Turkey: Applicability Of Consumer Protection Legislation In The Turkish Electricity Market

Abstract

With the continuous efforts towards liberalization of the electricity market in Turkey, the importance of applicability of consumer legislation to the electricity sector and the way in which it is specifically applied is increasing day by day. Electricity market legislation makes a distinction between "eligible" and "non-eligible" consumers as further explained below; however, the eligibility threshold is being decreased gradually each year with the aim of entitling each electricity customer to choose its electricity supplier freely. In addition, the consumer protection legislation has undergone substantive changes in 2015. These emerging developments require an analysis of the definition of 'consumer' under electricity market legislation and consumer legislation, as well as the applicability of consumer protection legislation to electricity sale contracts.


Introduction

Turkish Electricity Market Overview

Until the early 1980's the power sector in Turkey had been dominated by Türkiye Elektrik Kurumu, which was established in 1970 to generate, transmit, distribute and trade electrical energy as a state monopoly. Liberalization efforts for the Turkish power sector started at the beginning of the 1980 and Turkey's first private power law, the Build-Operate- Transfer Law, was enacted in 1984. As a result of the efforts towards harmonization with the European Union legislation, Electricity Market Law No. 46281 ("Law No. 4628") was enacted in 2001 to further liberalize the power sector in Turkey; which established an independent administrative institution in order to provide proper operation of the electricity and natural gas markets within a competitive environment. This institution was called the Electricity Market Regulatory Authority, before later being renamed "Energy Market Regulatory Authority". Law No. 4628 envisaged the privatization of state-owned generation and distribution facilities. As part of the liberalization efforts, Turkey was divided into 21 electricity distribution regions and the privatization of all regions was completed in 2013.

On 14 March 2013, new Electricity Market Law2 No.6446 ("Electricity Market Law") was enacted and it entered into force on 30 March 2013. Other than the provisions regulating the organization, powers and duties of EMRA, which remain in effect, the New Electricity Market Law repealed and replaced all provisions of the Law No. 4628 and brought certain novelties to the Turkish electricity market.

Definition of the Consumer

Alongside the energy legislation changes, consumer protection legislation has also been subject to several amendments recently. The Law on Protection of the Consumer3, No.6502 ("Consumer Law") entered into force in May 2014 and since then its secondary legislation has gradually been introduced. Both the Consumer Law and the New Electricity Market Law include a definition of "consumer" and, whilst they are not identical the definitions under these two legislations they do have an intersection.

Under the Consumer Law consumer is defined as 'a legal or real person acting for non-commercial and non-occupational purposes"; whereas the Electricity Market Law defines consumer as "the one who purchases electricity for his/her own needs.'

The Electricity Market Law defines consumers under two categories, namely eligible consumers and non-eligible consumers. Eligible consumers are able to choose their own suppliers while non-eligible consumers must purchase electricity from the supply companies authorized in the relevant region (i.e., authorized supply companies). Since 2002, EMRA has been gradually reducing the eligibility threshold, being the annual power consumption level above which consumers are eligible to choose their own supplier, to liberalize the market and increase competition further. According to the Electricity Market and Supply Security Strategy Paper prepared by the High Board of Planning under the coordination of the Ministry of Energy and Natural Resources in 2009, the eligibility threshold was expected to go down to zero and therefore all consumers were expected to become eligible consumers by 2015. This expectation has not yet been met; though the eligibility threshold has been decreased to 3600 kWh for 2016.

Consumer legislation provisions which are applicable to electricity sale contracts

In the light of the periodic decrease of the eligibility threshold and the aim of eventually decreasing it to zero, the importance of consumer rights and applicability of consumer protection legislation in the electricity market increases day by day.

Article 19 of the Electricity Market Consumer Services Regulation4 states that the Consumer Law and other related legislation shall be applicable to the rights of and for recovery of losses suffered by the consumers that purchase their electricity services in accordance with this regulation. This provision creates ambiguity on whether or not provisions of the Consumer Law should be applicable to all consumers under electricity legislation regardless of their capacity to be deemed as a "consumer" under the Consumer Law. Having said that, accepting such an interpretation may lead to an undesirable situation in terms of general commercial law principle, where the balance between two commercial entities is damaged in favor of one party. Indeed, both eligible and non-eligible consumers may qualify as a consumer under the Consumer Law, to the extent that they do not purchase electricity for their commercial or occupational purposes. Several precedents of the Court of Appeal5 confirm that provisions of the Consumer Law should apply to consumers in the electricity market if they also qualify as a consumer under the Consumer Law.

General provisions applicable to all electricity sale contracts

The Regulation on Subscription Agreements6 ("Subscription Regulation"), which was prepared by the Ministry of Customs and Trade, entered into force on 24 April 2015. The Subscription Regulation stipulates the form and mandatory content of subscription agreements, the content of payment notifications, subscriptions with undertaking, termination of subscription agreements, the results of termination and the liabilities of the sellers/providers.7

As per Article 52 of the Consumer Law, subscription agreements provide perpetual or periodical supply of a commodity or service to consumers. It is clearly stated in the justification of the subject article that electricity subscriptions are evaluated within this scope. Thus, all provisions of the Subscription Regulation are applicable to all types of electricity sale contracts to be executed with customers who are qualified as consumers under consumer protection legislation.

The Subscription Regulation prominently envisages that the sellers/providers are required to execute a subscription agreement with the consumer either in writing or via distant methods, i.e., not in the physical presence of both parties at the same location. Mandatory provisions to be included in those agreements are also explained in detail in the Subscription Regulation. Absence of any of the mandatory provisions would not result in invalidity of the subscription agreement; however, the consumer would become entitled to terminate the subscription agreement without being subject to any compensation or penalty, and as per the Consumer Law certain administrative fines will be applicable to the sellers/providers.7

Following the execution of the agreement, a copy of the agreement must be provided to the consumer in paper form or via a durable medium. According to the Consumer Law, durable medium means 'any instrument or media such as SMS, electronic mail, internet, CD, DVD or memory card which enables the consumer to store information addressed personally to him in a way accessible for future reference for a period of time adequate to the purposes of the relevant information and which allows the unchanged reproduction of the information stored'.

The Subscription Regulation envisages an obligation to send payment notifications to the consumer stating the service fee to be paid by the consumer for the relevant period. The mandatory provisions to be provided in the payment notifications are also listed in the Subscription Regulation.

Termination procedure for subscription agreements and consequences of such termination, as well as the rights of consumers around termination are also stipulated in detail under the Subscription Regulation. Consumers may terminate indefinite term and definite term subscription agreements (with a term of one year or more) at any time, without any reason or penalty. With regard to the definite term subscription agreements with terms of less than one year, consumers are entitled to terminate if the conditions of the agreement are changed by the sellers/providers. Consumers may terminate subscription agreements under any circumstances, provided that there is a valid reason restricting the consumer from enjoying the benefits of the services.

Under subscription agreements, sellers may offer certain advantages (including discounts) to their customers in return of undertakings to be obtained from them. The Subscription Regulation also contains provisions regarding execution and early termination of such subscription agreements and undertakings. According to the Subscription Regulation, a written letter of undertaking comprising the conditions and validity period of such undertaking must be submitted to the consumer as an integral part of the subscription agreement. Mandatory information to be included in the undertaking is also stated in the Subscription Regulation. In cases of early termination of a subscription agreement with an undertaking by the consumer, only those discounts that have been made in line with the undertaking and the unpaid instalments for the goods or the services (if additional goods or services are provided within the scope of the advantage provided to the customer), if any, (collectively the Discount Amount) may be requested from the consumer. However, in case the total amount that would have been paid by the consumer if the agreement had not been terminated is less than the Discount Amount, the limit of the amount to be requested from the consumer would be the lesser one.

For termination of subscription agreements by consumers, it would be sufficient to address the termination notification to the sellers/providers in paper form or through another durable medium. Accordingly, it is possible for a consumer to terminate the subscription agreement through electronic mail.

Provisions which are applicable depending on the type of electricity sale contracts

As one of the secondary legislations of the Consumer Law, the Regulation on Distant Contracts ("Distant Contracts Regulation") entered into force on 27 April 2015. As electricity sale contracts are not excluded from the scope of Distant Contracts Regulation in Article 2, it would not be wrong to conclude that electricity suppliers may also execute electricity sale agreements with their customers, who are qualified as consumers under the consumer protection legislation, via distant sale methods provided that the provisions of the Distant Contracts Regulation are respected.

The Distant Contracts Regulation envisages several obligations on the sellers/providers for protection of consumers with subscription contracts executed via distant methods. First of all, sellers/providers are required to inform consumers prior to execution of the contract via advance information forms, the minimum content of which are stipulated within the Distant Contracts Regulation. The advance information form must be clear, legible and the font size should be at least twelve. Moreover, certain information stated even in the advance information forms must be re-communicated to the consumer just before the consumer assumes payment obligation and the approval of the consumer to assume the payment obligation, in accordance with the distant communication medium, should be obtained separately. In case the parties enter into contract via voice communication, the advance information form should be sent to the consumer separately, prior to performance of the services.

If the total price cannot be calculated beforehand, inclusion of at least the calculation method of the total price in the advance information form is required under the Distant Contracts Regulation. If such obligation is not fulfilled by the sellers/providers, the consumer would not be obliged to make payments related to items not mentioned in the advance information form.

Further, as per the Distant Contracts Regulation, consumers have the right of withdrawal within 14 days following the execution of the contract without being required to provide any justification and without being subject to any penalty payment. The sellers/providers are obliged to prove that the consumer is informed regarding their right of withdrawal. The Distant Contracts Regulation provides a withdrawal notification form and stipulates that with respect to sales conducted over the phone the sellers/providers are obliged to send this withdrawal notification form to the consumer prior to delivery of the goods or the performance of services, at the latest. Consumers may exercise their withdrawal rights in writing or with any durable medium, using the form annexed to the Distant Contracts Regulation or by making a clear statement regarding exercise of the right of withdrawal.

This application is in fact in line with Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the Protection of Consumers in respect of Distance Contracts (Distance Contracts Directive) which states that under any distance contract the consumer shall have a period of at least seven working days to be able to withdraw from the contract without penalty and without giving any reason. In such a case, the only charge that may be imposed to the consumer because of the exercise of his right of withdrawal would be the direct cost of returning the goods.

Despite above, we understand certain experts from EMRA are of the opinion that Distant Contracts Regulation is not applicable to electricity sale contracts and such contracts should bear wet signature of the parties. Paragraph thirteen of Article 30/A of the Electricity Market Balancing and Settlement Regulation8, which regulates bilateral agreements, requires registration of an eligible consumer upon executing a bilateral agreement or signing the Energy Purchase and Sales Notification Form (IA-02 Form) with the consumer. The fifteenth paragraph of said Article also states that if an eligible consumer is requested by more than one supplier, the required controls will be made and the consumer will be added to the portfolio of the supplier which submits a valid bilateral agreement or Energy Purchase and Sales Notification Form.

As seen, Article 30/A of the Electricity Market Balancing and Settlement Regulation only refers to the signed IA-02 Form and it does not provide any additional condition on the signature. Thus, it may even be argued that a wet signature is not necessary on the IA-02 Form and that an electronic signature may serve for the same purpose. However, since it is known that in practice wet signature is sought for IA.02 Form by the Enerji Piyasaları İşletme A.Ş. (EPİAŞ), even in cases where the electricity sale contract is executed via distant methods, IA-02 Form should bear, for practical reasons, a wet signature of the parties for submission to the market operator when requested. However, despite the fact that there is no explicit provision which prohibits execution of electricity sale contracts via distant methods and that Article 30/A of the Electricity Market Balancing and Settlement Regulation does not include any statement on how bilateral agreements should be executed (i.e., with wet signature, electronic signature, verbally, with distant method etc.), there is in fact no provision in the electricity legislation which can be interpreted that the electricity sale contracts which do not bear wet signature are invalid; on the contrary, the Distant Contracts Regulation does not include electricity sale contracts within its list of agreements that are excluded from the scope of this Regulation.

There is also a parallel practice under European Union legislation, where electricity sale contracts are not listed within the exemptions stated in Article 3 of the Distance Contracts Directive, to which the provisions do not apply. Furthermore, Annex I of Directive 2009/72/ EC of the European Parliament and of the Council of 13 July 2009 concerning Common Rules for the Internal Market in electricity and Repealing Directive 2003/54/EC (Electricity Directive), while indicating measures on consumer protection, clearly makes reference to the applicability of the Distance Contracts Directive to electricity sale contracts by stating "Without prejudice to Community rules on consumer protection, in particular Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts...".

Conclusion

While determining whether or not consumer legislation is applicable to an electricity sale contract to be executed with a customer, an analysis as to whether that customer qualifies as a consumer under the Consumer Law should be made. If the customer does qualify as a consumer, provisions of the consumer legislation and specifically the secondary legislation including the Regulation should also be taken into account in addition to the provisions of the electricity market legislation.

Even though there is no explicit provision which prohibits validity of electricity sale contracts concluded via distant methods or that specifically state that electricity sale contracts without wet signature are invalid, there are controversial opinions among experts in EMRA and therefore it seems that establishment of a definitive practice in this respect may take some time. Indeed, application of many provisions of consumer legislation may require EMRA to take action and to make amendments in the electricity market legislation in order to avoid conflicting interpretations among the market players.

Footnotes

1. Law No. 4628 published in the Official Gazette No. 24335 (Repeated) dated 3 March 2001.

2. Law No. 6446 published in the Official Gazette No. 28603 dated 30 March 2013.

3. Law No. 6502 published in the Official Gazette No. 28835, dated 28 November 2013.

4. Published in the Official Gazette No. 28994 dated 8 May 2014.

5. Court of Appeals, 13th Chamber Decision dated 27 March 2913, File no. 2013/2563, Decision no. 2013/8571.

6. Published in the Official Gazette No. 29246 dated 8 May 2014.

7. Özlem Kızıl Voyvoda & Gülşen Kutlu, "The Regulation on Subscription Agreements and Its Application to Electricity Agreements", available at http://www.mondaq.com/turkey/x/444650/Oil+Gas+Electricity/he+Regulation+On+Subscription+Agreements+And+Its+Application+To+
The+Electricity+Sales+Agreements

8. Published in the Official Gazette No. 27200, dated 14 April 2009.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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