Power companies left in the dark over market opening compensation

Date: 03/12/1998

By Chris Johnstone

ELECTRICITY companies have been warned by the European Commission that they are unlikely to know whether they can claim billions of ecu in compensation for lost earnings resulting from liberalisation before market opening begins next February.

Although the delay will not threaten the start of open competition in the sector, it is guaranteed to spark recriminations between power companies, national governments and the Commission.

Competition officials say they will need to examine claims for compensation to ensure that any money handed over to electricity companies does not amount to an illegal state aid.

But the industry says it urgently needs clarification on the compensation issue and argues that the Commission should avoid delaying approval further by launching detailed state aid investigations into their claims.

"We want to have this clarified before competition starts in February," said a spokesman for Eurelectric, the lobby group for EU electricity companies.

It argues that the Commission should waive detailed subsidy investigations and grant derogations which will allow power companies to put procedures into place to reclaim cash lost through competition.

However, Commission officials have hit back at claims that the institution is to blame for the delay, pointing out that only two countries, France and the Netherlands, have submitted formal proposals for compensation to the institution for clearance.

"Once we have received notifications, we should be able to give an indication of our decisions within two months," said Stefan Rating, spokesman for Competition Commissioner Karel van Miert. "Competition scrutiny of these applications was always going to take place."

Eurelectric itself admits that the payment of potentially large sums in compensation must be scrutinised to ensure companies do not use windfalls to dump cheap power on the market.

Thirteen EU governments, excluding Sweden and Finland, have signalled that they want companies to be allowed to claim back lost earnings resulting from electricity liberalisation.

Such losses, known as stranded costs, can result from companies having built power plants ahead of liberalisation which they are now unlikely to use or being tied to energy supply contracts which are no longer appropriate in the new competitive environment.

The Commission is obliged to keep details of the amounts of money involved confidential, but industry sources suggest that the Dutch bid for compensation amounts to around 1.5 billion ecu, while the Spanish demand totals a much smaller 10 million ecu.

Formulae for recouping cash are still being negotiated, but it is already clear that users of electricity will have to pay in the end.

A special levy on electricity bills is one of the options which have been suggested by the industry. It has also put forward the idea of imposing surcharges on all electricity transmitted by producers through national networks.

Whether the Commission would welcome a tax on the movement of power when the EU's liberalisation measures are partly aimed at boosting the buying and selling of electricity remains to be seen.

The Commission, governments and companies must also agree on the period over which compensation payments can be made. The institution wants a relatively short time frame, but it is also anxious to make sure that payments within and between member states are aligned so that no one company gains an unfair advantage from a cash windfall.