Suppliers’ unfair practices have disappeared since the energy crisis, says ERÚ councillor Zemanová

Tens of thousands of households have dealt with, and continue to deal with, problems related to the energy market crisis. This is hardly surprising: during the energy crisis, electricity prices and exchange-traded gas prices rose to several times their original levels. This forced several electricity and gas suppliers to cease operations. The best-known example of a supplier collapse is undoubtedly Bohemia Energy, which affected hundreds of thousands of customers. Other suppliers survived only because they resorted to unfair practices. Most often, suppliers moved customers onto less favourable price plans without their consent.

According to Markéta Zemanová, a councillor at the Energy Regulatory Office (ERÚ), these practices no longer occur: “In practice, traders no longer resort to this today. However, we are retrospectively imposing very high fines on suppliers for failing to honour fixed prices.”

What issues do consumers most frequently bring to the Energy Regulatory Office (ERÚ)? How have their complaints changed over time? And what does this say about the practices of electricity and gas traders? Markéta Zemanová discusses these and other issues.

When several suppliers led by Bohemia Energy collapsed in October 2021, did you notice it immediately on your customer helpline?

Yes, consumers immediately began contacting us to deal with transfers to suppliers of last resort, the subsequent search for a new trader, the setting of advance payments and other related matters.

However, we had already seen an increase in enquiries and complaints before then. From summer 2021, the first wave of rising electricity prices and gas prices on exchanges had begun, and this was a significant increase by the standards of the time. Some suppliers responded by trying to move their customers to more expensive standard price plans or so-called spot products, where the price was based on current electricity prices on the exchange. They did so in breach of contracts under which people had fixed prices. This was, among others, the case of Bohemia Energy.

Do you still encounter this practice now?

In practice, traders no longer resort to it today. However, we are retrospectively imposing very high fines on suppliers for failing to honour fixed prices. Last year, these included Bohemia Energy (2 170 000 koruna) and TGC Energie (1 500 000 koruna), and this year ARMEX ENERGY, which also demanded payment for unordered energy supplies or handled complaints late. This was the highest penalty for anti-consumer conduct that we have ever imposed, amounting to 4 746 000 koruna.

Why do you impose fines with such a delay?

Imposing a high fine is preceded by several steps and a great deal of painstaking work. First, we must precisely document individual cases, followed by an inspection and, where justified, sanction proceedings. In a single proceeding, we typically deal with dozens to hundreds of individual cases. Traders almost always file what is known as an appeal against our first-instance decision, followed by another round of legal battle. To win it and impose a final fine, the decision must be perfectly prepared and polished. This is also why precise documentation is so important.

As you mention, you have imposed several high fines recently. Has the crisis changed the authority’s approach to energy suppliers?

I would not say that we have changed our approach to suppliers’ offences; we have always sought to penalise them as severely as the law allows. Rather, we respond to legislative amendments, some of which we initiate ourselves. Specifically, I would mention the supplier black mark, which I firmly believe will be included in the upcoming amendment. In short, we currently have to grant a licence to anyone who meets the statutory requirements. It does not matter that they have previously lost a licence because they engaged in serious anti-consumer practices or caused a supplier to collapse. The person simply sets up another company… That should no longer be possible.

What else would you welcome in legislation?

For a long time, we have sought higher fines. For example, under the Consumer Protection Act, we can impose a maximum fine of five million. As I mentioned, this year we came close to the “ceiling”, but I can imagine the upper limit being higher. Intentional and serious offences should carry fines high enough to deter them. We would also like to increase penalties when suppliers fail to cooperate with us during inspections in an effort to avoid punishment. It is similar to refusing to take a breathalyser test for a traffic police officer: you are automatically considered guilty. Such a practice must not pay off for the inspected entity in the energy sector either! We would also like to expand the list of prohibited practices. The often vague statutory definition of what is prohibited makes our position in administrative proceedings more difficult. In general, the principle is that what is not prohibited is permitted.

And what has already been achieved from your perspective?

For example, the maximum duration of fixed-term contracts has been set at three years, which was not the case before. Some people had signed disadvantageous contracts for as long as ten years! A power of attorney to conclude a new contract, whether for a supplier or an intermediary, has been limited to a maximum of one year. Intermediary contracts can be terminated at any time, and intermediaries themselves have come under our supervision and must register with us. This was a crucial step, considering that before the start of the crisis, intermediaries accounted for half of the consumer complaints we received.

Let us briefly return to Bohemia Energy. ERÚ was often criticised for allegedly having failed to prevent the situation. Could ERÚ have foreseen it in any way?

We could not have prevented it in any way! At a certain point, Bohemia Energy simply did not have sufficient energy to supply the people who had contracted for it. This was because it bought on the so-called spot, or short-term, market. This had long been advantageous, but then prices rose sharply and Bohemia Energy suddenly lacked money. The law did not impose any obligation on traders regarding how they should procure commodities, so logically we could not enforce anything of the sort. Indeed, we did not even know what procurement strategy individual suppliers had; that was their trade secret.

So you have no leverage over suppliers?

In short, there is the regulated market. By its nature, it is monopolistic—whether in energy distribution and transmission or system services—and we have fairly extensive powers there, acting as a kind of police officer. Energy trading itself, however, is unregulated: prices are determined by the market and the strategies of individual suppliers. We can intervene only if they breach legislation, for example consumer protection law, typically by engaging in unfair practices. The mere setting of a business strategy is not regulated, so there can be no breach of rules that do not exist.

What legislative changes have been made to prevent a repeat of the Bohemia Energy case?

Immediately after its collapse, we proposed several changes. Two major ones should appear in the upcoming amendment to the Energy Act, referred to as Lex OZE III. The first is a measure we call the supplier black mark. If someone with a past “stain” now applies for a licence, we have no option not to grant it if they meet the statutory conditions. These do include good character, but a person loses that only if they are finally convicted of a criminal offence. Anti-consumer conduct, however, can at most constitute an administrative offence. This should now change: if someone significantly harms customers, fails to meet their financial obligations or sends customers into the supplier-of-last-resort regime, they will be barred for a certain period, as is the case under the Trade Licensing Act, including company executives. In addition, suppliers will be required to set a so-called security index, linked precisely to the aforementioned procurement strategy. Customers will be able to see from it how well stocked a supplier is in advance. These are therefore measures aimed at prevention and transparency.

Does European Union legislation help us in this respect?

In general, all European legislation leads towards strengthening the free market and removing barriers—that is, away from any central influence over regulated energy prices. This is also why foreign colleagues did not understand at all what we in the Czech Republic were being criticised for after suppliers led by Bohemia Energy collapsed. “Yes, traders have collapsed. Unfortunately, that can happen in any sector. But surely you have nothing to do with that!” they told us. European legislation did of course respond to the energy crisis, including by strengthening consumer protection, but nothing is changing in the direction towards a free market.