WRITTEN QUESTION No. 167/99 by Ludivina GARCÍA ARIAS Lawfulness of the medium- and long-term fixing of charges for electricity for SMEs and domestic consumers
Date: 1999-02-11
Institutions: European Parliament, GARCIA ARIAS
Subjects: competition law, electrical energy, electrical industry, fixing of prices, liberalisation of the market, selling price, small and medium-sized enterprises

3.12.1999

EN

Official Journal of the European Communities

C 348/29

Joint answer
to Written Questions E-0164/99, E-0165/99 and E-0166/99
given by Mr Papoutsis on behalf of the Commission

(12 April 1999)

It is correct that the Commission has prepared a discussion document titled ‘Indicative guidelines for
transitional regimes (cid:22) Article 24 of Directive 96/92/EC’ which was discussed with the Member States at the
meeting of the follow-up group on the implementation of the electricity Directive 96/92/EC on 13 May 1998.
It was prepared by the Directorate general for energy (DGXVII) in close cooperation with the Directorate
general for competition (DGIV) and the Legal service and did not commit the Commission with regard to any
decisions according to Article 24 of the Directive or Article 92 of the EC Treaty. With this understanding, the
document can be made available to the Members of the Parliament.

The approach of Article 24 of the Directive is to address ‘stranded costs’ or ‘costs for the transition to
competition’, in the perspective of commitments or guarantees of operation given before the entry into force
of the Directive, which may not be honoured on account of the provisions of this Directive, by providing for
derogations from Chapters IV, VI and VII of the Directive. However, Member States may choose not to apply
derogations, that is, delaying market opening but to fully apply the Directive and to compensate electricity
companies with transfer payments. The Commission considers that such measures, not representing
derogations from the Directive but payments to electricity companies, these should also be examined
according to the state aids rules.

(1999/C 348/036)

WRITTEN QUESTION E-0167/99

by Ludivina García Arias (PSE) to the Commission

(11 February 1999)

Subject: Lawfulness of the medium- and long-term fixing of charges for electricity for SMEs and domestic

consumers

Does the Commission agree with the interpretation according to which an electricity undertaking may assess
the reduction in income in the medium and long term resulting from the arrival of free competition and,
consequently, that it may fix its prices or charges for consumers without taking account of the potential effects
on costs in the coming years of fluctuations such as trends in the prices of energy products, developments in
water management systems, exchange rates and interest rates and the expansion or contraction of supply and
demand? Is that interpretation consistent with the free market principles laid down in the Treaties?

Answer given by Mr Van Miert on behalf of the Commission

(8 April 1999)

The question put by the Honourable Member concerns the mechanism whereby an electricity utility
determines its selling prices.

Generally speaking, in a free and competitive market an enterprise sets its selling prices in the light of its
production costs, which normally constitute the lower limit, and the prices charged by its competitors, which
normally constitute the upper limit. In many cases, production costs are made up in part of provisions to cater
for future events that have already been identified but have not yet been quantified exactly or are not certain.

The admissibility tests for such provisions are not standard in all Member States, although hypothetical events
or events that are simply probable but cannot be quantified may not, as a rule, be taken into account.

Establishment of such provisions in accordance with the general concept of prudence is required by
Community legislation, viz. Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the
EC Treaty on the annual accounts of certain types of companies (1), by national laws on annual accounts and
by international accounting principles, while the corresponding financial estimates are a matter for the
directors and/or managers of the enterprise.