Presentation about energy poverty and a case study on conflicting …€¦ · May 25-26 Chisinau,...

www. erranet.org ERRA Customers and Retail Markets Working Group Meeting May 25-26 Chisinau, Moldova

Presentation about energy poverty and a case study on

conflicting law Prepared by Viktor Szilágy

Hungarian Energy and Public Utility Regulatory Authority (HEA)

!

2 ERRA Customers and Retail Markets Working Group Meeting May 25-26 Chisinau, Moldova

Energy Poverty

Definition – legal definition

• Unlike other states, Hungary has no official definition for energy poverty

• The current EU legislation in effect, the Third Energy Package tackles energy poverty in 3 legislative acts, the

Electricity Directive (2009/72/EC), the Gas Directive (2009/73/EC) and the Energy Efficiency Directive

(2012/27/EU).

• These directives do not give a definition for energy poverty, they only refer to it, and recognize it as a problem

to be addressed and solved.


Energy Poverty

But there are some countries in Europe that recognized energy poverty at legal level:

• The United Kingdom was the first country that gave energy poverty an official definition. On this basis energy

poverty means that a household’s cost - maintaining an adequate heating regime (according to the WHO:

adequate temperature for the living room is 21 ºC, and 18 ºC for the other rooms) - is above the average. If this

amount is spent, it leaves the residual income below the official poverty line. This definition is based on the Low

Income High Costs (LIHC) indicator. According to the previous definition – in effect between 2001 – 2012 – if a

household must spend more than 10 % of its income for household energy, it shall be considered as energy

poor (The official UK Fuel Poverty Strategy of 2001).

• In Slovakia, energy poverty under the law No. 250/2012 is a status when average monthly expenditures of a

household on consumption of electricity, gas, heating and hot water production represent a substantial share of

average monthly income of the household.

• In France, the definition for energy poverty, existing since 2010 is the following: a person who encounters in

his/her accommodation particular difficulties to have enough energy supply for satisfying his/her elementary

needs. This is due to the inadequacy of resources or housing conditions.


Energy Poverty

• In Ireland, energy poverty is a situation whereby a household is unable to attain an acceptable level of energy

services (including heating, lighting, etc.) in the home due to an inability to meet these requirements at an

affordable cost.

• According to legislation of Cyprus, energy poverty may relate to the situation of customers who are in

difficulties due to their low income, indicated by their tax statements in conjunction with their professional

status, marital status and specific health conditions. Therefore they are unable to cover the costs of their

reasonable needs for the supply of electricity, as these costs represent a significant proportion of their

disposable income.


Energy Poverty

• The new EU legislative package, i.e. the „Clean Energy for All Europeans” addresses energy poverty in the

same directives but it still does not give an exact definition, rather more concrete details and tasks.

• Member States shall measure energy poverty through indicators which shall contain:

1. low income

2. high energy expenditure

3. poor energy efficiency of the consumers’ homes.

• Member States shall monitor energy poverty and report on it to the European Commission in every 2 years.


Energy Poverty

As there is no legal definition for energy poverty, there is no legal protection aimed directly at those suffering from

energy poverty – the current Hungarian legislation approaches the problem by the definition of vulnerable

consumers:

• vulnerable consumers are those households that require special attention due to their social status defined in

legal regulation, or some other particular reasons

• vulnerable consumers are defined just in electricity and natural gas supply

• vulnerable consumers are defined according to their social status as follows:


Vulnerable Consumers - Social Status

1. Unfavorable financial situation (indigence)

• being eligible for nursing contribution, i.e. for nursing a full aged relative at home (a sum of 29.500 HUF per

month)

• receiving alimentation for active aged persons, having lost working ability, or are unemployed but are no longer

entitled to unemployment allowance (a sum of 22.800 HUF per month)

• receiving alimentation for the old, i.e. for people who are entitled to a pension, based only on their age, not on

their working years (a sum between 24.225 – 38.475 HUF per month)

• receiving regular fee for child protection i.e. for those who are obliged to adopt or accommodate a child and

receive pension (a sum of 6.270 HU per month)

• receiving housing support (30 % of the housing cost) if the income is less than 250 % of the minimum pension,

based on age (28.500 HUF per month in 2017)

• receiving housing aid, i.e. a sum between HUF 1.339.500 - 1.909.500 can be given for buying or renting a

house to young adults between 18 and 30, having spent at least 3 years in public child care facilities

• fee for professional foster parents, who raise children in their own households.


Vulnerable Consumers - Disabilities

2. Living with disabilities:

• blind or severe disability of the sight;

• deaf or having severe hearing impairment;

• mentally retarded by genetic reasons or by traumatic birth, or by disease before the 14th year of age;

• severe disorders in the personal development (psychological disorders);

• restricted mobility, or no mobility at all;

• combination of those above;

• combination of those above where there is no possibility for improvement and the individual will not be able to

live alone by himself, requiring constant help;


Consumers in gas market

3 244 369; 99%

33 041; 1%

Universal service

Free market

Proportion of Consumers in Hungarian Gas Market


Consumers in electricity market

5 209 886; 94%

343 706; 6%

Proportion of Consumers in the Hungarian Electricity Market

Universal service

Free market


Vulnerable Consumers in gas market

14069; 95%

769; 5% 31; 0%

Social disposition Disability Both

Proportions of Vulnerable Consumers in the Hungarian Gas Market


Vulnerable Consumers in electricity market

38718; 96%

1651; 4%

117; 0%

Social disposition

Disability

Both

Proportion of Vulnerable Consumers in the Hungarian Electricity Market


Vulnerable Consumers vs energy poverty

But the question is: are only vulnerable consumers

energy poor?

Or are they the only ones registered and accounted for?

Currently there are no official statistics on this: a

backward approach is necessary!

A walk in the dark


Consumers in Hungary

The number of consumers in Hungary

Electricity Gas

Universal service Free market Altogether Universal service Free market Altogether

2015 5 201 098 356 494 5 557 592 3 332 309 26 749 3 359 058

2016 5 209 886 343 706 5 553 592 3 244 369 33 041 3 277 410

Difference 8 788 -12 788 -4 000 -87 940 6 292 -81 648


Disconnected households in electricity

16 000

16 500

17 000

17 500

18 000

18 500

19 000

19 500

20 000

2016.07.01 2016.08.01 2016.09.01 2016.10.01 2016.11.01 2016.12.01

Total number of disconnected households because of non-payments in electricity

Total Number of Disconnected householdsbecause of Non-payments


Disconnections and reconnections in electricity

The monthly proportions of disconnections because of non-payment and reconnections in electricity

0

1 000

2 000

3 000

4 000

5 000

6 000

Total Number ofDisconnections because ofNon-payments

Total Number ofReconnections


Disconnected households in natural gas

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

2016.07.01 2016.08.01 2016.09.01 2016.10.01 2016.11.01 2016.12.01

Total number of disconnected household consumers because of non-payment in natural gas

Total number of disconnected householdconsumers because of non-payment


Expected Developments and Challenges

The monthly proportions of disconnection because of non-payment and reconnections in gas

0

500

1 000

1 500

2 000

2 500

Number of disconnectedhousehold consumer in thegiven month because ofnon-payment

Number of reconnection ofhousehold consumers thatwere disconnected earlierbecause of non-payment


Average income in Hungary between 2008 - 2016 according to the Hungarian Central Statistical Office

2008 2009 2010 2011 2012 2013 2014 2015 2016

Net income of employees (HUF) 121 969 124 116 132 604 141 151 144 085 151 118 155 690 162 391 175 009

Net income of employees (EUR, 1 EUR ≈ 310 HUF)

393 400 427 455 464 487 501 523 564


Average income in Hungary in 2016

Territorial dispersion of average income in Hungary in 2016


Expenditure of households - 2016

Monthly per capita expenditure of households on housing and household energy, 2016

The second largest segment of expenditure is housing and household energy, the monthly per capita amount of 17.000 HUF

(≈55 EUR) spent on this was 1.9% more in real terms than a year earlier.

Within this, household energy accounted for the largest share of 64.1% with a monthly per capita amount of 10.900 HUF (≈35

EUR) and 6.100 HUF (≈20 EUR) was spent on others (refuse collection, sewage collection, collective maintenance fee, dwelling

maintenance – repairs, water supply, rentals)



3650; 22%

3444; 21%

2372; 14% 1025; 6%

6104; 37%


(in total 16.595 HUF ≈ 54 EUR)

Gas

Electricity

Solid fuels

Hot water and district heating

Other



3824; 22%

3480; 20%

2643; 16% 953; 6%

6100; 36%


(in total 17.000 HUF ≈ 55 EUR)

Gas

Electricity

Solid fuels

Hot water and district heating

Other


Expenditure of households

Among these items, the volume of expenditures on solid fuels increased the most (by 8.0%) compared to 2015.

In 2016, the average price of energy and fuels remained unchanged (99.9%); within this, the price of gas

diminished by 0.8%.

As a result of the dynamic decrease in gas prices in recent years, the attitude of households changed as well,

which is indicated by the fact that in the observed year, the expenditure on gas rose by 5.6% in real terms.

The popularity of solid fuels is increasing year by year despite their price rise of 3.2% which is outstanding among

household energy carriers.


Natural gas pipelines in Hungary


Energy poverty in Hungary

Main reasons and manifestation of energy poverty in Hungary

Condition of the housing stock - Poor energy efficiency and thermal performance of the residential buildings

• Single family houses built before 1990s.

• Prefabricated multi-apartment panel blocks in large housing estates – the flagship of communist housing

policies. Often supplied with DH networks, they currently host an unconventional typology of energy poverty as

a result of high domestic energy costs, the lack of individual consumption meters and the inability to switch

fuels. In many cases the pre-fabricated panel buildings supplied by DH without individual consumption meters

and one-pipe, single-loop vertical hot water distribution systems, where the disconnection of individual

households is technically impossible. Yet, arrears and non-payment reinforce the drivers of energy poverty as

they undermine the capacity of DH providers to invest in the maintenance of upgrades of the system.


Energy degradation

Due to inability to pay the costs of modern energy sources – mainly natural gas – consumers started to substitute

them with traditional or solid fuels for domestic use.

This phenomenon emerged in the rural parts of Hungary. According to researches approximately 36% of

Hungarian households relied on solid fuels in 2011, as opposed to 14% in 2005. The trend was observed

despite the presence of piped gas links in 76% of dwellings and 91% of settlements in Hungary, even if the amount

of natural gas consumed per household dropped from 1456 m3 per year in 2005 to 950 m3 per year in 2015.

Those households with lower income and living not in multi-apartment building started to switch on solid fuel from

natural gas. The propensity for lower income households to consume solid fuels is indicative of the increasing

inequality in the purchasing power of households, rather than matters of evolving cultural or economic preferences.

This results in a backfire effect: while there is regulated price in electricity and natural gas, there is no such

regulation on solid fuels.


Social groups of energy poverty

Social groups mostly affected by energy poverty

1. Roma minority living in the rural areas of Hungary

The Roma minority as a group is especially hit by energy poverty. As the minority has already difficulties with the

integration to the majority of the society because of demographical, educational and employment reasons, their

struggle is made more difficult by energy poverty. Those characteristics – belonging to the Roma minority and living

in a rural area – accumulate their disadvantages. Studies in the rural areas of Hungary proved that Roma

households rely mostly on the following energy sources:

• electricity (connected legally or illegally to the distribution system);

• propane-butane gas in cylinders, mostly used for cooking, rarely for heating purposes;

• firewood (bought, or very commonly stolen from forests) used mostly for heating, rarely for cooking purposes.

Part of the Roma population, who were willing to pay for electricity or pipeline gas did not possess a legal access to

the gas and electricity networks because they could not afford the cost of joining those networks. So at the end the

consumed gas and electricity was unpaid as well which induces more tensions. So in this case poverty and energy

poverty overlaps very much.


Roma minority in energy poverty

A picture from a rural village populated by roma minority

(picture taken from www.szon.hu)


Heat trap of outskirts

2. Heat trap – living in district heated outskirts

District heating and hot water is a cheaper choice if the density of population is high enough and nearly everyone

uses them. If households are equipped with individual meters, each household can regulate its consumption and

influence its costs, provided that the district heating system and the house’s heat insulation is effective.

Hungary today is far from this description. Therefore the approximately 650.000 households with low incomes

using the district heating will be hostages of housing which are difficult to detach from the district heating system,

so they have to pay painfully high bills without the perspective of improving.


Heat trap of outskirts

A typical Hungarian residential complex consisting of prefabricated buildings


Old and cold

3. Elderly citizens

Elderly citizens are even more endangered by energy poverty in this already vulnerable group. This has more

reasons.

• Most of the elderly citizens live in housing with low utilization (i.e. often completely alone, with no relatives, or

the relatives living far or abroad), which means a risk in terms of energy poverty, as there is only one – mostly

low income. Mostly affected are those old who live alone in their house.

• Very few senior citizens have unpaid bills which would lead to disconnection from the energy networks. At first

glance, it seems a very good news. Why is it not that good in reality? Most senior citizens have an honorable

attitude towards bills: they must be paid first. Being unable to pay the bills is considered as stigma by others.

Being able to pay the bills borrows pride, as being self-sufficient. But this leaves less money for the costs of

food and medications and other goods. They rather turn off the heating or electricity in order to save money for

other expenses rather than having unpaid bills.

• Senior citizens are sensitive to temperature, thus being exposed to winter death.

• Consequently, senior citizens rather cut off the energy networks than having debts, leading to numerous cases

of winter deaths in housings, like freezing to death. Almost in every winter there are such news in the media.


Almost froze to death

A picture from a report about a man who almost died from the cold in his own house

(picture taken from www.mozaikonline.hu)


Borderline between public and private law

A Hungarian case study


Private or public law

• The energy sector lies in the intersection of private and public law

• In the classic private law approach the contracting parties – consumers and service providers – are

theoretically equal.

• As energy becomes a more and more indispensable public service and parties are actually not equal,

interventions from the state increase.

• These interventions materialize in sector specific legislation, where more obligations are imposed on service

providers.


Law on overhead recovery cost

The reason that triggered this case was not sector specific

The law on overhead recovery cost entered into effect in Hungary on the 24th March 2016. The law was created in

order to transpose the EU Directive 2011/7/EU on combating late payment in commercial transactions to ensure

the proper functioning of the market. According to the law:

• commercial transactions are transactions between undertakings or between undertakings and public authorities

which lead to the delivery of goods or the provision of services for remuneration;

• undertaking means any organization, other than a public authority, acting in the course of its independent

economic or professional activity, even if that activity is carried out by a single person;

• late payment means payment made not within the contractual or statutory period of payment.

In case of late payment, the undertaking which rendered services (creditor) is entitled to a fixed sum of 40 EUR as

recovery costs from the debtor.


No harmonization of commercial codes

According to this law, service providers sent notices to their consumers if they were late with payments

with no regards to the payable sum and without harmonizing their commercial codes.

The first service provider of gas supply issued cost recovery notices:

• for 33.926 consumers in

• 169.781 cases of late payment

• in the sum of 2.119.314.522 HUF (approximately 6.836.499 EUR).

So for each unsettled bill the service provider applied the cost recovery of 40 EUR, which means if the same

consumer was late with 3 payments, he received claims for 40 EUR cost recovery 3 times.

As a consequence of this, in 2016 within two months consumers paid 677.508.570 HUF (approximately 2.188.511.

EUR) to the service provider as cost recovery.


No individual circumstances to consider

The service provider issued cost recovery notices to consumers regardless whether they were commercial

organizations and pursued commercial activities, like natural persons, or legal persons (foundations, churches, civil

societies). The service provider did not examine the individual circumstances of the consumers and the sum of the

debt in good faith. The cost recovery was very often larger than the amount claimed in the bill.

HEA intervened, fined and prohibited the service provider to carry on with this practice. On this basis the service

provider cannot demand cost recovery unless this is stipulated in its commercial codes, which had not contained

such stipulation earlier. HEA obliged the service provider to also pay back the recovery cost paid by the consumer.


Appeal against HEA’s decision

The service provider appealed against HEA’s decision and went to court.

Its legal argument was based on an EU directive which was transposed into the Hungarian legal system by law.

The transposition was made at the level of law in the Hungarian legal system, at the same level of the law on

electricity and natural gas.

The possibility to use the overhead recovery cost is based on contractual relationship between the service provider

and the consumer, a legal connection clearly based on civil law, so there is no legal ground and cause for a public

authority – except courts – to interfere.

Since the law allows the use of overhead recovery cost, it is not necessary to incorporate the possible use of

overhead recovery cost into the commercial codes, therefore there is no legal ground for HEA’s decision and fine.


HEA won the case in 80%

The court ruled on the 28th March 2017.

According to judgement HEA won the case in 80%.

The judgement said that energy sector – like any other sector, for example telecommunication or air traffic – is a

special sector where the service provided is to be considered as a public service provider. As a public service, the

state has the right to intervene with sector-specific legislation.

The acts on electricity and natural gas have both an implementing regulation. In those implementing regulations

there are mandatory elements for the conditions and breeches of contracts. These elements must be in

accordance with the commercial codes – which enter into effect only after HEA’s approval - of the service

providers.

So in this peculiar case the transposed law must be interpreted and applied in harmony with the sector specific

legislation, namely the acts on electricity and natural gas and their implementing regulations. The implementing

regulations specify that the commercial codes must contain the sanctions that service providers can impose on

their consumers.

Even though in general there is a legal claim (delay in payment) and general legislative act to recover cost caused

by late payment, it cannot be used in energy sector without incorporating this first into the commercial codes.


Reason of 20% loss of the case

According to the court there was no jurisdiction for HEA

to oblige the service provider to pay back the recovery

cost already paid. This can only be done by courts.


Appeals against decision

Both HEA and the service provider appealed against the

court ruling and the case is currently at second instance.

There is another similar case before HEA.


Questions that may occur

The questions concerning the case are:

• What are the boundaries of the jurisdiction of an NRA: should an NRA bring decisions in

individual cases of consumers versus DSOs/Suppliers, or should an NRA be limited to

licensing and controlling the DSOs/Suppliers?

• Did any other NRAs have similar cases?

• How did EU Member State NRA transpose the directive in question, how was the fair

use of recovery cost considered?


Sources of the data used:

- HEA

- Hungarian Central Statistical Office

- Stefan Bouzarovski, Sergio Tirado Herrero, Saska Petrova & Diana Ürge-Vorsatz (2015): Unpacking the

spaces and politics of energy poverty: path-dependencies, deprivation and fuel switching in post-communist

Hungary, Local Environment,

W

THANK YOU FOR YOUR ATTENTION!

Szilágy Viktor

E-mail: [email protected]

Web: www.mekh.hu

Presentation about energy poverty and a case study on conflicting …€¦ · May 25-26 Chisinau,...

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