Electricity shock for consumers

Date: 30/04/1998

By Chris Johnstone

SEVERAL power companies are planning to make consumers pay for the loss of previously captive markets as the EU's electricity supply business opens up in January next year.

Proposals for a 'general surcharge' on all users have already been outlined by the Spanish government.

The UK is considering a similar plan, to compensate companies stuck with long-term power supply contracts in Northern Ireland.

The move will expose Union energy liberalisation to accusations that it is designed to benefit corporate Europe at the expense of household consumers.

A European Commission report on the state of market opening in member states reveals that ten other countries - Germany, France, Ireland, the Netherlands, Belgium, Luxembourg, Portugal, Greece, Denmark and Austria - have asked to phase in competition.

These transitional regimes, which would give power companies some breathing space to tackle problems posed by the change-over from protected to partially liberalised electricity markets, must be finalised by the end of the year.

The Commission is keeping details of member states' applications under wraps until clearer demands emerge from bilateral negotiations between its officials and governments over the coming months. Officials insist that it will be impossible to deliver final verdicts on the bids without a good deal more information.

The report stresses that any transitional regime should “tackle specific problems of a member state's electricity industry without inhibiting the schedule of implementation of the electricity directive”. The Commission argues that special plans for power firms must not overcompensate them for their claimed losses, allowing them to bolster their positions against new competitors.

“The Commission will have to check that what amounts to unlawful aid is not involved,” said a spokeswoman for European electricity industry lobby Eurelectric.

Although the Commission wants to ensure that transitional regimes are kept as short as possible, many compensation packages will run for years and are likely to exceed the planned six-year transition to full liberalisation.

The Spanish proposal calls for a surcharge to raise 12 million ecu over ten years for the country's big power firms. The figure is based on estimates of the likely losses companies will suffer because of the disappearance of guaranteed energy prices and markets.

The Spanish association of electricity producers and distributors, UNESA, which includes Spain's big power companies Endesa, Iberdrola and Union Fenosa, claims its members are only seeking compensation for 70&percent; of their expected losses. It says liberalisation has robbed them of captive customers and left them with 'stranded costs' which cannot be recovered as the market opens to all-comers.

“Although all users will have to pay for the recovery of costs, ordinary users have been promised that their charges will fall over time,” said UNESA spokesman Alberto Fernandez.

The UK's demand for special treatment only covers Northern Ireland, where long-term power deals have been signed by suppliers including foreign companies such as Belgian utility Tractebel. “You cannot just cancel these contracts overnight,” said one UK expert. “Someone will have to pay, either consumers or the government.”

Commission officials nevertheless insist that the benefits from electricity liberalisation will filter down to all consumers even if households have to meet the cost of compensating power companies in the early days.

The liberalisation deal agreed two years ago by EU energy ministers envisages opening up one-quarter of the electricity market from January next year, with only big power-users allowed to shop around for the cheapest fuel in the initial phase.