Fined for Too Low Electricity Prices

The Icelandic Competition Authority (ICA) today announced its findings that Landsvirkjun sold electricity to Landsnet, the Icelandic TSO, at too low prices during the period of 2017 to 2021. The background of the matter is that for many years, the TSO procured electricity in specific tenders. The electricity purchased in these specific tenders is intended to offset transmission losses in the electricity transmission system. The TSO operates the electricity transmission system and charges operational fees, including those resulting from transmission losses, from customers, i.e., large end-users, households, institutions, and companies.

TSO’s procurement of electricity to offset transmission losses is a prerequisite to electricity security for households and companies in Iceland. Therefore, the procurement is vitally essential in providing energy security. For years, Landsvirkjun retained electricity to ensure an adequate supply to the TSO. No such obligation has yet been incorporated in law on electricity generators, despite the obvious need for such regulation.

In the ICA’s findings, announced today, a position is taken for the first time on how to define the market for the TSO’s procurement of electricity due to transmission losses. The ICA´s sentiment is that this is an independent market at the retail level. Therefore, according to the definition, Landsvirkjun was obliged to price electricity in TSO’s tenders so that retail companies, such as N1, procuring electricity wholesale from Landsvirkjun, would be enabled to offer lower prices than Landsvirkjun in these tenders. Namely, ICA’s interpretation of the Competition Act is that it guards intermediaries. This finding is unprecedented, both in Iceland and throughout Europe.

Landsvirkjun disagrees with the ICA’s conclusion and the market definition on which it is based, as, according to the electricity market system in Iceland, it is evident that the TSO procures electricity at a higher marketing stage than an end-user. This fact was ultimately confirmed last month, when the TSO procured all electricity losses directly from the wholesale market, rather than through specific tenders, as had been the rule.

Furthermore, ICA’s conclusion to impose a significant financial penalty is a profound disappointment to Landsvirkjun, as the conclusion is an interpretative one on a new question in the matter of competition. It is essential to note that Landsvirkjun's participation in TSO’s tenders is primarily aimed at fulfilling Landsvirkjun’s corporate social responsibilities and ensuring electricity security in Iceland.

The ICA’s findings will be appealed to the Competition Appeals Committee.