Court supported FAS on a case against providers of last resort

Corporate actions led to an unreasonable growth of electric power prices  

On 19 July 2016, Moscow Arbitration Court pronounced legitimacy of the decision and determination issued by the Federal Antimonopoly Service (FAS Russia)  in a case against a group of persons comprising  “Dagestan Energy Supplier” OJSC, “Nurenergo” OJSC, “Kabbalkenergo” OJSC, “Karachaevo-Cherkessenergo” OJSC, “Ingushenergo” OJSC and “Sevkavkazenergo” OJSC.

For instance, in January 2012 - October 2013 the providers of last resort regularly and considerably overstated the expected consumption volumes in an organized manner in comparison with actual consumption. As a result, prices for other electric power consumers in the First price zone of the wholesale market of electric power and capacity increased unreasonably which is a sign of restricted competition.  

The group of persons operates in the territories with formalized specifics of wholesale and retail market performance. As a consequence, electric power is purchased under the frame of regulated contacts, the costs of purchasing is considerably below the costs of electric power on the wholesale market, where other market participants buy it.

Overstating the volume of purchasing electric power, bought at understated costs in comparison with consumption facts, the providers of last resort – members of the group of persons were able to sell the remaining volumes at the balancing market price, which is on average 25% higher, gaining a positive economic effect and influencing market prices.  

The impact on the market price: an increased volume characteristics of electric power demand, the consequence of which was loading more expensive generating equipment and seeking more expensive volumes of electric power generation. In  view of the marginal pricing model  (the price is determined by the latest, the most expensive take-off volume sought-after by the market), it affected not only the purchasing price of the providers of last resort but also the price for other buyers on the wholesale markets of electric power and  capacity.  

In the period in question, the unlawful income gained by the group of companies reached nearly 700 million RUB.

In 2016 the Supreme Court of the Russian Federation confirmed legitimacy of FAS decision and determination on a similar violation of the antimonopoly law by the group of persons in January 2011 – December 20112.