A Reasonable Price for Electricity

Abstract

Over the past decade, consumers’ electricity costs have risen disproportionally compared with the average inflation rate, mostly as the result of increased network tariffs and taxes. This development appears to be at odds with the stated purpose of introducing competition into the electricity sector through implementation of the EU Electricity Directive to realize benefits for end users in terms of lower prices as well as better quality of goods and services. This article discusses the conditions under which the price of electricity can be considered reasonable according to the Directive. The meaning of the term “reasonable” may depend on a number of factors, and it is necessary to distinguish between the various components of an energy bill. The various objectives of the directive could lead to diverging interpretations, even when applied to the same component of the bill, the supply price. According to the underlying market principle, reasonable may imply “economically efficient.” However, in line with the principle of universal service for households, reasonable should be understood to mean “affordable.” The article also examines the conditions under which a substantial rise of consumer energy costs due to increasing network tariffs can be justified. The focus of this article is on electricity, although, as stipulated under the Third Gas Directive, a consumer’s right to pay a reasonable price, while enjoying universal service, applies equally to gas. Therefore, the observations outlined in this paper are relevant also for gas consumers.