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COM(82)651
Vol.1982/0205

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(82)651 final
Brussels,19thOctober1982
ENERGYPRICING
DEVELOPMENTS INCOMMUNITY POLICY1981-82
(Communication bytheCommission totheCouncil)
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C0M(82)651final

ENERGYPRICING
DEVELOPMENTS INCOMMUNITYPOLICY1981-82
(Communication bytheCommissiontotheCouncil)
INTRODUCTION
Thisisaprogressreportonenergypricing–developments inthe
market,pricingpolicy,andtransparency –fortheperiodOctober
1981toOctober1982.InittheCommission
–summarisesrecentdevelopments inCommunitypolicyon
thepricingofenergyforuserswithintheCommunity;
–reportsontheprogressoftheCommission *sworkon
pricingineachenergysector,andonprospectsforthe
furtherdevelopment ofthatwork.
Thepreliminary issueoftheCommission'snewEnergy'PriceBulletin
(seepara.3below)whichcontainsinformation onenergypricesin
theCommunityuptoJanuary1982,andacommentaryonpricetrends,
shouldbereadinconjunction withthisreport.
COMMUNITY POLECYONENERGYPRICING
"Consumerpricesshouldreflectrepresentative
conditionsontheworldmarket,takingaccount
oflongertermtrends."
CouncilResolutionofJune1980
2.1Communitypolicyonenergypricingisbasedontheprinciple
thatconsumerpricesshouldreflectcostsandmarketconditions,
andprovideforfaircompetitionwithinandbetweenmemberstates.
2.2TheseprincipleshavebeenembodiedinCommunitylawfor
manyyears;rulesgoverningthealignmentofpricesforCommunity
coalwithcoalfromcompetingsources,andprovidingalegalframe­
workforfinancialassistancetotheCommunitycoalindustryare
containedintheECSCTreatyandinECSCRegulations.

Community rules onenergy pricing were extended layanumber ofCouncil
decisions intheperiod 1974-78,which gave theCommission the
task ofmonitoring price developments inmarkets for crude oil
and oilproducts .
2.3 But itisonly since thesecond oil crisis in1979 that
realistic pricing ofenergy has come tobeseen asanindispensable
element ofpolicies topromote structural change inenergy supply
anddemand .InitsCommunication totheCouncil last year onthe
Development ofanEnergy Strategy fortheCommunity (C0M(81)549 )
the Commission identified pricing asone offive priority areas
fordevelopment inCommunity policy .
2.4 TheCouncil hasaccordingly considered energy pricing ateach
ofthe last three meetings ofEnergy Ministers ,andreached anumber
ofimportant decisions .
-Atitsmeeting on27October 1981 itapproved aRecommendation
onElectricity Tariff Structures (8l/924/^EC–OJL337/12)
andgave afirst reading toaCommunication from theCommission
on"Energy Pricing –Policy andTransparency "(C0M(81 )539)•
Following this discussion atMinisterial level ,theCouncil ,
atitsmeeting on9December 1981 ,approved Conclusions on
energy pricing reaffirming andextending those agreed in1980 .
–TheCouncil returned tothesubject atthemeeting ofEnergy
Ministers of16March 1982 ,andinvited theCommission topro­
ceed totheimplementation oftheagreed principles bywayof
studies ofenergy pricing practice ineach ofthefour energy
Isectors .
–Atitsmeeting on17July 1982 ,theCouncil approved a
Recommendation onInvestment intheRational Use ofEnergy
(which wasadopted formally on28July 1982 )which included
important references toenergy pricing .

-3-
2.5 The Council nowhasbefore itanew draft Recommendation
prepared bytheCommission onprinciples ofnatural gaspricing ,
which follows lines similar tothose already adopted forelectricity .
2.6 Theprinciples embodied inthese decisions have already been
thesubject ofvery detailed examination anddiscussion ,which does
notneed tobereopened .This report focusses instead onthesteps
theCommission hastaken towards practical action ,thedifficulties
that have been encountered ,andwork which remains tobedone .It
mayhowever behelpful ,bywayofintroduction ,torecall themain
elements ofthe decisions taken sofar .
2.7 Theneed for realistic pricing
"Consumer prices must permit anadequate level of
investment inenergy supply andencourage energy
efficiency ;tothis endthey must notbekept at
artificially lowlevels andthereby prevented from
providing reliable signals ...Government policies
which contribute totheformation ofenergy prices
must take account oftheneed for arealistic
reflection ofmarket trends ."
Council Conclusions of9December 1981
"Electricity supply undertakings should ...cover their
costs onthebasis ofthemost objective allocation
possible ofsuch costs among thevarious categories
ofuser .... Electricity tariff structures should ...
reflect thecosts insupplying thevarious categories
ofuser ... Tariffs should notbekept artificially low."
Council Recommendation of27October 1981
Inshort ,realistic pricing means that theconsumer must bear infull
thecost ofsupplying himwith energy ,including thefull long–runcost
ofproduction anddistribution orofacquisition onworld markets .It
also means that costs must beallocated fairly between different categories

-4-
ofconsumer .Government intervention intheform offinancial support to
energy suppliers orconsumers istobediscouraged ,except where such policies
areagreed atCommunity level tobeinaccordance with Community energy policy ,
and with other rules ofthe common market .
2.8 Theneed forunity ofthecommon market
"Differences inpre–taxenergy prices within theCommunity may
arise from theexistence ofagenuine competitive advantage
(arising forexample from favourable location ,prudent invest­
ment ,superior productivity orspecific market conditions )or
alternatively from theexistence ofpriorities consistent with
thjCommunity 's...energy objectives ...Any differences which
donotcorrespond tothese guidelines must beclearly identified ,
and ,totheextent that they arise from differences inpublic
policy ,progressively reduced ."
Council Conclusions of9December 1981
"The Council recommends that theMember States ...apply energy
pricing policies which unite thepursuit ofenergy objectives
with efforts toensure that prices truly correspond tomarket
conditions and costs .Where itistheresponsibility ofthe
public authorities ,thecalculation oftheconstituent elements
ofenergy prices should also take such objectives into account ."
Council Recommendation of28July 1982
Inother words ,Ministers have agreed towork progressively towards the
elimination ofdifferences inpolicies andpractices which give rise to
differences inenergy prices within the common market .Itisimportant
tonote however that this does not mean that consumer prices should be
identical throughout theCommunity .Onthecontrary ,theaimof
Community policy istoensure that differences ininvestment andproductivity
inenergy transformation (refining ,transport ,distribution and
electricity generation )between Member States arereflected inenergy prices ,
soastoencourage rational decisions byboth producers andconsumers ,and
topromote apolitical andeconomic climate favourable toprudent energy
investment policies .

-5-
TRANSPARENCY
3.1 Athird element intherecent decisions oftheCouncil isthe
need fortransparency ofenergy prices ,and ,where appropriate of
coats .
"Transparency isanecessary andurgent condition forthe
implementation oftheprinciples ...This means that con­
sumers should have adequate access toinformation onenergy
prices andonthemethods bywhich "both prices andtariffs
are determined ."
Council Conclusions of9December 1981
"The Council encourages theCommission 'sefforts toachieve the
necessary improvement inprice transparency andasks the
Commission toreport theresults ofthese efforts ."
Council Conclusions of16March 1982
The aim oftheCommissions work inthis field has been toensure that
consumers have sufficient information onprices and costs toenable them
totake sensible decisions onfuel use ,investment inenergy saving and
fuel substitution ,and ,inthecase ofindustry ,onlocation .Afurther
aim istoprovide adequate information tosatisfy informed public
opinion andresponsible authorities that theprinciples described in
paragraph 2arerespected inpractice .Itdoes not imply that prices
forindividual consumers need bemade public ,butitdoes imply the
availability ofuptodate ,accurate ,andcomparable data inan
aggregated form .
3.2 InitsCommunication totheCouncil onEnergy Pricing ,Policy and
Transparency (C0M(81)539 )ofOctober tandespecially inthetech­
nical annex thereto –^,theCommission described insomedetail thevarious
sources ofinformation onenergy prices towhich ithasaccess ,arrangements
forpublication anddissemination ofthis information ,anddrew attention to
certain shortcomings andinconsistences inthis data .Themain conclusions
were that transparency ofoilandelectricity prices isgenerally good ,but
that there isroom forimprovement inthecoal andgassectors .Paras .4–7
1/SEC(81)1632 "ThePrice andCost Structure ofEnergy Markets inthe
Community ".

-6-
refer tothecontacts theCommission hashadwith experts innational
administrations and theenergy supply industries with aview toimproving
transparency .
3.3 Themethods used topromote public understanding ofconditions on
energy markets need tobeadapted tosatisfy the different needs ofthe
various types ofconsumer .Therequirements ofthe large industrial
purchaser who isevaluating alternatives forinvestments inindustrial
processes arequite different from those ofthe small domestic consumer
whoseeks advice oncutting his fuel costs .Transparency ofprices to
large industrial consumers presents particular problems .At -this level
ofconsumption prices aresetinindividual contracts ,often oflong
duration ,andareheavily influenced bytheconditions ofsupply specific
toeach individual contract .Inmany cases theterms ofsuch contracts are
protected bycommercial secrecy ;where information about such contracts
iscollected onaconfidential basis ,that confidence must ofcourse be
respected .Anypublication ofaggregated data derived from confidential
material must beorganised soastoavoid revealing ,even inadvertently ,
the contents ofindividual contracts .
3.4 Effective transparency ofenergy markets depends intheend onthe
willingness ofindividual energy suppliers throughout theCommunity to
make their terms ofbusiness known toeach individual category ofconsumer
inthemost effective manner possible .Thecollection andpublication of
energy price data bynational andinternational authorities hasacontribution
tomake tothis process ,butstatistical exercises arenotinthemselves
sufficient tocreate adequate transparency .
3.5 Nevertheless theCommission believes that itswork onenergy price
information isauseful contribution totransparency .Ittherefore intends
infuture topublish ,atregular intervals ,asummary ofup–to–date price
information concerning allfour energy sectors .Apreliminary trial issue ,No-1,
ofthis projected "Bulletin ofEnergy Prices ",containing information upto
January 1982 isbeing circulated atthesame time asthis Communication .
TheCommissions aimistopublish afurther issue ,containing information

-7-
correct toJanuary 1983 inMayofnext year ,andtostart regular publication
atsix-monthly intervals inNovember 1983 .Achievement ofthis timetable
will however depend ontheprogress ofdiscussions with correspondents in
theenergy industries .
3.6 Thetrial issue oftheprice bulletin contains anintroductory
commentary onrecent price trends intheCommunity .Forthepurposes of
this progress report themost significant points tonote are :
(a)Since 1978 there hasbeen asharp divergence intrends inprices
for oilandgas ontheonehand and ofcoal for theother .Whereas
upto1978 oilappeared toactas"price leader ",which determined
prices forcompeting fuels ,there isnowmounting evidence that
coal prices aredetermined bythecost ofsupply ofimported coal ,
and that coal hasgained alasting price advantage .
(b)There hasalso been since 1973 amarked divergence between trends
inelectricity prices andthose foroilandgas .Theaverage rise
inthereal price ofindustrial electricity since 1973 wasabout
6<y?owhile real prices ofresidual fuel oilhave nearly tripled .
This trend ishowever farfrom uniform within theCommunity ,andelectricity
price increases have been much steeper inthose countries (especially
Greece ,Ireland ,Italy andtheNetherlands )whodepend heavily on
oilandgasforelectricity generation .Inthese countries there
isstrong political pressure tocontrol electricity prices atlevels
comparable with those prevailing -elsewhere intheCommunity .
(c)Natural gasprices have risen particularly steeply in1981 and1982
andarenowinmany cases comparable tothose forcompeting oil
products .There ishowever atendency ,especially inthegas
producing countries ,tocontrol prices fordomestic gasatlevels
sharply below those fordomestic heating oil .

-8-
01L
4.1 Transparency .InC0M(81 )539 "theCommission reported that there has
been substantial progress towards transparency ofoilmarkets inrecent
years .InJune 1982 theCommission 'sWeekly OilBulletin entered its
fourth year ofpublication .This bulletin reports atweekly intervals
onprices forfive main oilproducts (premium andregular gasoline ,
automotive diesel ,gasoil andheavy fuel oil)and ,atless regular
intervals ,onthecifprice ofcrude oilandofimported oilproducts .
4.2 TheWeekly OilBulletin isnowanestablished aid totransparency .
Itsusefulness canbejudged from thefact that there isacontinuing
increase inits circulation and from the fact that some national admini­
strations make use ofitwithin national systems forprice regulation .
This does nothowever imply that theinformation contained initisof
astatistically rigorous character .Onthecontrary ,theintroductory note
with which itisprefaced ,andthemethodological notes which arepublished
once every three months emphasise that some elements intheBulletin must
betreated with caution ,since they areintended toserve mainly as
indicators .TheCommission isgiving continuing attention totheimprovement
ofthe Bulletin .
4.3 National Price Regimes .The structure ofthe oilmakret within the
Community issuch astoencourage realistic pricing intheabsence of
government intervention tocontrol prices .With thehelp oftheGroup
ofOilPrice Experts which meets regularly under Commission chairmanship ,
andwhich includes both theofficials responsible foroilpricing matters
within national administrations andspecialists from theoilindustry ,the
Commission isworking onastudy oftheextent towhich existing systems
fortheregulation ofoilproduct prices ,such asexist inmost member
states ,arecompatible with theprinciples agreed bytheCouncil .An
independent consultant hasbeen engaged toadvise ontheconsistency of
technical aspects ofoilprice regimes .

-9-
4.4 The°ilprice group liasreached agreement onaworking document onoil
price regimes .This paper notes that there isclear evidence from throughout
theCommunity that pre-tax prices areincreasingly determined bymarket forces .
Examples ofthis tendency have "been seen in1982 inFrance andItaly where
theformer systems ofadministered pricing have been loosened orabolished ,
andintheNetherlands ,where since August 1982 price controls have been
suspended except during periods ofsharp divergence between spot andcontract
prices .Theonly important exception tothegeneral trend towards
deregulation arises inGreece ,where maximum prices ,controlled bythe
Government ,appear tobedetermined more byatheoretical calculation of
cot;ts than bymarket forces .TheCommission considers that theguidelines
suggested inthis paper form auseful basis forfuture work aimed at
ensuring aconsistent approach tooilpricing within theCommunity during
periods oftension when there areabrupt andsignificant movements in
price .
4.5 TheCommission hasalso been paying close attention tothewidespread
practice ofsubsidising theuseofoilinagriculture ,horticulture and
fisheries .Sofarashorticulture isconcerned ,theCommission hasissued
guidelines permitting onatemporary basis alimited degree ofsubsidy .
These guidelines arelinked totheprogramme that hasnowbeen agreed
(seeparagraph 6.5)fortheremoval ofthepreferential gastariff enjoyed
bytheDutch horticulture sector .Prom April 1983 nofurther authority
will begiven bytheCommission forfuel price subsidies ,though the
Commission will continue toexamine sympathetically those aids which are
genuinely linked toinvestment inenergy efficiency .Theprocedures
defined inArticle 92–93 oftheEECTreaty foraction bytheCommission
toprohibit state aids notcompatible with theTreaty iscurrently being
followed inrelation tooilprice subsidies paid totheagriculture ,horti­
culture andfisheries sectors inBelgium ,Italy andFrance .

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4.6Taxation .Themostimportant source ofvariation inoilproduct
prices within theCommunity istaxation ,andinthis field progress has
"been disappointing .TheCommission ^communication on"Taxation ofOil
Products "(C0M(81)511 )wassubmitted totheCouncil inSeptember 1981 .
This Communication leave ononeside thecontroversial issue ofwhether
there isaneed ,onmacroeconomic policy grounds ,forageneral increase
inoiltaxation ;theCommission concentrated instead onthedesirability
ofreducing progressively themarked disparity inthe levels oftaxation
imposed onoilproducts .This could beachieved byanagreement on"target
zones "forthetotal taxrate (excise plus VAT)tobeapplied toeach pro­
duct .Member States would undertake torevalue their excise duties atregular
intervals soastoremain within thetarget zones ,and toprevent thepro­
gressive erosion oftaxrates through inflation .TheCommunication also
drew attention totheneed toensure that the coverage ofoiltaxation
properly reflects energy policy priorities ,andinparticular toremove
taxexemptions that arenolonger justified .COREPER subsequently agreed
onaquestionnaire toallMember States toserve asabasis forexamining
this latter issue .Replies tothat questionnaire have been considerably
delayed ,andmany areincomplete invarious respects .
!-7 Indiscussion ofthe Commission 'scoromuni cation inthe Council
Member States have expressed serious reservations ,about theCommission 's
proposals .They have emphasised that taxation policy hastobeconsidrr-ed
inaglobal context ,andthat macroeconomic policy ,transport policy and
budgetary considerations inparticular have tobetaken into account in
addition totherequirements ofenergy policy .TheCommission fully accepts
that energy policy isonly oneelement inthedetermination oftaxpolicy ,
andurges only that taxes onenergy should atleast notwork incontra­
diction toenergy policy objectives .Atpresent this requirement isnot
satisfied since :
-taxation onoil isstill subject toprogressive erosion byinflation ;
–anumber ofimportant exemptions from oiltaxation cannot bejustified
byreference toenergy priorities ;

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-"theverywidedivergenceoftaxrateswithintheCommunityisinconsistent
withthedeclarations ofMinistersonenergypricingprinciples.
TheCommissionthereforeproposestointroducenewarrangements to
improveofficialandpublicunderstanding ofthepresentstructureofoil
taxationintheCommunity.Itwillcontinuewithitsworkontaxexemptions.
AnditwishestoremindtheCouncilofitslongstanding proposalforadraft
directiveontheharmonisation ofoilexciseduties(OJNoC92–30.10.73)*Thislast
proposaldoesnotraisethesensitivepoliticalissuesinvolvedinthemoreambitious
recentproposalsonconvergenceintaxrates,"butislimitedtothe
definitionofcommonrulesonscope,liability,coverage,defermentperiods
andexempteduses.Althoughsomedetailsofthisproposalrequire
reconsideration inthelightofchangesinenergypriorities,itremains
ausefulbasisforprogressonoiltaxationpolicy.
C0AL
5.1PricingpolicyforcoalwithintheCommunitypresentsratherdifferent
problemsfromthoseforotherformsofenergy.Thecostofcoalproduced
withintheCommunityisingeneralhigherthanthepriceofcoalimported
fromthirdcountries;theECSCtreaty,togetherwithlegislationderiving
fromit,providesaframeworkforthedownwardalignmentofpricesfor
communitycoalagainstthepriceofimports,andsotoregulatethedegreeof
supportgiventothecoalindustry,soastoensurefaircompetitionwithin
theCommunity.
5.2TheenergystrategyoftheCommunityplacesparticularemphasisonthe
needtoencouragecoalconsumption ,especiallyintheelectricity and
industrysectors.Asnotedinparagraph3«5inpreliminaryissue
oftheEnergyPriceBulletin,coalpriceshaverisenmuchlesssharply
thanthoseforoilsince1979,a«idi"tiswidelybelievedthatcoalhasnow
securedalastingpriceadvantageoveroilespeciallyintheheatmarket
(industrialanddistrictheating).

-12-
5.3TheCommissionthereforeattachesparticularimportancetothe
improvementoftransparency ofcoalprices.Asdescribed ,inCOM(8l)539
theCommissionalreadyhasaccess,byvirtueofitsresponsibilities under
theEC5Ctreaty,toverydetailedinformation onpricesandcostsofcoal
eitherimportedorindigenous.Howeverthereisnopublishedinformation
whichprovidesaconsistentandreliableindicationofcoalpricesactually
prevailinginthemarket.Forexampleofficialpitheadprices,whichare
publishedbytheCommissionatregularintervalsintheOfficialJournaland
ina"Carnetdeprixcharbon"donotprovideareliableguidesincetheyare
inmanycasesbasedonpitheadcosts,beforealignment,andbecausethey
givenoindicationoftransportcostsatthepointofconsumption .
5./ITheCommissionhasthereforeputtorepresentatives ofthecoal
industry,workingwithintheframeworkoftheComit£d'EtudesdesProducteurs
deCharbondel'EuropeOccidentale (CEPCEO),asuggestionforthepublication
ofaggregateddataderivedfrominformation providedunderCommission
DecisionNo72/443/ECSConalignmentofcoalprices.Producershave
expressedsomeanxietythatsuchaproceduremighthavetheeffectof
inhibitingtheirfreedomofcommercialaction.TheCommissionhashowever
emphasisedthatanysuchpublication wouldbeexpost;itwouldserve
onlytoprovideasimpleguidetopriceconditionsactuallyprevailing
inthemarket,anditwouldnothaveanyeffectonexistingruleson
alignment.TheCommissionhasalsoputtonationaladministrations a
proposaltoamendCouncilDecision77/707/ECSCSOastoenlargethe
scopeofinformationprovidedbymemberstatesonimportsofcoalfor
useinpowerstationsorincombinedheatandpowerplants,andto
provideforthepublication ofaggregateddata.
GAS
6.1InC0M(81)539theCommissionnotedthattheprincipleofrealistic
pricingismoredifficulttodefineinrelationtonaturalgasthanfor
otherformsofenergy.Untilrecently,nearlyallgasconsumedinthe
CommunitywasproducedwithintheCommunityatverylowcost.Itsprice
wasinconsequencesetnotbyreferencetoitscostofproduction,but
atlevelssettledinrelationtocompetingfuels,mainlyoil,insuchaway

-13-
astopermititsrapidbutorderlypenetrationoftheenergymarket.The
gasmarketwithintheCommunityhashowevernowarrivedataturningpoint
uincefurtherpenetrationcannotbeenvisagedwithoutinvolvingseriousrisks
inrelationtoresourcedepletionandofexternaldependence.Theaimof
gaspricingpolicyshouldthereforebetoencouragetheprogressive
reallocation ofgastopremiumusessoastoensurethatlimitedand
valuableresourcesareexploitedasefficiently aspossible.
6.2Transparency .TheCommissionhasdiscussedwithnationaladminis­
trations,withindividualgasundertakings andwiththeComit£d*Etudes
del'Industrie deGaz(COMETEC–GAZ)theneedforimprovementin
transparency .Becauseofthehistoricpracticeofpricinggasin
relationtocompetingfuels,thegasindustryhassomereservations
abouttransparency ,andthedifficulties inrelationtolargeindustrial
usersreferredtoinparagraph3»3areparticularly acute.However,useful
progresshasbeenmadetowardsimprovements intheSOEC'sannualsurveyof
gasprices,bothfortariffcustomersandforthesmallercategoriesof
industrialusernotsubjecttotariffs.Forlargerindustrialusers
theCommissionisconsidering withthegasindustryasystemforcommunic­
atingaveragepricesforrepresentative groupsofconsumer.
6.3Gastariffs.TheCommissionhasalsoconsultedthegasindustry
abouttheharinonisation ofgastariffstructures,andreachedabroad
measureofagreementontheproposalsthatithasnowsenttotheCouncil
intheformofadraftCouncilRecommendation .Theseproposalsapplyto
theparticularcircumstances ofthegasindustrytheprinciplesalready
adoptedforelectricity andforenergyingeneral.Gaspricingshould
besuchastooptimisevaluablegasresources;pricesshouldbesetat
realisticlevelsinrelationtocompetingfuels;theyshoulddiscourage
waste,whileatthesametimeencourageflexibilityintheuseofgas,
forexamplebypromotinginterruptibility ofgassupplies.
6.4Thepassageofthisrecommendation throughtheCouncilwillbethe
firstpriorityofCommissionactivityongaspricingincomingmonths.
TheCommissionwillinadditionbeseekinginformation frommemberstates
onthelevelofgaspricesrelativetothoseforcompetingforcesofenergy.
Italsoproposestogiveparticularattentiontoareaswherethereisevidence
thatgasisnotpricedinsuchawayastoencourageitsuseasapremium
fuel–especiallythecontinueduseofnaturalgasinpowerstationscontrary
tothespiritofCouncilDirectiveMo15/404/EZCof13*V?"bru.ary1?75tar»l
thesupplyofnaturalgasfeedstocktothechemicalindustry.

-14-
6.5Early in1982agreement wasreached "between theCommission andthe
Netherlands Government forarrangements tobring toanendthepreferential
natural gastariff enjoyed "bytheDutch horticulture industry .Under these
arrangements large growers will ,fromApril 1983 ,paythesameprice as
industrial users .
ELECTRICITY
7.1 InC0M(81 )539theCommission noted that good progress hadalready been
made towards creating aframework for thecollection andpublication of
electricity price statistics ,andindefining theprinciples nowincorporated
intheCouncil Recommendation of27October 1981 onelectricity tariff
structures .Theindustry ,through theUnion Internationale desProducteurs
etDistributeurs de^Electricity (UNIPEDE )hasalso worked closely with
theCommission onprojects todetermine theweight oftaxation inthe cost
ofelectricity supply inindividual member states ,and toestimate thecost
ofelectricity from newoil ,coal andnuclear power stations currently
planned orunder construction within theCommunity .Important progress has
therefore already been made towards Community aims onelectricity pricing .
7.2 The cost ofelectricity generation varies widely within theCommunity
formany reasons ,ofwhich themost important aredifferences intheprice
ofprimary fuels ,differences inthefuel mix ,differences inthecapital
cost ofnewpower stations ,anddifferences inthestructure ofdemand
andthegenerating stock available tomeet it.However ,differences in
electricity prices within theCommunity ,which aregreater than forany
other form ofenergy ,donotnecessarily arise from arealistic reflection
ofthecost differences .Insome cases price differentials appear wider
than canbeexplained bycost differences alone ;inothers ,andparticularly
incountries where theelectricity industry isatacost disadvantage
relative tothose inother countries ,there issome evidence that financial
assistance maybebeing provided topermit thealignment ofelectricity
prices with those oflower cost producers .
7.3InItaly alawprovides forastate financial aidtothesteel industry ,
specifically linked toincreases inelectricity prices ,andtheCommission
hassetinmotion theprocedures provided byDecision 2320/ECSC forthe
regulation ofstate aids inthesteel sector .Other cases ofpricing
arrangements which result inpreferential prices forparticular categories
ofconsumer arealso being examined bytheCommission ,andaction under
theTreaties will betaken inany case where there appears prima facie to

-15-
beabreach ofcompetition rules .More generally thepresent difficult
economic climate hasgiven rise tolosses formany electricity undertakings ;
but insome cases these losses areexceptional and cannot berecovered on
existing pricing policies .During thecoming year theCommission will be
giving particularly close attention totheeffect ofGovernment policies
onelectricity prices ,andontheimplications ofprice control forthe
financial health oftheelectricity industry .
7«4 There ishowever athird category ofreasons whyelectricity prices
differ between member states ,arising neither from disparities incost ,
norfrom artificial oruneconomic pricing .Since amajor share ofthe
cost ofelectricity supply isthat ofamortising andmaintaining thestock
ofgenerating ,transport anddistribution equipment ,differences between
member states inthefinancial structure oftheelectricity industry ,and
theaccounting conventions ituses areimportant tothedefinition of
costs .Afurther issue isthewayinwhich electricity
tariff aare constructed soastoapportion thecost ofoverheads between
individual consumer types .The Council Recommendation calls onmember
states toensure that this should bedone asobjectively aspossible ,but
approaches tothis complex issue vary widely within theCommunity .Insome
countries there areclearly defined rules designed toensure that each
customer pays thelong-run marginal cost ofsupply tohim .Inothers amore
pragmatic approach isadopted ,andinsome cases large industrial consumers
receive electricity atprices based not onthecost oftheelectricity
system asawhole ,butonthat ofsupply from individual power stations .
Thelatter approach makes itpossible toprovide large industrial consumers
with electricity atprices very much lower than intheformer .
7.5 TheCommission believes that acommon approach tothis problem within
theCommunity will benecessary tocreate aneconomic climate favourable
torational investment intheelectricity system ,ajidtocontinued
substitution ofelectricity forother forms ofenergy .Further work
will however berequired todetermine which approaches correspond best
with theprinciples already agreed ,andwith theCommunity 'sbroader

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energy priorities .Ithas already embarked ondiscussion ofthese issues
with representatives oftheindustry ,andisnowseeking todefine with
UNIPEDE aprogramme ofwork toidentify theissues more precisely ,andif
possible todevelop proposals foracommon approach .
CONCLUSIONS
8.1 During thelast year ,work onenergy pricing hasfocussed onimprovement
intransparency andthedefinition ofprinciples ,first intheCouncil ,and
then atamore detailed level indiscussions between theCommission ,experts
innational administrations ,andorganisations representing each ofthe
four energy industries .This process will continue incoming months .The
projected publication ofasix–monthly bulletin ofenergy prices will mark
animportant stage inprogress towards therequired improvement intrans­
parency .
8.2 Since theprocess ofdefining principles isnownearing completion ,the
Commission considers that itswork should nowmove onto amore practical
level .Ittherefore intends inthecoming year toexamine energy pricing
practice within each Member State ,with aview toensuring that theprinciples
adipted bythe Council aregenerally respected .For this purpose the
Commission plans togive particular attention topricing issues intheReview
ofMember States Energy Policy andProgrammes which itwill present tothe
Council in1983 .Asthefirst step inthis process theCommission isaddressing
toeach Member State individually ,andinconfidence ,aletter ofenquiry
seeking information onissues that give rise toconcern inthecontext of
energy pricing principles .This process will ofcourse beadditional to
action outstanding andpending inrelation topricing practices which may
beincompatible with Community rules oncompetition .