The price of electricity rises - but why? The reasons in the background often remain obscure to consumers. To increase openness and transparency, the Finnish Consumer Agency has prepared guidelines for suppliers of electricity on how to inform consumers of rate changes.
The new guidelines go over what requirements the Electricity Market Act and delivery and sales terms place on suppliers with regard to changing rates. The delivery of electricity involves a long-duration contract and grounds for changes must be spelled out in contract terms.
According to terms a supplier can change rates if the cost of procuring electricity rises or falls. Suppliers must act coherently: if a company raises rates because of rising procurement costs, it must also lower rates when procurement costs fall. Otherwise the company's contract terms are unfair to consumers.
A company must also explain to customers the reason for the change and the size of the change. In this way the supplier helps to increase rate changes' transparency and credibility in customers' eyes.
Customers need concrete information about what a rate change means for them in practice. The size of a rate change should be made clear by telling what the effect is likely to be in euros and as a percent of the customer's bill.
Customers must also be told when a rate change will come into effect.
According to the Electricity Market Act, a rate increase can come into effect no earlier than one month after a consumer has been notified of the change. This provision is meant to ensure that consumers have sufficient time to prepare for a rate increase. On the other hand rates can be lowered without having to give notice in advance.
The Consumer Agency emphasizes that consumers must be provided up-to-date information on electricity rates. Without this information they cannot take advantage of competition by comparing different suppliers' rates.
Information must be understandable
Movements in the price of electricity follow their own logic, which consumers may not always understand. The situation is not made any easier by referring to the wholesale price, the level of reservoirs, the development of emission trading prices or other terms that may be obscure to consumers.
If consumers are not clearly informed of a rate change and the reasons for it, they cannot understand how the market works or be sure that a rate change is justified. Consequently customers must be informed of rate changes and grounds in writing. The supplier must also make sure that customers can understand the message without undue bother.
Clear and adequate information not only makes it easier for consumers; it also has positive consequences for businesses. Increasing price awareness makes competition more efficient.