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CHOOSING A RETAIL ELECTRICITY SUPPLIER IN THE RETAIL ELECTRIC POWER MARKET: LEFAL ISSUES OF THEORY AND PRACTICE

Svetlana Vladimirovna Matiyashchuk, Professor of the Institute of Civil Law and Process of Siberian Institute of Management - RANEPA Branch (Novosibirsk), Doctor of Law

Assignment of responsibility to the consumer in the form of recovery of unjust enrichment for non-contractual consumption of electric power owing to misconduct of a retail electricity supplier serves as a sanction, and the application of this sanction shall not be approached as a mere formality. The current lack of a unified approach to the application of these sanctions in retail electric power markets results in severe complications for law-enforcement practice. This article focuses on the analysis of problems of theory, legislation and court practice associated therewith.

The search of an ideal legal model for regulation of relations emerging in electric power sale in retail markets has for many years been a subject of fierce debates. Ambiguous court practice, differing approaches of arbitration courts at various level – these are all consequences of a foreign model of operation of retail electric power markets adopted in Russia.

The year 2006 saw the beginning of approbation of a competitive model in Russian retail electric power markets, which stands for allowing consumers to choose an electric power supplier. To this end, electric power entities were divided by types of activities: generation, transmission and sale of power. In the course of transformations, the notion “power provider” became generic for newly established entities engaged in power production and (or) sales. They include the guarantee supplier and retail electricity suppliers. It is known that the guarantee supplier is a special sales commercial organization obliged to sign a contract with any addressing consumer or a body acting for and on behalf of the consumer, as long as the consumer’s energy-consuming installations operate in this power supply system. The guarantee supplier is established to ensure reliable and uninterrupted power supply to the population, vital infrastructure and strategic facilities in the volume they need, etc. Other retail electricity suppliers include commercial organizations, which are primarily focused on sales of produced or acquired power. Unlike the guarantee supplier’s activities, their activities are not subject to detailed regulation by the state. These entities are primarily established to promote certain competition in the electric power sales sector (freedom of contracts, unregulated (free) prices for electric power, etc.). Such promotion can be implemented in two ways.

The first way, which creates a real competitive environment in the retail electric power market, is possible only under certain technical conditions. Where the state of the retail electric power market does not correspond to the definition of natural monopoly, for example, if there are several organizations engaged in power generation in one power supply system, there may be a transition to a competitive retail electric power market, i.e. free (unregulated) prices for electric power can be used. To protect interests of the population, one of such organizations can be granted the status of guarantee supplier. According to experts, Russia has very few such retail electric power markets.

The second way is aimed at forming phantom competition in the retail electric power market through creation of a “system of mediators”. Frequently, the retail electricity supplier status is granted to organizations, which not only fail to generate electric power, but also have no power grid facilities of their own. And consequently, a competitive environment established in accordance with this scenario has a number of adverse effects. For instance, a lot of retail electricity suppliers take advantage of consumers’ inadequate awareness of legal matters, lack of experience in the “competitive” model of retail electric power market and other factors to mislead consumers and force on them switching from the guarantee supplier to their services, which means negative consequences for consumers.

The above can be illustrated by one of numerous practical examples.

The guarantee supplier filed a lawsuit in an arbitration court against a limited liability company (hereinafter referred to as the respondent) seeking recovery of unjust enrichment in the form of the cost of non-contractual consumption of electric power at energy supply facilities. To support its claim, the guarantee supplier stated that inspections of power grid facilities revealed consumption of electric power by the respondent with no duly signed sale contract, which is proven by the relevant document. The volume and cost of electric power consumed without any contract were determined by the guarantee supplier on a basis of clauses 194, 195 and 196 of the Fundamental Provisions of Operation of Retail Electric Power Markets approved by Resolution of the Government of the Russian Federation dd. May 4, 2012 No. 442 (hereinafter referred to as Fundamental Provisions No. 442)[1]. The claim to recover the cost of consumed electric power was stated with reference to Art. 1102, 1104 and 1105 of the Civil Code of the Russian Federation. Moreover, the guarantee supplier also explained that the respondent’s power receivers are technologically connected to the guarantee supplier’s power grids through facilities of a retail electricity supplier, which does not belong to grid operators and is not entitled to render electric power transmission services, which is deemed to be mediated connection. The respondent signed an electric power sale contract with the retail electricity supplier, which did not settle purchase-and-sale relations with the guarantee supplier with regard to a specific delivery point. No electric power transmission contract with regard to a delivery point was signed at the respondent’s facility. These circumstances prove that consumption of electric power by the respondent was non-contractual. The consequences of non-contractual consumption of electric power, pursuant to cl. 57 of Fundamental Provisions No. 442, shall apply to the owner of power receivers.

In another case, the arbitration court concluded otherwise. The court dismissed a claim to recover unjust enrichment expressed as the cost of electric power consumption, because the grid operator, through mediated connection of the consumer’s power receivers to the guarantee supplier’s grids, supplied power to the consumer under a sale contract, the consumer paid for it, no violations of the procedure of technological connection of the consumer’s power receivers to the guarantee supplier’s grids were proved. Moreover, the court specified that a dispute between business entities related to sales markets for their services shall have no adverse consequences for consumers discharging their obligations in a conscientious manner.

As the law-enforcement practice analysis shows, questions very often arise of whether it is reasonable or unreasonable to assign responsibility to the consumer being a nonprofessional market player in the form of recovery of its unjust enrichment for non-contractual consumption of electric power owing to the retail electricity supplier’s misconduct. When signing a civil law contract, including an electric power sale contract, parties to civil transactions are obliged to check their contractor’s legal capacity. For instance, if the consumer switches to services of any retail electricity supplier, it should make sure this organization settled relations in electric power purchase prior to the date of its sale to the consumer in relevant delivery points (delivery point clusters). To that effect, the legislator entitled the consumer to request information from the retail electricity supplier on how it plans to acquire electric power to perform a future contract with the consumer (cl. 56 of Fundamental Provisions No. 442). Besides, the consumer is also entitled to send a request to the guarantee supplier to confirm the retail electricity supplier’s right to dispose of electric power. Depending on the status of retail electricity supplier, it can acquire the right to dispose of electric power on a basis of one of the following contracts:

1) the retail electricity supplier has a signed contract for acquisition of electric power in the wholesale market with regard to delivery points (delivery point clusters) at the consumer’s facility;

2) the retail electricity supplier has a relevant contract with an electric power producer (supplier) signed in the retail market;

3) the retail electricity supplier has an electric power sale contract signed with another retail electricity supplier (guarantee supplier), which stipulates delivery terms;

4) the retail electricity supplier has an electric power transmission contract signed with a grid operator or any other bodies owning power grids.

If the consumer switches to services of the retail electricity supplier, which is not entitled to dispose of electric power, it shall be responsible for consumption of electric power without any duly signed sale contract, i.e. non-contractual consumption of electric power. Pursuant to cl. 172 of Fundamental Provisions No. 442, the grid operator, which power grid facilities provide direct or indirect connection to power receivers, is entitled to check meters. If the fact of non-contractual consumption of electric power is revealed, the grid operator shall draw a report on unrecorded consumption of electric power. The report on unrecorded consumption of electric power shall contain the data on the body engaged in non-contractual consumption of electric power; on the way and place of non-contractual consumption of electric power; on meters as of the date of the report; on the date of previous maintenance check of power grid facilities in the place, where non-contractual consumption of electric power was revealed – if non-contractual consumption of electric power is revealed; an explanation of the body engaged in non-contractual consumption of electric power as to the fact revealed; remarks to the report drawn (if any). The body engaged in non-contractual consumption of electric power shall be present during preparation of the report on unrecorded consumption of electric power. Consequently, the consumer shall, by all means, be notified that the report on non-contractual consumption of electric power is being drawn up, because the law guarantees the right to object to revealed violations in the form of non-contractual consumption of electric power.

Refusal of the body engaged in non-contractual consumption of electric power to sign the drawn report on unrecorded consumption of electric power and its refusal to be present during preparation of the report along with the reasons of such refusal shall be documented in the report on unrecorded consumption of electric power drawn up in the presence of 2 impartial persons.

Pursuant to cl. 196 of Fundamental Provisions No. 442, the grid operator shall draw a bill for electric power in the volume of non-contractual consumption, which shall contain the calculation of non-contractual consumption cost, and send it to the body engaged in non-contractual consumption. If the body engaged in non-contractual consumption refuses to clear the specified bill, the cost of electric power in the volume of non-contractual consumption shall be recovered from such body by the grid operator by way of recovery of unjust enrichment on a basis of the report on unrecorded consumption of electric power and the bill for electric power in the volume of non-contractual consumption. Thus, the report drawn up in accordance with the requirements of Fundamental Provisions No. 442 constitutes a valid and admissible proof of non-contractual consumption of electric power, and non-contractual consumption of electric power shall be settled on the basis of the said report[2].

It should be noted that if non-contractual consumption is revealed, the grid operator, which power grids provide connection to the consumer’s power receivers, shall also require that a contract ensuring sale of electric power be signed (cl. 57 of Fundamental Provisions No. 442). Consequently, the consumer, upon request of the grid operator, shall sign an electric power sale contract with a proper retail electricity supplier within 30 days of the notice of the retail electricity supplier’s ineligibility to dispose of electric power. In case of failure to meet these requirements on the expiry of 30 days from the date of receipt of the notice the grid operator is entitled to restrict supply of electric power to such consumer.

In conclusion, it should be said that when signing a civil law contract, parties to civil transactions are required to check the contractor’s legal capacity. No exceptions are made for retail electric power markets. When signing a contract with a retail electricity supplier without checking its legal capacity and accepting its documents containing unreliable information, the consumer of electric power bears all relevant negative risks.



[1] Resolution of the Government of the Russian Federation dd. May 4, 2012 No. 442 “On Operation of Retail Electric Power Markets, Full and (or) Partial Restrictions of Electric Power Consumption” // Collection of Legislative Acts of the Russian Federation, 2012, No. 23, Art. 3008 (in Russian).

[2] Ruling of the Supreme Arbitration Court of the Russian Federation dd. January 15, 2013 No. BAC-18218/12 // ConsultantPlus Legal Reference System (in Russian).