Power company Fortum announces a new round of electricity price hikes

Second increase will bring households' total additional bill to 25% this year, even though wholesale prices are declining

print this

The majority state-owned energy company Fortum has announced that it is to raise the price of electric power for its retail clients by approximately 14 % from December 2008.
      In fact this is the second time over a short period when the company has decided to increase its consumer prices.
      Applied to the company’s long-term Fortum Kesto contracts and some 300,000 clients, of whom most are households, the impending price hike will take place only four months after the previous 9% increase in August.
     
The price of electricity to be paid by Fortum’s customers will increase in spite of the fact that the wholesale prices in the Nord Pool have been declining through the entire month of October.
      Previously, Fortum has already raised the transmission prices and the fees on district heating generously.
     
The same clients were the target for the previous 9% hike in August, which means that the price of electricity for this clientele has risen by almost 25 %.
      The majority of Fortum’s retail customers can be found in Espoo, Kauniainen, and in Southwestern Finland.
     
In its press release, Fortum Markets explained the impending hike by saying that the Fortum Kesto contract prices are at a low level when compared with the wholesale prices of electricity.
      The previous price hikes at the beginning of August were explained by the development prospects of the wholesale electricity prices for autumn and winter.
     
At the moment, the electricity service provider’s argumentation sounds curious, as the wholesale futures trading prices, on which the retail business is based on, have been declining considerably over the entire October.
      In fact, these prices have dropped by approximately EUR 20 per megawatt hour in the course of the current month.
      Customer Manager Timo Liiri of Fortum Markets explains that the August hike was not sufficient to raise the company’s profitability to satisfactory levels.
      At the same time, the profits enjoyed by Fortum’s production side nevertheless have amounted to billions.
     
The listed electricity retailer Fortum issued its Interim Report for January-September 2008 last week. According to the report, good results have continued with a particularly strong performance in power generation.
      Fortum’s net cash from operating activities remained strong at EUR 1,440 million, even though the operating profit in the retail market segment was around EUR 30 million in the red.
     
The power generation facility sells its electricity to the wholesale markets at a good profit, but Fortum’s retail sales unit Fortum Markets has not managed to negotiate its purchases in the wholesale market well enough in order to make make money from end-sales to consumers.
      Since July, Fortum’s stock price has been declining sharply, partly because of the suspicions expressed by investors towards Russia. Fortum acquired an electrical utility in Russia for approximately EUR 3 billion at the beginning of the current year.
     
In 2008, Fortum has carried out several price hikes in Finland.
      In September the power company raised its transmission prices in Espoo, Kauniainen, Kirkkonummi, and Joensuu by 9 %. At the beginning of August the company increased the rates on district heating by up to 8 % in the same locations as well as in Tuusula and Järvenpää.
      Back in May Fortum ”harmonised” its basic prices, whereupon the tariffs for the Fortum Kesto clients increased considerably.
      While many other electricity retailers have also increased their prices earlier this year, no other electricity service provider has started a second round.


Previously in HS International Edition:
  Cheaper electricity brought about by mild winter fails to translate into lower consumer prices (20.3.2008)
  Fortum buys electric utility in Russia (29.2.2008)
  COMMENTARY: Power company Fortum becomes automat for price hikes (1.11.2005)
  New EU emissions trading period raises consumer price of electricity (3.1.2008)
  Fortum price hike inspires electricity consumers to shop around (1.12.2006)
  Fortum announces sharp price hikes in 2007 (23.11.2006)

Links:
  Fortum Corporation press release: Interim Report January-September (22.10.2008)
  Fortum: Home Customers

Helsingin Sanomat