Electricity Price Act: What SMEs should pay attention to
On the Polish energy market, the recent months will be remembered for many reasons. Historically high electricity and natural gas prices have forced changes to a number of established practices. During the crisis, several mechanisms have been created to mitigate its effects—primarily high utility prices. Among other things, a cap on the price of electricity sold to selected end users is being introduced. We now briefly examine whether the Act on Emergency Measures to Restrict Electricity Prices and Support Certain Consumers in 2023 is likely to live up to its name.
Maximum prices for the main beneficiary—the end user
The act of 27 October 2022 relates mainly to the need to apply a price cap for electricity sold to certain recipients. It includes a broad list of entities, defined either generally (such as micro enterprises and SMEs) or specifically (e.g. facilities providing 24-hour care for people with disabilities). In charges to these entities, the price for the sale of electricity will not be allowed to exceed PLN 785/MWh. The act also applies to households (included in tariff group G), where the maximum price will be PLN 693/MWh.
From 1 December 2022 through 31 December 2023, these prices will constitute the maximum net amounts in relation to billing for electricity with individual end users and in relation to energy actually consumed by these entities (here, re-invoicing may be treated differently, as discussed later in the article). This does not mean that vendors will have to apply the upper limit if a lower price is provided for in the contract for sale of electricity. If more favourable terms have been negotiated, the price agreed with the vendor will be applied.
Application of the electricity price cap
The electricity price cap will apply to a number of businesses, but under certain conditions. First, it will only cover those who make the appropriate declaration to their (current or future) energy vendor, as lawmakers did not choose to automate this mechanism. Second, the period of coverage under the price cap will depend on the date when the declaration is submitted to the energy vendor (including the backup vendor). Additionally, the price cap will apply to energy consumed for the purpose of a given entity’s core business. A declaration made in November 2022 will be binding for the entire guaranteed period (i.e. from December 2022 through the end of 2023), but the situation will change if, during this period, a given entity ceases to qualify as an SME or changes its energy vendor.
Doubts in interpretation
The price cap mechanism seems straightforward, but in some cases, whether a business qualifies for the benefit of the price cap poses problems of interpretation. In the meantime, businesses seeking to take full advantage of this mechanism must make a relevant declaration no later than November 2022. On the other hand, an erroneous declaration can result in criminal liability. Nor can further liability to the energy vendor be ruled out (although this is not provided for by the act).
The simplest billing model, which needs no further elaboration, is one where the energy vendor has directly signed a contract for the sale of electricity to a business as the end user. But it gets complicated when electricity costs are re-invoiced by property managers or real estate owners to tenants or lessees (sub-users). If such a property manager or real estate owner qualifies as a large business, it is not eligible for the price cap, making it problematic, if possible at all, to re-invoice energy costs to sub-users.
When a user purchasing electricity takes advantage of the maximum price mechanism, a question remains open whether the user can apply these preferential prices to the entire volume of electricity purchased, or only the portion the user itself consumes (and not the portion consumed by re-invoiced sub-users). The act indicates that preferential pricing covers electricity intended for the primary activity of such a purchaser. Therefore, it is necessary to determine whether it will be possible to regard the re-invoicing of energy costs as part of the buyer’s core business. If not, it becomes questionable to maintain the price cap also in relation to re-invoiced entities (e.g. tenants of commercial premises who do not have direct agreements with energy sellers, even if they are SMEs). However, the answer to the question of whether the primary activity is the statutory activity of such an entity, or is based on the company’s cash flow or tax treatment, deserves more consideration in a separate article, as neither the act nor the Energy Law expressly addresses this.
Additionally, businesses will have to determine themselves whether they qualify for the price cap mechanism as an SME. Only on this basis will it be possible to sign the appropriate declaration, submit it to the energy vendor, and activate the mechanisms of the act. Whether a business meets the SME condition and can subsequently qualify for a freeze of its electricity prices may not be entirely clear. In particular, this applies to related parties or those exceeding the maximum turnover to qualify as SMEs during the fiscal year. We write more on this subject in the article “Subsidised electricity prices for SMEs, i.e. for whom?”
Negotiating the price of electricity
In Poland, the electricity market is partially regulated, and thus during the tariff year, in principle, household users are protected (thanks to the powers of the president of the Energy Regulatory Office) from any change in billing values by vendors. The situation is different for entities not included in tariff group G. In their case, the price of electricity is set through individual negotiations with energy vendors (trading companies). Therefore, depending on the procurement model, the length of the contract, the volume of electricity consumed, or group purchasing, such a price can be more or less competitive for a given trader.
Also, it should not be forgotten that the turn of the year means that many businesses have to look for new offers for the sale of electricity. This is because on the energy market, a common practice is to conclude contracts for delivery periods from the beginning of the year for the next 12, 24 or even 36 months. Therefore, for many businesses, the current crisis in the energy market and the approaching end of 2022 means the need to enter into talks with trading companies to negotiate the best possible price terms for new contracts. In earlier times, when the economy and market were stable, these negotiations would not have posed difficulties.
The issues briefly described here are just a few of those touched on in the 46 articles of the Electricity Price Act. Views on this piece of legislation vary in the extreme. There is no doubt that some of the adopted solutions should be refined, while others should not have been adopted at all. Today, it seems that the assessment of the act depends on whether the commentator has gained rights under the act or will be obliged to apply the new mechanisms. From the perspective of electricity users, the provisions will generally contribute to some stabilisation of their costs over the next year. On the other hand, taking into account the prevailing view among trading companies and power generators that certain provisions of the act are not warranted, it is hard to expect good legislation to be adopted in the less than two weeks devoted to this act.
Igor Hanas, adwokat, Łukasz Bondaruk, adwokat, Energy practice, Wardyński & Partners