Investigation by the CREG on the retail price increases announced by Electrabel

After the announcement by Electrabel of a price increase of electricity and natural gas on the retail market in Belgium, the federal minister of energy, Marc Verwilghen, requested an investigation by the CREG, the federal energy regulator, and the Competition Council.

Today, the CREG issued a press release with the telling title: “The CREG finalises its investigation on the price increases announced by Electrabel, notwithstanding the limited cooperation of Distrigas”.

The CREG concludes that the reasons invoked by Electrabel to justify the retail price increases of natural gas “are sometimes but not always equally pertinent”:
- The higher fuel prices were already charged to the end consumers;
- The new natural gas contract between Electrabel and Distrigas entered into force on 1 January 2007. Consequently, eventual negative price effects arising out of this contract would have been noticed at that date and will not have effect only as from 1 September 2007;
- Only the part of the price increase related to a fixed term in the new natural gas contract was not yet charged to the end consumers.
- The CREG has noticed that at the moment of the opening of the Walloon and Brussels energy market (1 January 2007) Electrabel has set its prices very low, which could imply predatory pricing. Although there are indications for such predatory pricing, the CREG is unable to prove this due to of the limited cooperation by Distrigas. Lacking the necessary cooperation, the CREG was also unable to conclude that Electrabel tried to provoke a price squeeze. The CREG asks the Competition Council to investigate this further.

The reasons invoked by Electrabel to justify the retail price increases for electricity for professional customers are again “sometimes but not always equally pertinent”:
- The prices Electrabel wants to increase differ on the basis of parameters taking into account the fuel and employment costs. These parameters are less volatile than parameters based upon more volatile price changes on the exchange. Electrabel invokes the increased wholesale prices. According to the CREG it is “strange” that Electrabel uses parameters in its contracts with industrial customers different from the increased wholesale (exchange) prices.
- The price increase seems to be inspired by the concern of Electrabel to safeguard its profit margin.

The CREG gives some recommendations:
- Price regulations can be temporarily adopted;
- Structural measures to improve competition must be adopted;
- CREG’s competences must be strengthened (including the possibility to conduct market monitoring);
- Part of Electrabel’s production capacity must be put at the disposal of other market players;
- The independence of the system operators must be strengthened;
- Investments in production, transmission/transport, distribution and transit must be carried out.

Investigation by the CREG on the retail price increases announced by Electrabel