Dividing Sweden into several price areas harmful to the functionality of the Nordic electricity market

Fortum Corporation
Press release
5 November 2009

Dividing Sweden into several price areas harmful to the functionality of the
Nordic electricity market

Svenska Kraftnät, the Swedish transmission system operator, proposes that
Sweden is to be divided into four separate price areas in the Nordic physical
electricity market in order to manage congestion caused by limited transmission
capacity in the country. The proposal distorts competition and contradicts with
the goal to create a common European wholesale market and a common Nordic
retail market.

The Danish electricity supply organisation complained in 2006 to the European
Commission that Svenska Karftnät's management of internal congestion in the
Swedish transmission system may have infringed the EU competition law. The
Commission, in its preliminary assessment from June 2009, concluded that Svenska
Krafnät indeed may have abused its dominant position when it has anticipated
internal congestion within the Swedish transmission systems by reducing
interconnection capacity between Sweden and neighboring member states. Svenska
Kraftnät has made a proposal to divide Sweden into several price areas in
order to meet the Commission's concerns.

New price areas discourage grid investments

The plan to introduce additional price areas is in contradiction with EU's
ambition to create a common European wholesale market. Furthermore, it would
hinder the creation of a common Nordic retail market. In Fortum's opinion,
larger price areas that spread even beyond national borders will best facilitate
the further development of a common and efficient Nordic wholesale and retail
market. The goal should be a level playing field with efficient transmission and
a common price for the whole market area.

"We believe that fostering the necessary grid investments should remain in
centre of attention - the only sustainable way to eliminate congestion is to
dimension the transmission capacity according to market needs. The already
agreed grid investments, in particular the South-West Link that will connect
central-Sweden and southern-Norway to the southern-most part of Sweden, should
be speeded up as a part of economic stimulation," says Per Langer, Fortum's
Executive Vice President responsible for Swedish operations.

"In the short-term, until the necessary grid investments have been made,
congestion management challenges could be alleviated by counter-trading. The
introduction of new price areas is counter-productive as it removes the
immediate incentive for the TSOs to invest in needed capacity," he summarises.

New price areas distort competition and increase retail prices

Introducing additional price areas would also decrease transparency on the
retail market and raise hedging costs. This in turn, would increase the
volatility of consumer prices and might even decrease competition as electricity
retailers would not find all areas equally attractive. An increased number of
area prices would also make price formation more complex and less transparent
for the end-customers.

"Just last month, the Nordic energy ministers voiced their shared ambition to
create a well-functioning Nordic retail market where consumers could choose
their electricity supplier across national boarders. We at Fortum fear that
dividing the already restricted national price areas into several smaller areas
would be a giant leap backwards in this respect," Per Langer concludes.

Fortum Corporation
Corporate Communications

Fortum's response to the European Commission Directorate-Competition:

Further information:
Esa Hyvärinen, Vice President, Public Affairs, tel. +358 40 826 2646