This year is oblenergos' last

This year is oblenergos' last

Experts about reform01 March 2018

This year all Ukrainian oblenergos (regional energy companies) will cease to exist in their current form.

This year is oblenergos' last

This year all Ukrainian oblenergos (regional energy companies) will cease to exist in their current form.

These companies, with which almost every Ukrainian interacts, will change forever. Under the Law on the Electricity Market, all of them will be divided into two companies by the middle of December: a distribution operator and an electricity supplier. Why is this being done, how will it impact electricity supply, and how will it affect us?

Monopoly VS Competition

Electric grids, substations, transformers, and so on – this is the infrastructure of a natural monopoly. After all, there is no sense in building parallel power lines. Consequently, electric grids, like gas pipelines and railroads the world over, are monopolies. Today's oblenergos combine this monopoly function with the supply of electricity – with activity that can and should be competitive. However, it's no secret that since it's both a distribution company and a supplier, an oblenergo can try to keep competitors from accessing its territory.

In Europe, a resolution on the mandatory separation of competitive from monopolistic activities was adopted almost a decade ago. The Law on the Electricity Market, which took force in June 2017, responds to two fundamental requirements of the Third Energy Package of the EU: the unbundling of oblenergos and, as a result, the right of customers to choose their suppliers freely.

New suppliers

An electricity supplier unbundled from an oblenergo will become just one of many similar companies. When equal access to grids is ensured, new vendors are expected to appear. In Norway, there are more than 100 such companies, and in the tiny Netherlands more than 200. They will be able to offer new services and a qualitatively new level of service. They will have to compete in terms of price and quality. For a supplier unbundled from an oblenergo, this will be a challenge – to accept the new rules of the game and improve the quality of its services significantly.

Suppliers will offer unregulated prices. The experience of Europe suggests that various tariff packages will be offered, depending on the needs of consumers. This is similar to how mobile operators set tariffs. In the future, these suppliers will sell not only electricity, but whole packages of services, like electricity, gas, hot water, Internet, etc.

What consumers should expect in 2018

In 2018, oblenergos will undergo the unbundling process. Some of them will probably complete it before December and will separate off the supplier in the near future. Kyivenergo will unbundle power generation from distribution and supply in March. These functions will be temporarily combined by Kyiv Electric Grids until December. Later on, it will act only as a distribution network operator.

Until December, there will be no fundamental changes for consumers, except for a new company name on bills and a new settlement account. However, suppliers will try to make these changes imperceptible to customers. In 2018, the price will be set by the state in the same way as before; the reform will not affect it.

What to expect after the launch of a new market

All oblenergos have to unbundle in December. After this, consumers will have to sign new contracts with suppliers. To supply electricity to the population and to small non-domestic consumers, what are called universal service providers will be established on the basis of suppliers unbundled from oblenergos. They will supply electricity at a price calculated according to a method approved by the regulator. After the launch of the market (July 2019), every consumer will be able to choose his or her supplier. Anyone who wants to change suppliers can do so by signing a contract with a new company.

It is still not clear whether the consumer will have to conclude two contracts (one with the supplier, the other with the distribution grid operator), with two separate tariffs in the bill.

Undoubtedly, these changes will require a lot of explanatory work on the part of the state, the regulator, and energy companies.

Yes, 2018 will be a year of fundamental transformations for energy companies. Traditional oblenergos will cease to exist. However, for Ukrainians, this year's changes will be rather technical. But with the development of the market and the emergence of competition, European standards of service will come to our country.