Are households better off in liberalized electricity markets: the Nordic case

The electricity supply industry used to be a regulated monopoly often dominated by state-owned and municipal enterprises. The Nordic countries - Denmark, Finland, Norway and Sweden - were no exception. During the nineties they liberalized their electricity supply industry and created an integrated wholesale market. Norway was first (1991), then came Finland and Sweden (1996) and Denmark was last (2000). Together with the UK the Nordic countries are now considered the avantgarde with respect to implementation of the European electricity market directives. The purpose of liberalization is to increase economic efficiency without sacrificing important public values such as universal service obligations, quality of service and high environmental standards.

Liberalization and the introduction of competition are often considered synonymous with deregulation, which is a misunderstanding. Before the electric utilities mostly acted under very little surveillance and the authorities only intervened in specific cases of abuse. The separation of operational and regulatory functions was far from clear-cut - state and municipal agencies often had both functions. Today much more detailed principles of regulations administrated by independent regulatory agencies have been developed. The purpose of this paper is to analyze the situation for Nordic household consumers after liberalization of the electricity supply industry. A number of new regulatory principles have been introduced and some of them with particular regard to small customers. Do Nordic households actively use the new options for switching supplier and choosing a market contract that fits their preferences? How has liberalization influenced their supply costs? This is a question of market prices as well as of charges for using the distribution and transmission network. These networks are still regulated monopolies but have been exposed to new regulatory principles. Have problems with respect to universal service or social obligations occurred as a consequence of liberalization? The outcome so far is different for the four countries. Many Norwegian and Swedish households are actively using the new market opportunities whereas Danish and Finnish have been much more passive. The experience with respect to regulation and prices is mixed. In none of the countries have important public values been sacrificed as a consequence of liberalization.