Electricity network operators risk charging unjustifiably high network tariffs

“The revenue caps applying until 2027 may allow electricity network operators to charge unjustifiably high network tariffs. From a competition perspective, this may be problematic,” says Marie Östman, Director General of the Swedish Competition Authority.

Electricity networks are generally regarded as natural monopolies and are regulated through revenue caps. The Swedish Energy Markets Inspectorate determines in advance the maximum revenue that each electricity network operator may earn during a regulatory period. The purpose of the regulation is to ensure reasonable prices for customers while allowing electricity network operators to recover their costs and earn a reasonable return on the investments required to operate and develop the electricity network. Within these limits, electricity network operators have considerable discretion in setting their tariffs, provided that their revenues do not exceed the applicable revenue cap.

The revenue caps are calculated on the basis of a valuation of the operators' network assets. Under the current methodology, this valuation is based on the estimated replacement cost of the assets rather than the companies' actual historical investment costs. Over recent years, estimated replacement costs have increased substantially more than general inflation. There is therefore reason to believe that the revenue caps may have increased by more than the companies' actual costs.

Ahead of the current regulatory period, covering 2024–2027, the total revenue caps increased by more than SEK 100 billion, from SEK 168 billion to SEK 270 billion. During the same period, electricity network tariffs have also risen significantly faster than the general rate of inflation.

In the Swedish Competition Authority’s meetings with electricity network operators, some of the profit-driven operators have indicated that they largely base their pricing on the maximum level permitted under the applicable revenue cap.

Against this background, and based on the findings of the Authority's review to date, the Swedish Competition Authority considers that there is a risk that electricity network companies may charge tariffs that are not reasonable and are not justified by their actual costs. While the current regulatory framework allows companies to do so, this may nevertheless raise concerns from a competition perspective.

“Our review of the electricity network market will continue. We will examine the tariffs that electricity network operators have chosen to apply and how those tariffs relate to their actual costs. We will also assess the tariffs that companies intend to apply during the fourth and final year of the current regulatory period. Ultimately, our work is about ensuring that consumers do not have to pay more than they should”, says Marie Östman.

David Nordström, Head of Unit, +46 8 700 16 06, david.nordstrom@kkv.se.
Erika Svärdh, Head of Communications, +46 8 700 16 50, erika.svardh@kkv.se

Read the report (in Swedish)