Fortum cancels rate hike owing to "sudden decline in wholesale price"

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The partly state-owned Fortum announced on Tuesday that it would cancel increases in the price of household electricity that it announced on Monday last week.
      At that time the electric utility had said that it would raise rates for its customers around Finland by ten per cent from the beginning of next year.
      Recent new Fortum customers in Espoo were facing a higher rise of 15 per cent. However, on Tuesday Fortum unexpectedly cancelled those rate hikes as well.
     
Fortum said that a sudden decline in wholesale price of electricity in the Nordic electricity exchange Nord Pool was behind the decision to reverse the earlier decision.
      The company said that the projected wholesale price of electricity has fallen sharply in late November after rising for a whole year. Just in the past few days the wholesale price has declined by more than ten percent, according to the company.
      Erkki Kari-Koskinen, head of Fortum Markets, which deals with retail sales of electricity, blames the curious sequence of events partly on the legal requirement that customers must be notified in writing about rate changes no later than one month in advance.
      Kari-Koskinen noted that the procedure is a rigid one, and rapid changes in market prices can cause situations such as this one.
     
Fortum’s explanations are challenged somewhat by the fact that wholesale prices of electricity have been falling for several months - not just last week.
      Wholesale prices for the near future were at record heights in August after a dry summer had left water levels in reservoirs very low. However the prices later began to come down gradually. The decline has been fairly sharp for nearly two months - not just a couple of weeks as Fortum suggests.
     
The decision to cancel the price hikes was made on Tuesday morning by the top management of the company - mainly CEO Mikael Lilius.
      This is the logical conclusion, considering that as late as Monday evening, Kari-Koskinen and Fortum’s spokeswoman Carola Teir-Lehtinen said at a meeting with the Espoo City Council that the price hikes would stay in force.
      The cancellation of the price hikes came shortly before Lilius and several other managers of electricity companies met with Minister of Trade and industry Mauri Pekkarinen (Centre) to discuss the situation on the Finnish electricity market.
      The announcement, therefore, came at very convenient time, as it had a softening effect on the discussions with Pekkarinen.
     
Pekkarinen held a press conference after the meeting, in which nothing new was revealed. However, he assured reporters that he had not called Lilius to demand the cancellation of the price hike.
      "As a minister I will not interfere with price matters of listed companies, and I warn others who might be in the mood not to do so", Pekkarinen said. Lilius also insisted after the meeting that the decision was made purely within the company, and that no political pressure was involved.
      Fortum’s head of sales Jarmo Kurikka says that the "process preparing for the raise" began in the company already in early October, even though it was only a week ago that information was given about it on the company’s website.


Previously in HS International Edition:
  Fortum price hike prompts households to seek cheaper alternatives (28.11.2006)
  City of Espoo shocked at Fortum announcement of electricity price hikes (24.11.2006)
  Fortum announces sharp price hikes in 2007 (23.11.2006)

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