(1)

Such commitments or guarantees of operation are normally referred to as “stranded costs”. They may, in practice, take a variety of forms: long-term purchase contracts, investments undertaken with an implicit or explicit guarantee of sale, investments undertaken outside the scope of normal activity, etc. In order to rank as eligible stranded costs that could be recognized by the Authority, such commitments or guarantees must satisfy the following criteria: (a) The “commitments or guarantees of operation” that could give rise to stranded costs must predate 27 November 1999, the date of entry into force of Decision No 168/1999. (b) The existence and validity of such commitments or guarantees will be substantiated in the light of the underlying legal and contractual provisions and of the legislative context in which they were made. (c) Such commitments or guarantees of operation must run the risk of not being honoured on account of the provisions of Directive 96/92/EC. In order to qualify as stranded costs, commitments or guarantees must consequently become non-economical on account of the effects of the Directive and must significantly affect the competitiveness of the undertaking concerned. Among other things, this must result in that undertaking’s making accounting entries (e.g. provisions) designed to reflect the foreseeable impact of the commitment or guarantee. Especially where, as a result of the commitments or guarantees in question, the viability of the undertakings might be jeopardised in the absence of aid or any transitional measures, the commitments or guarantees are deemed to meet the requirements laid down in the preceding paragraph. The effect of such commitments or guarantees on the competitiveness or viability of the undertakings concerned will be assessed at the consolidated level. For commitments or guarantees to constitute stranded costs, it must be possible to establish a cause-and-effect relationship between the entry into force of Decision 168/1999 and the difficulty that the undertakings concerned have in honouring or securing compliance with such commitments or guarantees. In order to establish such cause-and-effect relationship, the Authority will take into account any fall in electricity prices or market share losses suffered by the undertakings concerned. Commitments or guarantees that could not have been honoured irrespective of the entry into force of Decision 168/1999 do not constitute stranded costs. (d) Such commitments or guarantees must be irrevocable. Should an undertaking have the possibility of revoking against payment, or modifying, such commitments or guarantees, account will have to be taken of this fact in calculating the eligible stranded costs. (e) Commitments or guarantees linking enterprises belonging to one and the same group cannot, as a rule, qualify as stranded costs. (f) Stranded costs are economic costs that must correspond to the actual sums invested, paid or payable by virtue of the commitments or guarantees from which they result: flat-rate calculations cannot, therefore, be accepted unless it can be shown that they reflect economic realities. (g) Stranded costs must be net of the income, profits or added value associated with the commitments or guarantees from which they arise. (h) Stranded costs must be valued net of any aid paid or payable in respect of the assets to which they relate. In particular, where a commitment or a guarantee of operation corresponds to an investment, which is the subject of State aid, the value of the aid must be deducted from any stranded costs resulting from the commitment or guarantee. (i) Wherever stranded costs arise from commitments or guarantees that are difficult to honour on account of Decision 168/1999, calculation of the eligible stranded costs will take account of the actual change over time in the economic and competitive conditions prevailing on the national and common electricity markets. In particular, where commitments or guarantees could constitute stranded costs because of the foreseeable fall in electricity prices, calculation of the stranded costs must take account of actual movements in electricity prices. (j) Costs depreciated before the transposition of Decision 168/1999 into national law cannot give rise to stranded costs. However, provisions or depreciation of assets entered in the balance sheet of the undertakings concerned with the explicit aim of taking account of the foreseeable effects of the Decision may correspond to stranded costs. (k) Eligible stranded costs may not exceed the minimum level necessary to allow the undertakings concerned to continue to honour or secure compliance with the commitments or guarantees called into question by Decision 168/1999 (4). Consequently, they will have to be calculated by taking into account the most economic solution (in the absence of any aid) from the point of view of the undertakings concerned. This may involve, among other things, the termination of commitments or guarantees giving rise to stranded costs or the disposal of all or some of the assets giving rise to stranded costs (where this does not run counter to the very principles of the commitments or guarantees themselves). (l) Costs which some undertakings may have to bear after the time horizon indicated in Article 26 of the Directive (26 November 2006) cannot, as a rule, constitute eligible stranded costs within the meaning of this methodology (5). However, if it appears necessary, the Authority may in due course take into account such commitments or guarantees and, if appropriate, consider them as eligible stranded costs during the next stage of opening up the common electricity market. (m) For EFTA States which open up their markets more quickly than is required by the EEA Joint Committee Decision No 168/1999, the Authority may agree to regard as eligible stranded costs under this methodology costs which some undertakings may have to bear after the time horizon indicated in Article 26 of the Directive if such costs result from commitments or guarantees which meet the criteria under points (a) to (l) in section 21.3 above and provided that they are limited to a period not extending beyond 31 December 2010.