1999/796/EC: Commission Decision of 8 July 1999 concerning the application of the Netherlands 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) 1551/6) (Only the Dutch text is authentic)
Date: 1999-07-08
Institutions: European Commission
Subjects: award of contract, export refund, rice

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COMMISSION DECISION

of 8 July 1999

concerning the application of the Netherlands 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) 1551/6)

(Only the Dutch text is authentic)

(1999/796/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

2. Structure and development of the electricity sector

in the Netherlands

Having regard to the Treaty establishing the European
Community,

(a) G e n e r a t i o n

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

(3) There are four electricity producers in the Netherlands:

EPON (cid:151) NV Elektriciteits-Productiemaatschappij Oost-
en Noord-Nederland

Having informed the Member States of the application made
by the Netherlands,

EPZ (cid:151) NV Elektriciteits-Productiemaatschappij Zuid-
Nederland

EZH (cid:151) NV Elektriciteitsbedrijf Zuid-Holland

UNA (cid:151) NV Energieproductiebedrijf UNA.

I. FACTS

They generate around 70 % of domestic electricity
demand. The remaining 30 % is imported (around 13 %)
or supplied by independent producers or autoproducers.

Whereas:

1. Procedure

(1) By letter of 20 February 1998, the Dutch Permanent
its provisional notification of
Representation sent
regimes under Article 24 of Directive
transitional
96/92/EC to the Commission. On 29 May,
the
Commission’s services undertook a fact-finding mission
to the Ministerie van Economische Zaken in The Hague.
The Commission asked for
information
regarding some elements of the notification, which it
received by letter of 22 June.

additional

(2) By

letter of 16 October,

Representation sent
notification of transitional regimes.

the Dutch Permanent
further information regarding the

(4) The

four

extent

certain

companies

coordinate
through

production
a
to

their
SEP
activities
(Samenwerkende
Elektriciteits-Produktiebedrijven NV),
owner of the national high-voltage grid and the legal
person responsible for all electricity imports until 1
January 1999. SEP is responsible for the management of
being
Dodewaard nuclear power plant
decommissioned) and of Demkolec, a coal gasification
plant, and for the international commitments referred to
in point 4.1, recital 12. The four production companies
cooperation agreement
to a
and SEP are parties
(Overeenkomst van Samenwerking, hereinafter (cid:145)OvS(cid:146)).

(currently

(5) The production companies are in turn owned as follows:

EPON (cid:151) distribution companies

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

EPZ (cid:151) distribution companies

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EZH (cid:151) province,
in
municipalities and a distribution company

larger

cities

the

region,

4. The transitional regime notified by the Dutch

Government

UNA (cid:151) two provinces and the cities of Utrecht and
Amsterdam.

4.1. Introduction

(b) T r a n s m i s s i o n

(12) The Dutch Government has notified the following
transitional measures pursuant to Article 24 of Directive
96/92/EC.

(6) Until January 1999, electricity transmission was carried
out by SEP, owner of the high-voltage grid and the sole
importer of electricity.

(7) TenneT, an independent agency which is owned by SEP
and in which the State intends to have a majority stake,
has been responsible for transmission since 1999.

(c) D i s t r i b u t i o n

(8) There are 23 electricity distribution companies. These
are publicly owned (provinces, cities and municipalities).

3. Liberalisation of the Dutch electricity market:

implementation of Directive 96/92/EC

(9) The Dutch Electricity Act 1998 entered into force on 1
August 1998. A supplementary law modifies
the
Electricity Act 1998 and deals mainly with details
regarding access to the network and supply to captive
customers. The supplementary law was adopted on 1
June 1999.

(10) The Dutch Government has opted for a gradual opening
up of the electricity market. Since 1 January 1999, one
third of customers have been eligible and another third
will become eligible in 2002. As of 2007, all Dutch
electricity customers will be free in their purchase of
electricity. The supplementary law provides for regulated
third party access to the grid. Since 1 January 1999, the
importation of electricity has been free for eligible
eligible
distributors
customers
customers,
reciprocity
however,
requirement.

for
subject,

their
a

for
to

and

(11) The

transmission system operator, TenneT,

as
mentioned above, separated legally from generation and
supply and has been operational since 1 January 1999.
The State intends
to have a majority stake in the
transmission system operator.

is,

1. District heating:

the losses on some
district heating projects until the last contract expires
in 2021.

recovery of

2. Demkolec: recovery of the extra costs of construction
and operation of Demkolec, a demonstration of coal
gasification plant at Buggenum.

agree

generators

3. Protocol: a protocol agreement has been concluded
between Dutch generators and distributors, under
which the
and the
distributors agree to purchase, all the output of the
generators (representing 70 % of the present sales of
the distributors) up to and including 2000. In the
event that this voluntary agreement is cancelled, for
commercial or legal reasons, the Minister reserves
the right to impose it, or similar provisions, by law.

to sell,

4.

International commitments: recovery of possible losses
from the following contracts:

(cid:151) power procurement contracts between SEP and

EdF, Preussen Elektra and Statkraft,

(cid:151) investment obligations of SEP to Statnett for the

NorNed cable,

(cid:151) a gas

take-or-pay contract between SEP and

StatOil.

(13) The international commitments mentioned above were
added to the Dutch notification letter of 16 October
1998. They were not
initial
notification of 20 February 1998.

referred to in the

(14)

In the initial notification two further schemes were
mentioned:

(cid:151) delay of privatisation of the electricity sector. Until the
end of 2001, the express agreement of the Minister
will be necessary for any sales of shares outside the
circle of present shareholders,

(cid:151) the phasing in of corporation tax keeping pace with

the liberalisation process.

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is because of

(15) However, these two schemes were withdrawn from the
information
final notification. This
provided by the Commission’s
services during the
abovementioned meeting of 29 May. The Commission
noted that
these issues could not be regarded as
derogations from Directive 96/92/EC and could therefore
not be considered under Article 24 of the Directive. The
Commission reserves the right to examine these issues
according to other provisions of Community law.

4.2. Details of the notified schemes

4.2.1. District heating projects

(a) T h e c o m m i t m e n t

(16)

these

district-heating

In 1990, the production companies took over a fuel
price guarantee from the distributors for the purpose of
district heating. Consumers are given a guarantee that
they will not pay more than users of gas heating. Nine
of
three
involving
these
production companies, are running at a loss;
projects are mentioned. The contracts all date from
before February 1997. In the areas in question, district
heating is not competitive, chiefly because of the level of
capital investment and thus amortisation. The contracts
are a result of government policy, dating back to 1979,
to promote district heating for environmental reasons.

projects,

(b) T h e e x t e n t o f t h e s t r a n d e d c o s t s

(17) The losses have been calculated by accounting firm
Coopers Lybrand at between NLG 1,628 and 2 billion,
depending on fluctuations in the gas price.

(c) M e t h o d o f r e c o v e r y

contracts

the
guarantee.

for district heating with fuel price

(20) Yearly

accounting

on the
beneficiaries. The Commission can have access to the
accounts, if it so requests.

imposed

controls

are

4.2.2. Demkolec

(a) T h e c o m m i t m e n t

(21) The construction and operation of

required

investment

gasification

plant, Demkolec,

the demonstration
coal
very
in research,
substantial, and exceptional,
development and the demonstration of environment-
related technology. This investment has not yet been
written off. The extra costs cannot be recuperated
for electricity after
through the national basic tariff
to
decided
liberalisation.
build
The Government
Demkolec
and for
supply
in order
environmental reasons.

to diversify

(b) T h e e x t e n t o f t h e s t r a n d e d c o s t s

(22) Coopers Lybrand has calculated the extra investment in
Demkolec that has not yet been written off at NLG 458,4
million. The calculation was based on the net value on 1
the difference between the costs of
January 2001 of
Demkolec and a modern gas-fired plant with a cost price
of NLG 0,07/kWh.

the Commission-
The calculation takes account of
approved subsidy to Demkolec of NLG 18,3 million. It
remains, however, to be verified whether the preferential
loan granted by the European Investment Bank has been
accounted for in this calculation. The Dutch authorities
have notified a maximum of NLG 550 million guilders
as a transitional scheme for the Demkolec plant.

(18) Article 77a of the Electricity Act 1998 provides for the
recovery of stranded costs resulting from district heating
projects by means of a surcharge on the electricity
transport tariff.

(19) The Dutch authorities intend to put in place a recovery
scheme which will run for twenty years. Financing will
be to a maximum of NLG 2 billion, to be recovered
from a surcharge on the electricity transport tariff. The
scheme has four beneficiaries: producers EZH, EPZ, UNA
and EPON or their legal successors, which are party to

(c) M e t h o d o f r e c o v e r y

(23) Article 77a of the Electricity Act 1998 provides for the
recovery of the stranded costs of building and running
the demonstration coal gasification plant (cid:145)Demkolec(cid:146) by
means of a surcharge on the electricity transport tariff.

(24) The Dutch authorities intend to introduce a recovery
scheme to be financed by a levy on the transport tariff
which will run for two years. The maximum of NLG 550
million will be reimbursed to the sole beneficiary, SEP.

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4.2.3. Protocol

(a) T h e c o m m i t m e n t

(25)

Producers and distributors are bound by a Protocol
the end of 2000. The
which runs from 1997 until
distributors have agreed to buy all
electricity
the
(covering 70 % of
produced by the four generators
distributors’ needs under the pre-liberalisation regime).
The Protocol regulates costs, prices and tariffs for the
the
period of 1997 to 2000. The
this
Government
Protocol is to allow the Dutch producers to recover part
of any stranded costs resulting from the fact that the
generating capacity is no longer competitive at the lower
prices resulting from liberalisation.
In order to cover
these costs, therefore, the Protocol effectively guarantees
that these companies receive significant and continued
market share and sales levels.

reason why
supporting the maintenance of

is

(b) T h e e x t e n t o f t h e s t r a n d e d c o s t s

(26)

It is impossible at this stage to determine what financial
consequences the repeal of the Protocol would have for
producers.

(c) M e t h o d o f r e c o v e r y

(27)

In the event that the Protocol is annulled, for whatever
reason,
the Minister for Economic Affairs retains the
right and legal mandate to impose the agreement, or one
similar, by law. However, it is not clear (a) when or if
this is likely to occur or (b) precisely which measures
exercised this
would be
possibility.
form any
imposition by the Minister of an agreement between
producers and distributors might take.

adopted if
It

therefore unclear what

the Minister

is

4.2.4. International commitments

(a) T h e c o m m i t m e n t s

(ii) Preussen Elektra electricity import contract dating
back to 1989. Annual off-take commitment by SEP
of 1 500 GWh until 31 December 2005.

(iii) NorNed cable contract, dating back to 31 January
1994. SEP is committed to pay 50 % of cable
construction costs and has to off-take 2,16 TWh/a
from Stattnet. The cable has to be operational on 1
October 2001 and the contract runs until 2016.

(iv) Gas take-or-pay contract between SEP and StatOil

dating back to 1989.

(b) T h e e x t e n t o f t h e s t r a n d e d c o s t s

(29) The extent of the costs will depend on the fluctuations
in electricity and gas prices on the market. If prices on
the Dutch market fall to NLG 0,07/kWh, SEP (through
production
the OvS,
their
companies
proportional part)
is responsible for the loss on these
import contracts, to a total of NLG 3,1 billion. In these
take
circumstances, no government
place.

intervention will

the

for

falls

(30) However, once the market price for electricity falls
below NLG 0,07/kWh, the authorities take over more of
the costs of additional losses on these contracts resulting
from further
price. The
government contribution to the loss is progressive and is
linked to a contribution from the production companies
to cover the loss. At a price of NLG 0,05/kWh, the
Government would pay an estimated NLG [(cid:133)] (*) billion
to SEP, while
the production companies would
contribute NLG [(cid:133)] (*) billion.

electricity

in the

(31) On top of this progressive government contribution, if
prices fall to below NLG 0,055/kWh, the Government
will contribute more. The initial
loss of NLG [(cid:133)] (*)
billion,
taken on by the producers when the market
price falls to NLG 0,07/kWh, will be paid in full by the
authorities once the market price has dropped to NLG
the
0,055/kWh. Thus at a price of NLG 0,05/kWh,
authorities would pay a total of NLG [(cid:133)] (*) billion (the
initial
[(cid:133)] (*) billion
additional loss), while the production companies would
pay NLG [(cid:133)] (*) billion.

[(cid:133)] (*) billion loss plus

the

(28)

(i) The EDF electricity import contract. The initial
recent
contract dates
amendment dates from April 1998 and obliges SEP
to take at least 65 % of 600 MW until 31 March
2000[(cid:133)] (*).

from 1989. The most

(*) Business secret.

(32) The total amounts mentioned in this paragraph are
maximum amounts of the Net Present Value which are
adjusted annually.

(33) Use of the NorNed cable will be free for the Stattnet
import contract. TenneT will not receive payment for

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the use of this transport facility. It is not clear whether
to
SEP can use this cable free of charge for export
Norway.

A. Requirements

concerning

the

nature

of

the

commitments or guarantees of operation in question

(c) M e t h o d o f r e c o v e r y

(34) The Dutch authorities intend to impose a surcharge on
the transport tariff which will recover the losses on the
power and gas purchase contracts and finance the laying
of the Dutch part of the NorNed cable. The recovery
scheme will run until the last contract runs out, which is
in 2026. The beneficiary of the scheme is SEP.

(37)

(1) The existence of a commitment or guarantee

of operation has to 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
Directive 96/92/EC and the inability to
honour
be
established.

commitment must

the

B. Requirements concerning the measures proposed to

achieve the objectives in question

II. LEGAL ANALYSIS

(38)

1. Legal basis: Article 24(1) and (2) of Directive

96/92/EC

(35) The Dutch Government notified an application for a
transitional regime with respect to alleged commitments
and guarantees of operation pursuant to Article 24 of
Directive 96/92/EC.

2. Requirements of Article 24(1) and (2)

Article 24 of Directive 96/92/EC provides as follows:

(1) The measures of

the transitional

regime
must
fall within the scope of derogations
from Chapters IV, VI and VII of Directive
96/92/EC.

(2) The transitional regime must be of limited
duration and linked to the expiry of
the
relevant
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
into
issues
account, amongst other things, the size of
the
of
interconnection of
system and the
structure of its electricity industry.

the Commission must

system concerned,

level

take

the

the

(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
inform the
electricity industry. The Commission shall
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

2.
The transitional regime shall be of limited duration
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)

(36) Article 24(1) and (2) of the Directive, in the light of the
EC Treaty, thus require the following elements to be
examined by the Commission, when considering any
application for a transitional regime.

3. Assessment of the Dutch transitional regime

3.1. District heating, and Demkolec

(39)

In the present case, concerning the transitional regime
with respect to district heating and Demkolec, as notified
by the Dutch Government,
is not necessary to
determine whether requirements A(1), (2), (3) or B(2), (3)
are met, because the measures in question do not require
a derogation from Chapters IV, VI or VII of Directive
96/92/EC and thus do not meet requirement B(1) above.

it

(40) As stated above,

in order to constitute a transitional
regime within the meaning of Article 24 of Directive
96/92/EC, the regime chosen by the Member State must
provide for a derogation from the requirements laid
down by Chapters IV, VI or VII of Directive 96/92/EC.

(41) The measures under consideration are based on a pure
compensation scheme, i.e. a system of charges or levies

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L 319/39

implemented by a Member State in order to compensate
for stranded costs caused by the application of Directive
96/92/EC. The application of such levies in the present
case
from the
abovementioned chapters of the Directive and cannot
therefore be regarded as a transitional regime within the
meaning of Article 24 thereof.

derogation

require

does

not

a

recognises

can result

such levies
substantially similar

(42) The fact that measures such as those under consideration
in this case can result in very considerable distortions of
this
the single market
for electricity does not affect
the
conclusion. The Commission
that
in economic
payment of
consequences
to those resulting
from a total or partial derogation from some of the
obligations contained in Chapters
IV, VI or VII of
Directive 96/92/EC. However, such distortions by their
very nature do not result from such a specific derogation
as envisaged by that Directive. The transfer of a
compensation payment to certain electricity producers,
financed through a levy or charge on the consumers is,
therefore, a measure which is not directly addressed by
the Directive but one which needs to be examined
pursuant to the rules on competition, and in particular
Article 87(3)(c) of
these
circumstances, it is understood that measures of similar
economic effect will be treated in a consistent manner,
regardless of the relevant procedure in each individual
case.

EC Treaty. Under

the

(43)

In the light of the non-applicability of Article 24 of the
Directive,
therefore necessary to assess the
abovementioned further requirements A(1), (2), (3) and
B(2) and (3).

is not

it

3.2. International commitments

(44) Article 24(2) of Directive 96/92/EC includes

the
following provision:
for a transitional
(cid:145)Applications
regime must be notified to the Commission no later
than one year after the entry into force of this Directive(cid:146).
In the
This deadline passed on 20 February 1998.
present case, no mention of the proposed transitional
regime with respect to international commitments was
made in the original notification dated 20 February
1998. They cannot therefore be examined for approval
pursuant to Article 24 of Directive 96/92/EC. However,
even if this transitional regime had been notified to the
Commission within the deadline provided for in Article
24(2), it would not fall within the scope of Article 24(1),
as no derogation from the requirements of Chapters IV,
VI and VII of Directive 96/92/EC result from the scheme.

3.3. Protocol

(45) The Commission considers that, at present, the details of
any possible action by the Netherlands in this respect are
not yet sufficiently precise to permit the Commission to
take a decision pursuant to Article 24(1) of Directive
the possible imposition of such an
96/92/EC. Thus,
agreement
supplementary
information provided to the Commission under Article
24 as soon as it is clear what form this measure will
take. The Commission will
then be able to judge
whether
the scheme constitutes a derogation from
Chapters IV, VI and VII of Directive 96/92/EC and, if so,
whether and to what extent it is compatible with the
requirements of the Directive,

should be the subject of

HAS DECIDED AS FOLLOWS:

Article 1

regime pursuant

This Decision concerns the application of the Netherlands for a
transitional
to Article 24 of Directive
96/92/EC, notified to the Commission on 20 February 1998
and completed on 16 October 1998. This notification
concerns:

(a) commitments undertaken with respect to the Demkolec

demonstration coal gasification plant at Buggenum;

(b) commitments

entered into by production companies

regarding the price charged for district heating;

(c)

international purchasing commitments entered into by SEP;

(d) a Protocol agreement concluded between Dutch producers

and distributors in 1997.

Article 2

charged

the price

The transitional
regime notified by the Netherlands with
respect to commitments entered into by production companies
regarding
and
to the Demkolec
commitments undertaken with respect
demonstration coal gasification plant at Buggenum contains no
measures which would constitute derogations from Chapters
IV, VI or VII of Directive 96/92/EC, as defined by Article 24(2)
thereof. Article 24 is,
to the
therefore, not applicable
transitional regime notified by the Dutch Government.

district heating

for

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Article 3

because this scheme was notified to the Commission more
than one year after the entry into force of the Directive.

Article 76 of the Dutch Electricity Act concerning the Protocol
is not approved pursuant to Article 24 of Directive 96/92/EC.
The Commission should receive supplementary information
pursuant
recourse to this
provision.

to Article 24 in the event of

Article 5

The decision is addressed to the Kingdom of the Netherlands.

Article 4

Done at Brussels, 8 July 1999.

The scheme for
losses on international
commitments contained in the letter of 16 October 1998
cannot be considered under Article 24 of Directive 96/92/EC,

the recovery of

For the Commission

Christos PAPOUTSIS

Member of the Commission