annual report 2011 - Konkurentsiamet

According to Regulation 944/2010 of the European Parliament and European Council, the
member states are obliged to prepare risk analyses concerning the natural gas supply. As the gas
grids of the Baltic States are closely linked, Estonia, Latvia and Lithuania prepared a joint risk
analysis. According to Regulation 944/2010, a preventive measure plan must be prepared on the
basis of the risk analysis in 2012, and an emergency situations plan in 2013.
Price regulation of heating undertakings
Pursuant to the District Heating Act, a local government is entitled to establish district heating
regions within the boundaries of its administrative territory. The only permitted heating option to
be used in district heating regions is district heating (except for persons who did not use district
heating at the time district heating regions were established), so consumers cannot choose
alternative heating methods and the heating undertaking obtains a monopoly status. Pursuant to
the Establishment of Price Limitations to Monopolies Act, only the Competition Authority has
the rights and obligations to carry out supervision of the District Heating Act and approve the
maximum prices of heat sold by heating undertakings. The main objective of the amendments to
the District Heating Act was to ensure more comprehensive and intensive supervision of the
district heating sector in order to contribute to a more uniform regulation and equal treatment of
undertakings in the entire sector.
The maximum prices of sold heat are approved for district heating regions, the number of which
in Estonia is around 200. The economic prosperity and efficiency of undertakings depend, above
all, on the volume of sales in these regions, the fuel used, technical efficiency (the efficiency
coefficient of heat production and heating pipeline losses) and the undertaking’s ability to make
investments to ensure the higher efficiency and sustainability of district heating. As the prices of
fuel, especially natural gas and oil shale have increased considerably, small-scale heating
undertakings, with fuel costs amounting to 70% or more in the structure of their expenses, which
had been under the regulation of local governments so far, became especially active in applying
for the approval of heating limit prices.
Small district heating regions with the volume of sales below 3,000 MWh, where district heating
sustainability in the future cannot be ensured even if reasonable investments are made, have
become clearly distinguishable, and it would be more feasible to stop price regulation in such
regions and provide consumers with an opportunity to choose from cheaper alternative heating
options.
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