A flexible regulatory framework

Regulatory reform of the Finnish electricity market meant opening up potentially competitive parts of the electricity sector to competition and eliminating all unnecessary forms of regulation covering generation, wholesale supply, retail supply, and foreign trade in electricity. New types of control and regulatory mechanisms and institutions were set up for those parts of the electricity industry that were excluded from competition, such as network operations. Network activities now have to be licensed, whereas no licence is needed for generation or supply. A new sector-specific regulatory authority was established in 1995 to coincide with the implementation of the Electricity Market Act, known as the Electricity Market Authority. This is responsible for regulating network activities and retail supply to captive customers. The core function of the authority, which employs some 14 people, is to promote the smooth operation of the Finnish electricity market and to oversee the implementation of the Electricity Market Act and its provisions. Its most important duties are linked to overseeing the process by which network companies price their electricity. As price regulation no longer exists, all the companies in the electricity sector set their tariffs independently, even network companies. The job of controlling the pricing of network services is handed by the Electricity Market Authority, following the principles of competition control. Pricing control takes place ex post - after a pricing system has been adopted by a company and concentrates on individual cases and companies. There is no ex ante system of setting or approving prices and tariffs by the regulator. The tariffs and pricing of network services can be evaluated, however, by both the Electricity Market Authority and the Finnish Competition Authority, which have overlapping powers as regards the pricing of network activities. The Finnish regulatory framework can be described as a system of light-handed regulation in contrast to the heavy-handed systems of outright price regulation