1999/793/EC: Commission Decision of 8 July 1999 concerning the application of Luxembourg for a transitional regime under Article 24 of Directive 96/92/EC of the European Parliament and of the Council concerning common rules for the internal market in electricity (notified under document number C(1999) 1551/3) (Only the French text is authentic)
Date: 1999-07-08
Institutions: European Commission
Subjects: Luxembourg, approximation of laws, electrical energy, single market, transitional period (EU)

L 319/12

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Official Journal of the European Communities

11.12.1999

COMMISSION DECISION

of 8 July 1999

concerning the application of Luxembourg for a transitional regime under Article 24 of Directive
96/92/EC of the European Parliament and of the Council concerning common rules for the
internal market in electricity

(notified under document number C(1999) 1551/3)

(Only the French text is authentic)

(1999/793/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

for a system of regulated third party access. Eligible
for network access are final consumers with more
than 100 GWh yearly
representing
approximately 45 % of total national consumption.

consumption,

Having regard to Directive 96/92/EC of
Parliament and of
concerning
electricity (1), and in particular Article 24 thereof,

the European
the Council of 19 December 1996
in

internal market

common rules

the

for

Having informed the Member States of
Luxembourg pursuant to Article 24(1) of Directive 96/92/EC,

the application of

Whereas:

I. FACTS

(5) The Luxembourg electricity supply market

is shared
between Cegedel, a majority State-owned company
supplying 70 % of national consumption, and Sotel, a
company owned by the heavy industry which supplies
this industry as well as the railways, accounting for 30 %
of national consumption. Since 1927 Cegedel has held a
concession for distribution and exclusive public supply
of electricity. Cegedel acts also as transmission system
operator (TSO) and imports 92,8 % of
its electricity
needs
from Germany on the basis of a long-term
contract with RWE. The remaining 7 % is purchased
from small private or public producers, mostly on the
basis of hydropower and cogeneration.

1. Procedure

3. The transitional regime notified by the government

of Luxembourg

(1) By letter of 13 February 1998, the MinistŁre de l’Energie
du Grand-DuchØ
the
Commission an application for a transitional regime
according to Article 24 of Directive 96/92/EC.

Luxembourg

notified

to

de

(2) By letter of 20 October 1998,

submitted
Commission.

supplementary

the said Ministry
the

to

information

(6) The application notified by Luxembourg consists of
several elements, referring to Article 24(1) as well as to
Article 24(3) of Directive 96/92/EC.

3.1. Article 24(1) of Directive 96/92/EC

(3) On 15 December 1998, a bilateral meeting between
representatives of the said Ministry and the Commission
took place.

(7)

2. The electricity sector and implementation of

Directive 96/92/EC in Luxembourg

(4)

Luxembourg
implemented Directive
yet
96/92/EC. The draft law of 16 December 1998 provides

not

has

(1) OJ L 27, 30.1.1997, p. 20.

the power procurement
Luxembourg considers
that
agreement between Cegedel
actual
and RWE (the
contract parties being the Luxembourg State, SociØtØ
(cid:201)lectrique de l’Our SA and RWE AG), initially concluded
on 30 April 1963, several times amended and expiring
on 31 December 2000,
regarded as a
commitment within the meaning of Article 24(1) of
Directive 96/92/EC. The contract contains an exclusive
supply clause in favour of RWE. Cegedel, on the other
hand,
above
100 GWh yearly consumption, which will be eligible
within the meaning of Directive 96/92/EC as of 19
February 1999.
these eligible customers were to
choose a supplier other than Cegedel, RWE could review

consumers

industrial

supplies

to be

large

is

If

11.12.1999

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Official Journal of the European Communities

L 319/13

its present supply tariffs to Cegedel. In order to protect
the position of Cegedel, the Government of Luxembourg
requests a transitional regime until 31 December 2000,
the expiry date of the power procurement contract. The
notification is not specific about the measures under the
transitional regime.

(cid:151) an application for a transitional regime within the

meaning of Article 24(1) and (2),

(cid:151) an application for derogations for small
systems within the meaning of Article 24(3).

isolated

3.2. Article 24(3) of Directive 96/92/EC

(8) With respect to the small size of the Luxembourg system
and the fact that Article 24(3) of Directive 96/92/EC
specifically mentions Luxembourg, the Government of
Luxembourg requests:

2. The transitional regime for the power procurement

contract

2.1. The requirements of Article 24(1) and (2) of

Directive 96/92/EC

(10) Article 24 of Directive 96/92/EC states the following:

accounts.(cid:146) Luxembourg

(a) derogation from Article 14(3) of Directive 96/92/EC,
which states: (cid:145)They shall include a balance sheet and
a profit and loss account for each activity in notes to
their
the
balance sheet and profit and loss account for each
of
(generation,
transmission, distribution, non-electricity activities)
need not be included in the notes to the published
annual accounts, but only in the internal accounts;

separated

activities

requests

to be

that

the

(b) restrictive

20(1)

of Article

interpretation

of
Directive 96/92/EC (cid:145)(i)
independent producers and
autoproducers to negotiate access to the system so as
to supply their own premises and subsidiaries in the
same Member State or in another Member State by
means of
the interconnected system(cid:146). Luxembourg
requests that the definition of (cid:145)subsidiary(cid:146) be based
on Council Directive 83/349/EEC (2), most recently
amended by Directive 90/605/EEC (3), which requires
a minimum share of 50 % to be held by the parent
company, and that this access right be limited to
a
situations where
surplus
of
establishments and subsidiaries is limited to this
surplus production.

autoproducer generates
the

the
electricity,

supply

and

of

(cid:145)1.
Those Member States in which commitments or
guarantees of operation given before the entry into force
of this Directive may not be honoured on account of the
provisions of this Directive may apply for a transitional
regime which may be granted to them by the
Commission, taking into account, amongst other things,
the
level of
interconnection of the system and the structure of its
electricity industry. The Commission shall
inform the
Member States of those applications before it takes a
decision, taking into account respect for confidentiality.
This Decision shall be published in the Official Journal of
the European Communities.

system concerned,

size of

the

the

The transitional regime shall be of limited duration
2.
and shall be linked to expiry of the commitments or
guarantees referred to in paragraph 1. The transitional
regime may cover derogations from Chapters IV, VI and
VII of
this Directive. Applications for a transitional
regime must be notified to the Commission no later
than one year after the entry into force of this Directive.(cid:146)

(11) Article 24(1) and (2) of Directive 96/92/EC, in the light
the following
of
elements to be examined by the Commission when
considering any application for a transitional regime.

thus requires all of

the EC Treaty,

II. LEGAL ANALYSIS

1. Legal basis: Article 24 of Directive 96/92/EC

(9) The government of Luxembourg notified an application
according to Article 24 of Directive 96/92/EC. The
two parts which need to be
notification contains
assessed separately:

(2) OJ L 193, 18.7.1983, p. 1.
(3) OJ L 317, 16.11.1990, p. 60.

A. Requirements concerning the nature of the commitments

or guarantees of operation in question

(1) The existence of a commitment or guarantee of

operation must be proven.

(2) The commitment or guarantees of operation
must have been given before 20 February 1997.

(3) A causal

link between the entry into force of
the Directive and the inability to honour the
commitment must be established.

B. Requirements concerning the measures proposed to achieve

the objectives in question

(1) The measures of the transitional regime must
from

fall within the
Chapters IV, VI and VII of the Directive.

scope of derogations

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Official Journal of the European Communities

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(2) The transitional

regime must be of

limited
the
duration and linked to the expiry of
commitments or guarantees of operation in
question.

(3) The transitional regime must apply the least
restrictive measures
reasonably necessary to
achieve the objectives, which themselves must
be legitimate.
In deciding on these issues the
Commission must take into account, amongst
other things, the size of the system concerned,
the level of interconnection of the system and
the structure of its electricity industry.

2.2. Assessment of the Luxembourg transitional

regime

A. Requirements concerning the nature of the commitments or

guarantees of operation in question

contract

are, on the purchasing side,

(12) With its notification, Luxembourg enclosed a copy of
in question. The
the power procurement
contract parties
the
Luxembourg State, represented by Cegedel, and, on the
selling side, RWE AG as well as the Luxembourg-based
SEO SA. The contract was initially concluded in 1963
and has been renewed and amended several times. On
22 October 1990, an amendment was signed, Section 6
of which stipulated 31 December 2000 as the new
expiry date.

(13)

In the light of these facts, the Commission considers the
requirements A(1) and (2) to be fulfilled in the present
case.

(14) With regard to requirement A(3), it is necessary that the
Member State is able to sufficiently demonstrate that the
commitment in question would impose a specific burden
or stranded cost, which is caused by the implementation
of the Directive and which puts the obliged party in a
factually or
economically
it
position that makes
fulfil
impossible to honour or
in
the commitment
case
question. This would be
the power
the
procurement contract were of
the take-or-pay type,
stipulating a fixed quantity which as to be paid for by
the buyer irrespective of whether or not he can resell
this quantity at a selling price which covers the purchase
price. In such a situation, stranded costs may occur and
justify,
the
application of a transitional regime.

they reach an unacceptable burden,

if

if

(15) However,

in question contains no such
take-or-pay clauses, i.e. there are no long-term minimum

the contract

quantities to be accepted by the purchaser. The contract
is flexible, as the quantity of electricity (MWh) actually
purchased/consumed is determined retrospectively. Also,
the contract offers
to adapt capacity
flexible terms
payments (MW) at relatively short intervals. Generally,
the prices are indexed through formulas referring to coal
prices and labour costs. Additionally, Section 9.2 of the
contract contains an explicit general renegotiation right
for either party if economic circumstances change
significantly.

(16) Consequently,

in the event

that eligible consumers
currently supplied by Cegedel were to shift to another
supplier, Cegedel could adapt its purchases from RWE.
Thus, there is no danger that Cegedel could be in a
position where it would have to take and pay for
electricity from RWE which it cannot sell on to its
customers.

(17)

It is true that the loss of customers may well lead to a
loses market share. This may
situation where Cegedel
even result in lower profit margins as a result of fixed
overheads or the loss of quantity discount offered by
RWE. However, this is considered a normal commercial
risk, which is indeed a consequence of the introduction
of competition through Directive 96/92/EC, but not a
stranded cost covered by Article 24 of this Directive.

(18) The

puts

forward

Luxembourg Government

the
exclusivity clause of the power procurement contract as
an argument. RWE has an exclusive right
to supply
electricity for the public supply system in Luxembourg,
with the exception of Cegedel autoproduction from
hydropower or CHP as well as limited surplus feed-in
from industrial autoproduction.

(19) However, it is important to clearly differentiate between
such an exclusivity clause and a take-or-pay clause as
described above. Only take-or-pay clauses are able to
produce stranded costs falling into the scope of Article
24 of the Directive. The fact that the exclusivity clause
reduces the procurement choice of Cegedel does not
constitute a commitment which cannot be honoured on
the grounds that Cegedel might lose eligible customers.
The fact that the quantity purchased from RWE might
decrease is not in opposition to the exclusivity clause.

liberalisation of

the electricity market

(20) Nevertheless, the present Decision does not prejudge the
compatibility of this or similar exclusivity clauses with
in particular
the competition rules of the EU Treaty,
after
through
implementation of Directive 96/92/EC. Furthermore, this
right of
Decision does not prejudge whether
distributors (Cegedel)
to act as eligible customer for
quantities consumed by eligible customers within their
distribution system, as stipulated by Article 19(3) of
Directive 96/92/EC might be in opposition to such an
exclusivity clause.

the

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L 319/15

(21) Concluding, the Commission considers that the contract
in question is not of a nature to cause stranded costs for
Cegedel, which can adapt its purchase quantities to the
quantities actually sold by itself to its customers. Thus,
there is no sufficient evidence that the entry into force
of the Directive might render Cegedel unable to honor
its
required by Article 24(1) of
Directive 96/92/EC.

commitments

as

B. Requirements concerning the measures proposed to achieve

the objectives in question

(22) The notification contains a request

for a transitional
the
regime until 31 December 2000. However,
notification does not
the
specify which measures
transitional regime would contain or apply. No requests
for derogations from Chapters IV, VI and VII of Directive
96/92/EC are included with the notification.

(23)

In the light of the above conclusion that requirement
regime
is clearly not met by the transitional
A(3)
according to Article 24(1) of
is not
it
necessary to further access the requirements concerning
the measures of the notified regime.

the Directive,

any

(24) The notification does not indicate whether Luxembourg
is planning
support mechanism to
financial
compensate the electricity undertakings involved. If such
a financial support system were contemplated, it would
need to be notified pursuant to Articles 87 and 88 of
the EC Treaty.

3. Derogations on the grounds of the small size of the

Luxembourg system

(1) This provision of Directive 96/92/EC is in principle
isolated systems. Article
applicable only to small
2(23) of Directive 96/92/EC defines a small isolated
system as (cid:145)any system with consumption of
less
than 2 500 GWh in the year 1996, where less than
5 % of annual consumption is obtained through
interconnection with other systems.(cid:146) Luxembourg is
explicitly mentioned as an exception.

(2) The measures have to fall within the scope of
derogations from Chapter IV, V, VI and VII of the
Directive.

(3) Member States have to show, after entry into force
of the Directive, that there are substantial problems
for the operation of their small isolated systems.

(4)

In deciding on each application, the Commission is
applying the proportionality test, which means that
the proposed approach must be the least restrictive
to trade and competition reasonably necessary to
achieve the objectives in question, which themselves
must be legitimate.

3.2. Assessment of the requested derogations

3.2.1. Specificity of Luxembourg

(27)

In the case of Luxembourg it is not necessary to assess
whether it is a small
isolated system according to the
definition of Article 2(23) of Directive 96/92/EC, as
Article 24(3) of
the said Directive specifically and
explicitly mentions its applicability to Luxembourg.

3.1. The requirements of Article 24(3) of Directive

96/92/EC

3.2.2. Derogation from Article 14 of Directive 96/92/EC

for

the operation of

(25) Article 24(3) of Directive 96/92/EC states that: (cid:145)Member
States which can demonstrate, after Directive 96/92/EC
has been brought into force, that there are substantial
problems
isolated
systems, may apply for derogations from the relevant
provisions of Chapters IV, V, VI, VII, which may be
granted to them by the Commission. The latter shall
inform the Member States of those applications prior to
taking a decision,
for
confidentiality. This decision shall be published in the
Official
European Communities. This
paragraph shall also be applicable to Luxembourg.(cid:146)

taking into account

respect

Journal

small

their

the

of

(cid:145)They (the
(28) Article 14(3), second sentence, states that:
integrated electricity undertakings)
a
include
shall
balance sheet and a profit and loss account for each
activity in notes to their accounts.(cid:146)

(29)

that

requests

the balance

separated (generation,

and
sheet
Luxembourg
the activities to
profit and loss account
be
transmission, distribution,
non-electricity activities) need not be included in the
notes to the published annual accounts, but only in the
internal accounts.

for each of

(26) This provision therefore requires the following elements
to be examined by the Commission when considering
any application for a transitional regime in such cases.

(30)

argues

Luxembourg
small
dimensions of the Cegedel system, and in particular of
transmission system, would make publication of
its

follows.

First,

the

as

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separate accounts for transmission and distribution an
unnecessary administrative burden. Secondly, as Cegedel
depends on one supplier for 90 % of its electricity needs,
namely on the import contract with RWE, the electricity
procurement costs of this contract should not become
publicly known. This could have a negative impact on
the bargaining position of Cegedel vis-(cid:224)-vis competitors,
who would only have to divulge the combined average
costs of their electricity procurement. Third, the fact that
all non-electricity activities are already outside the
Cegedel accounts in a separate legal entity can justify
Cegedel not being required to publish unbundled
accounts.

(31) As potential (cid:145)substantial problems(cid:146) within the meaning of
Article 24(3) of Directive 96/92/EC, two issues can be
identified.

if

(32) The first issue is the alleged administrative burden for
it had to publish its unbundled accounts.
Cegedel,
However, the publication requirement under Article 14
of Directive 96/92/EC does not apply to the specific
separate accounts but only to the yearly balance sheet
and the profit and loss account. The overall (bundled)
annual accounts have to be published in any case. Also
the unbundling of the ongoing internal accounting has
to be ensured in any case. The proper separation of the
ongoing internal accounting is definitely the principal
administrative burden for the electricity companies. The
mere inclusion of the corresponding balance sheet and
profit and loss statement in the notes to the annual
accounts, which have to be published in any case, is not
considered to be a significant additional administrative
burden.

(33) The second issue is the alleged competitive disadvantage
resulting from the possibility that the cost of the specific
electricity procurement of Cegedel
from RWE could
become transparent.

(34) Assuming that it is a legitimate objective of Luxembourg
to avoid these procurement costs becoming transparent,
it has to be assessed whether the proposed measures are
the least restrictive measures reasonably necessary to
achieve this objective.

(35) One of

the

achieved through a

the main purposes of

the vertical separation
between generation, transmission and distribution, which
is
transparent unbundling of
accounts combined with the unbundling of management
on
of
based
Article 7(6) of Directive 96/92/EC,
to ensure
non-discriminatory access
transmission and
distribution system as well as correct calculation and
verification of the transmission fees which have to be
paid by third parties for access to the system.

system operator
is

transmission

to the

(36) The transmission system and the transparency of the
costs of the transmission system play a key role for the
functioning of
in electricity,
particularly as the transmission system is used for transit
and cross-border trade in electricity between Member
States.

internal market

the

(37) Therefore, of

the four activities which need to be
separated, namely generation, transmission, distribution
transparency
and non-electricity
of
the
transmission activity would appear
to be the most
significant.

activities,

(38) The Commission considers

least

that at

the yearly
balance sheet and the profit and loss account
for
transmission activity should be published in the notes to
the overall annual accounts. The separate inclusion of
the balance sheet and profit and loss account
for
generation activity as well as for distribution activity
could be suspended for a limited period of time, in order
to allow Luxembourg to achieve the objective of
protecting the
cost data concerning the dominant
procurement contract. This should be no less achievable
if all activities except
transmission are included in a
combined balance sheet and profit and loss account.

(39) As there is no time limitation to apply for derogations
under Article 24(3) of Directive 96/92/EC,
it appears
reasonable to grant a derogation for a limited period
until 31 December 2001. The Luxembourg Government
has
the
the possibility to request an extension of
derogation if considered necessary.

(40) Concluding the assessment of requirements (2), (3) and

(4), the following should be noted:

(1)

the requested measure does constitute a derogation
from Chapter VI of the Directive;

(2)

(3)

is

the

consequences

accepted that

for
the
it
competitive position of Cegedel,
the specific
procurement costs of one dominant supply source
represent a substantial problem
became public,
within the meaning of Article 24(3) of Directive
96/92/EC;

if

the objective of avoiding the transparency of this
specific procurement cost
is considered to be
legitimate. However, Luxembourg has to apply the
least restrictive measures reasonably necessary to
the
achieve
importance of transparency concerning transmission
activity
intra-Community
electricity trade, the publication of the balance sheet
and the profit and loss account
for transmission
activity has to be maintained.

objective. With

context

regard

this

the

to

of

in

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L 319/17

3.2.3. Interpretation of Article 20 of Directive 96/92/EC

(a) an application for a transitional regime pursuant to Article

24(1) and (2) of Directive 96/92/EC;

(41) Concerning this element of the Luxembourg notification
according to Article 24 of Directive 96/92/EC, no
specific
regime or derogation is applied for. The
notification is more a request for interpretation, and not
an application for a derogation on the basis of Article
24(3) of the Directive. Thus, it cannot be element of a
Commission Decision pursuant to Article 24.

(b) an application for a derogation from Article 14(3) of

Directive 96/92/EC pursuant to Article 24(3).

Article 2

4. Conclusion

(42)

Luxembourg’s application under Article 24 of Directive
96/92/EC contains three elements.

Based on Article 24(1) and (2) of Directive 96/92/EC, a
transitional regime in relation to the contract between the
Luxembourg State, SociØtØ (cid:201)lectrique de l’Our SA and RWE
AG, initially concluded on 30 April 1963 and amended on 22
October 1990, cannot be granted.

(43)

(44)

First, the request for a transitional regime on the basis of
contract. The Commission
a power procurement
concludes that there is no sufficient evidence that the
entry into force of Directive 96/92/EC might render
Cegedel unable to honour its commitments as required
the
by Article 24(1) of
notification does not specify any concrete measures.
Therefore, no transitional regime can be granted.

the Directive. Furthermore,

Secondly, a derogation from Article 14(3) of Directive
96/92/EC on the basis of Article 24(3)
thereof. The
Commission concludes that the derogation is granted in
so far as Luxembourg may suspend the publication of
separate balance sheets and profit and loss accounts for
the generation and distribution activities of Cegedel until
the separate
31 December 2001. The publication of
balance
for
account
loss
transmission activity has to be maintained.

and profit

sheet

and

(45) Thirdly,

the

notification

for
interpretation of Article 20 of Directive 96/92/EC, which
has to be dealt with outside the scope of the present
Decision,

contains

request

a

Article 3

Based on Article 24(3) of Directive 96/92/EC, a derogation
from Article 14(3) is granted in so far as:

(1) Luxembourg may suspend the requirement for Cegedel to
publish separate balance
sheets and profit and loss
accounts for generation and distribution activities in the
notes to the annual accounts until 31 December 2001;

(2) Luxembourg shall ensure that

the
separate balance sheet and profit and loss account for the
transmission activity of Cegedel is maintained.

the publication of

Article 4

This decision is addressed to Luxembourg.

HAS DECIDED AS FOLLOWS:

Article 1

Done at Brussels, 8 July 1999.

the following applications
The present Decision concerns
notified by Luxembourg to the Commission in its letters of 13
February 1998 and 20 October 1998:

For the Commission

Christos PAPOUTSIS

Member of the Commission