Caruna and the Consumer Ombudsman reached a negotiated solution – no need for a class action lawsuit, but changes in the Electricity Market Act still in the agenda

Finland’s largest electricity distribution company Caruna angered its customers in January by announcing a decision to raise electricity transfer rates by about 27 % on average. Some customers’ electricity bills would have risen even 50 % due to the higher transfer fee. The price changes were planned to be implemented in the beginning of March.

Caruna justified its decision to raise the fees by the need to invest in network improvement. Overhead power lines in the forests will be replaced by underground cables. The investments are based on the change in the Electricity Market Act (588/2013) after several heavy storms caused long power cuts in Finland in the beginning of the 21st century. According to the Electricity Market Act, the maximum legal length for interruptions in electricity distribution is 6 hours in city plan areas and 36 hours in rural areas. Companies need to fulfill these requirements so that 50 % of customers are in scope of the outage limits in year 2019, 75 % in 2023, and 100 % of customers by the end of the year 2028.

The Finnish Consumer Ombudsman Päivi Hentunen negotiated with Caruna in order to persuade it to revoke the decision. If the negotiations had not been successful, Finnish consumer protection officials would have considered launching Finland’s first class action lawsuit against Caruna. However, Caruna finally backed up, and consented to phase in the price increases over a longer period of time. According to the Consumer Ombudsman no class action is needed anymore.

It has been possible to bring a class action suit in Finland since 2008, but so far the law has not been tested in action. According to the Act on Class Actions (444/2007), the Consumer Ombudsman has exclusive standing to act as the plaintiff in a class action. Private citizens can join the class, and the decision of the court is binding on the class members. The Consumers’ Union of Finland as well as the labor market organization SAK have criticized the Act of being useless because of the limited right of action and applicability. However, even though no law suits have been brought so far, the Act can be considered efficient as it has a substantial deterrent effect to companies. The threat of a lawsuit may speed up the negotiations and urge the companies to pay compensations for consumers voluntarily. This has happened earlier e.g. with Finnair and VR – and now it has happened with Caruna.

However, the case has raised the pricing of electricity and the possible need to amend the Electricity Market Act into discussion. Currently the Electricity Market Act’s 24 § states merely that the pricing must be “reasonable”. The Finnish Energy Authority monitors the local energy market and the reasonableness of electricity distribution pricing in four-year regulatory periods, but it has no means to intervene in pricing during the period. Economy Minister Olli Rehn and the Finnish Energy Authority have suggested a legislative amendment to prevent further dramatic price rises in the future. It has been suggested that an acceptable price rate rise would be limited to 15 % to be in the line with the interpretation of Consumer Protection Act, and that also the intervals of the price increases would be regulated. The Finnish Energy Authority has also suggested that the distribution of profit to the owners of the electricity companies should be limited in order to direct the customer fees to be used in the investments in the network.

Caruna has complained that it has to act in a cross pressure between reasonable pricing and reliable power supply. Also the Finnish Energy Authority has stated that the increased security of electricity supply will also inevitably lead to some increase in transfer fees.