the final report, while at the same time not indicating that LE or RS had submitted any specific economic justification.
Inc. approached the CC with additional questions, but given the volume of the questions this may take some time.
Originally published at https://inc-baltics.com/konkurences-padome-uzraugot-siltumenergijas-iepirkumu-riga-no-gala-zinojuma-izdzesusi-rigas-siltumam-un-latvenergo-netikamos-apgalvojumus/
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