Caruna regrets the distress caused to its customers and responds to the Energy Authority report on electricity distribution price increases
Caruna regrets the distress caused to its customers after having to come to a solution on price increases, due to the large-scale requirement for improvement. The company has advised its customers regarding the network improvement measures required by the Electricity Market Act (Electricity Market Act 588/2013), as well as the price increases connected with them. The price increases have resulted in a large number of objections from citizens as well as considerable media attention.
The Energy Authority has issued its report dated 3 February 2016 on the electricity distribution price increases. A limit on price increases as well as a period of transition are proposed in the report. Caruna’s new prices, which are set to come into effect on 1 March, are in accordance with the official guidelines.
Caruna’s position is that it will not be possible to build the network required under the social mandate and desired by its customers by the 2028 deadline established by the Act if a limit is imposed on price increases. The Act requires that half of Caruna’s customers will obtain a network that fulfils the reliability and continuity of supply criteria by 2019, and all customers by 2028. If the deadline is extended, the network improvement projects in the sparsely populated areas will be delayed. In this respect, customers in the sparsely populated areas would find themselves in a less favourable position than those in the built-up areas, because the rebuilding work has been initiated in the more densely populated regions.
The requirement of the Electricity Market Act is that an outage caused by a storm or snow load must not exceed six hours in a zoned area and 36 hours in a sparsely populated area. It is possible to achieve this aim only by rebuilding the network.
Costs of network improvement projects covered by distribution fees
The renewal of the electrical network will cost Caruna MEUR 200 annually, and the work will continue for about a decade. The company’s business expenditure – i.e. network supervision, correction of faults, employees’ salaries, premises and systems, etc. – will total approximately MEUR 90 each year. In addition to this, there are the interest rates on loans taken to finance the network, which came to MEUR 102 in 2014. Caruna obtains approximately MEUR 300 annually in cash flow from its customers. As a result of the price increases, cash flow would rise to approximately MEUR 400. The costs of transfer of overhead lines underground to protect them from the elements will be covered with the payments gathered from customers. In addition to the distribution fees, the company is taking a loan for network improvement projects. Caruna’s investments per customer are about EUR 300 annually.
Caruna borrowing money in order to invest
Caruna has taken three types of loan to cover the costs of the improvement of the electrical network and operations. The company has the following loans: senior loan at 2% interest, junior loan at 5% interest, and a shareholder loan at 8.5% interest. The interest rates on loans reflect market prices. At the end of 2014, the loan-based total was EUR 2.6 billion. Caruna has not reduced its shareholder loan, but paid MEUR 20 in interest in 2014. Financing costs in 2014 in total were MEUR 102, of which the shareholder loans totalled MEUR 66. The interest paid by the company does not affect the Energy Authority’s calculation of the permitted rate of return specified for electrical distribution companies and does not impact customer prices.
Caruna is planning to refinance a considerable amount of its debt during the year 2016.
The Finnish electrical network was built during the 1960s–1980s
In like manner to other electricity network companies, Caruna’s networks were primarily built during the 1960s–1980s. The network is old, which makes it more susceptible to faults. The reliability and continuity of network supply do not match the requirements of the new law. The current network, which is coming to the end of its service life, does not fulfil the requirements of modern society in the day-to-day life of its citizens. It also will not serve ensuing developments such as the electrification of traffic or customers’ wide-scale wind and solar power connection to the electrical distribution network.
Price increases are required, because the network undergoing renewal is extensive. In total, Caruna’s network spans approximately 80,000 kilometres, which corresponds to two round-the-world journeys.
The network currently planned would serve customers for the next 40 years. The starting point for improving the network is to prevent the emergence of faults – not just repair the ones that appear.
The reliability of the network is also being improved with structural solutions by, e.g. building circuit networks, by which the fault can be contained and electricity restored more quickly to the intact parts of the network. Caruna is also increasing network automation, which also accelerates the restoration of electricity to customers. In addition, Caruna is removing the trees threatening power lines within their vicinity. All these things improve the quality of electrical transmission for customers. With these measures, we are endeavouring to both prevent faults and accelerate their repair.
Caruna employs over 6,000 people in its network areas throughout Finland
Of the total of MEUR 200 annually, about half goes to material, and the rest is labour. Caruna has 270 employees and the company directly employs 2,000 contractors in its projects in various parts of Finland. Caruna also indirectly employs 4,000 people.
Also after the price increases, the price of electricity will be below the average European level
In Finland, the total price of electricity was, in the 2015 comparison, three cents lower than the price for electricity per kilowatt hour in Sweden, and 14 cents lower per kilowatt hour than the price in Germany.
An electricity bill is made up of three main parts: the sale of electricity, electrical distribution and taxes, which comprise tax on electricity and value added tax. The increase is targeted on electrical distribution, i.e. one-third of the amount of the total bill. The impact of the increase on the customer’s electricity bill will thereby be approximately 15%.
Caruna’s prices are rising, depending on the user, 1–2 cents per kilowatt hour before taxes. The taxable electrical distribution charges for a Caruna Oy customer residing in a block of flats will be, after the increases, EUR 270 on average, EUR 610 in a single-family dwelling and, in an electrically-heated detached house, EUR 1,450 per year. Caruna in Espoo will correspondingly cost EUR 190, 370 and 1,120 annually. The difference in pricing derives from the fact that Caruna Oy and Caruna Espoo Oy are two separate companies with separate pricing, network structures and development projects. This being the case, their pricing is also different from each other.