Finnish Electricity Regulation & an Introduction
By: Stephen Collier
During my trip to Finland last year I met a graduate student named Antti Silvast who is working on electricity and regulation, with many themes that intersect ours. A central concern in his work is how different norms -- security, efficiency, social welfare -- are being incorporated in regimes of regulation. Interestingly, the work also has a distinctive "federal" dimension, concerning the relationship between EU regulation and country-level regulation. Also interesting tie-ins with themes around reflexive modernization (although as Antti pointed out to me when I was in Finland, one has to be a little careful with such language in European debates, due to the reception of Beck). Antti has a good position for observation with direct contact with many of those on the Finnish side making policy and regulatory standards in this area. What follows is a short description he sent of his own work.
The Finnish Energy Market Authority (EMV) have released their new guidelines on regulation of electricity distribution operators. The regulation in Finland has thus far only concerned the prices and revenues of electricity distribution operators. But now, EMV are introducing two new aspects to regulation: from 2008, the regulation of technical and social quality of electricity distribution and possibly from 2012, the regulation of customer service of the electricity distribution operators. Before commenting on this change, a short review of the reasoning behind regulation is necessary. The electricity markets in Finland were liberalised in Finland in 1995, whence electricity distribution and electricity selling were separated as services. The Finnish energy market law has arguments that resemble those from the EU’s directive concerning internal market in electricity (2003/54/EC): liberalised models of infrastructure provision should result in efficiency gains, price reductions, higher standard of service and increased competitiveness between electricity utilities. However, this does not mean full-blown competitive markets. Rather, due to “shortcomings in the functioning of the market†(2003/54/EC), e.g. possible discriminatory tariffs or market dominance of distribution companies who still have regional monopoly, the markets are regulated. This is to ensure “non-discrimination, effective competition and efficient functioning of the market†(2003/54/EC, article 23). The first wave of regulation took form of monitoring the prices and revenues of electricity distribution operators. But this, as a report from Council of European Energy Regulators notes [link: http://www.ceer- eu.org/portal/page/portal/CEER_HOME/CEER_PUBLICATIONS/CEER_DOCUMENTS/2005/CE ER_3RDBR-QOES_2005-12-06.PDF], poses the problem that the distribution operators simply increase their revenues by lowering their expenses, e.g. by reducing workforce. Thus, the second wave of regulation is taking more technical and social viewpoint: regulating the actual and perceived quality of electricity distribution and in the future, possibly also customer service standards. I am interested in the Luhmannian theory of macro-level differentiation of society. From this perspective, regulation could introduce new codes to communicate about electricity distribution. First wave of regulation observed just markets. The second wave promises to observe markets and technical quality, security, customer perceptions and welfare, perhaps even ethics - the EU directive 2003/54/EC actually mentions “protection of the rights of the vulnerable customers†as part of EU internal markets. However, in the new regulation propositions in Finland all codes are still “translated†to costs, prices and quantitative meters: e.g. the perceived customers costs of electricity interruptions, the number of interruptions for worst-served customers or the average times for answering customer calls. Luhmann has noted that calculation of costs has a warning function. It renders the future present and reveals the negative aspects of actions: once costs have been calculated, one acts only if the advantages appear to outweigh the disadvantages. This is one way to mitigate future threats. But as another trend of risk-consciousness, the electricity distributors and security experts in Finland are taking interest in extremely improbable occurrences like large-scale blackouts. One can well anticipate that at some point, the quantitative approach of regulation will conflict with the latter, very imaginative trend.