1999/797/EC: Commission Decision of 8 July 1999 concerning the application of the Spanish Government 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) 1551/7) (Only the Spanish text is authentic)
Date: 1999-07-08
Institutions: European Commission
Subjects: Spain, approximation of laws, electrical energy, single market, transitional period (EU)

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Official Journal of the European Communities

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COMMISSION DECISION

of 8 July 1999

concerning the application of the Spanish Government 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) 1551/7)

(Only the Spanish text is authentic)

(1999/797/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

to Article 24 of

(4) By letter of 28 January 1999, the Spanish Government
notified the transitional regime (which had been notified
pursuant
the Directive) with certain
modifications, in accordance with Article 88 of the EC
this
Treaty. This notification is not
Decision but is being dealt with in a parallel procedure
under Article 88 of the EC Treaty.

the subject of

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 the application made
by the Spanish Government,

Whereas:

I. FACTS

1. Procedure

(1) By letter of 18 February 1998, the Spanish Ministry of
Industry and Energy notified the Commission of an
application for a transitional regime pursuant to Article
24 of Directive 96/92/EC. The application referred to the
Spanish Electricity Sector Act No 54/1997, notified
under Article 27 of the Directive by letter of 20 January,
and in particular to two provisions thereof:
the
provisions on costs of
transition to competition
(hereinafter (cid:145)CTC(cid:146)), and (2) the provision concerning the
systems on the islands and outside the Iberian peninsula.

(1)

(2) On 3 June 1998, the Commission’s services undertook a
fact-finding mission to Madrid and met with officials
from both the Ministry of Industry and Energy and the
Comisi(cid:243)n Nacional del Sistema ElØctrico (CNSE).

(3) By letter of 16 October 1998, the Spanish Ministry of
complementary

submitted

and

Industry
information to the Commission.

Energy

(5)

(6)

2. The Spanish electricity sector and the
implementation of Directive 96/92/EC

than 15 GWh per

Spain implemented Directive 96/92/EC with the Act No
54/1997 of 27 November 1997, which entered into
force on 1 January 1998. This Act introduces regulated
network access for all customers with a consumption of
more
represents
approximately 30 % of total consumption by the end of
1998 (2). The Act,
together with amendments which
entered into force on 1 January 1999, already provides
for further progressive market opening steps which will
lead to 100 % market opening in 2007.

year. This

Furthermore, the Spanish Act introduced the functions
of independent system operator and independent market
operator, which are separated in legal and ownership
terms from other electricity companies (no shareholder
may hold more than 10 % of these bodies, the sum of
shareholders operating in the electricity sector may not
exceed 40 %). Royal Decree 2019/1997 designated Red
ElØctrica de Espaæa, SA (REE) as system operator and
Compaæia Operadora
de
Electricidad, SA (OMEL) as market operator.

del Mercado

Espaæol

(7) The market operator (OMEL) manages the coordination
of supply and demand on the spot market. All producers
generating more than 50 MW are obliged to regularly
submit offers on the spot market, and are also allowed
to sell
their electricity under bilateral contracts. All
distributors, suppliers and eligible customers may act as
buyers on the spot market. Thus, eligible customers
currently have three possibilities:
(1) remaining with
their supplier/distributor at regulated supply tariffs, (2)
and (3)
purchasing directly on the

spot market,

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

(2) Directive 96/92/EC requires a minimum market opening of

26,48 % as of 19 February 1999.

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purchasing on the basis of a bilateral contract with a
specific producer or supplier.

3.2. Details of the (cid:145)CTC(cid:146) regime

(8) The main electricity generating companies, which also
carry out distribution and supply activities, are Endesa,
Iberdrola
SA and
HidroelØctrica del CantÆbrico SA. These are all privately
owned.

SA, Uni(cid:243)n

ElØctrica

Fenosa

3. The transitional regimes notified by the Spanish

Government

3.1. Introduction

(9)

Spain has notified two schemes pursuant to Article 24
of the Directive:

(10) O b j e c t i v e s

over

electricity

companies,

the CTC regime is to compensate
The objective of
Spanish
a
generating
maximum period of ten years, for the expected decrease
in the electricity price on the wholesale market resulting
from the introduction of competition. For the purposes
of the CTC regime, it has been estimated that the price
to 6 ESP/kWh. The maximum
of electricity may fall
calculated ex ante, has been set at
compensation,
ESP 1 988 billion (approximately EUR 12 billion). The
main portion, i.e. ESP 1 693 billion or 85 %, is intended
to cover
the 11 generating
resulting from lower prices due to the
companies
i.e.
introduction of competition. A smaller portion,
ESP 295 billion or 15 % is intended to cover a fixed
premium of one peseta per kWh of electricity produced
from indigenous coal.

the loss of

income of

1.

(cid:145)CTC(cid:146) regime (Costes de transici(cid:243)n a la competencia)

(11) C a l c u l a t i o n m e t h o d

The CTC regime is defined in the sixth transitional
provision of Spanish Act No 54/1997, amended as
of 1 January 1999 by Act No 50/1998 of 30
December 1998. It is based on guarantees given by
the Spanish State to all electricity generating plants
under Royal Decrees 40/1994 and 1538/1987,
which governed electricity tarification prior
to
liberalisation. The system guaranteed cost coverage
for electricity generating plants built
in Spain by
allowing the electricity tariff to be calculated on the
basis of each individual power plant according to
standardised cost accounting methods. The new Act
No 54/1997 establishes a transitional regime referred
to as (cid:145)costs of transition to competition(cid:146) (CTC), with
electricity
a view to partly
generating companies
income
for
resulting from the difference between the guaranteed
electricity tariff existing hitherto and the anticipated
price of electricity in the liberalised market.

compensating the
the

loss of

2. Systems on the islands and outside the Iberian peninsula

For the operation of these systems, the companies
(Unelco (Canary Islands), GESA (Balearic Islands) and
Endesa (Ceuta and Melilla) will be exempted until 31
December 2000 from some of the market rules that
govern the mainland electricity market. These
exemptions are defined in the 15th transitional
provision of Act No 54/1997 and in amendments to
this Act under the 17th additional provision of Act
In
No 34/1998 on the hydrocarbons
addition, Act No 54/1997 provides
the
comparatively higher cost of electricity production
and distribution in these systems to be redistributed
through a special
levy on the mainland electricity
tariffs and transmission charges.

sector.
for

is

individual cost

The
schedules of each plant were
independently and individually audited in the course of
the previous tariff setting exercises. Starting from this
the average yearly hours of operation per
cost base,
(cid:145)technology
technology have been determined. The
compensation(cid:146)
the discounted
then calculated as
difference between the standardised production costs and
the assumed market price of six pesetas per kWh. The
rate used is 5 %. The resulting difference
discount
amounted to ESP 2 508 billion (3). This amount was then
reduced by 32,5 % or ESP 815 billion in order to take
into account possible productivity gains. The result was
the abovementioned ESP 1 693 billion, to which was
added the coal compensation of ESP 295 billion. The
stranded costs are compensated by payments to the
owners of each generating plant on a yearly basis.

(12) C o m p e n s a t i o n m e t h o d

thermal

total CTC technology
the
Approximately 50 % of
compensation is to be paid to the nuclear sector, 31 % to
the conventional
sector, and 19 % to the
hydroelectric sector. The ex ante calculation of ESP 1 988
billion sets the maximum amount of compensation. The
actual yearly compensation is calculated on the basis of
the actual
the market
price remains higher than the assumed six pesetas per
the compensation payments will be reduced
kWh,
the market price falls below the
proportionally.

trend in spot-market prices.

If

If

(3) It should be noted that in the notification of 28 January pursuant
to Article 88 of
the original difference between
standardised production cost and assumed market price was ESP
3 074 billion, which had been reduced by ESP 565 billion.

the Treaty,

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estimated six pesetas per kWh, the yearly compensation
will be increased, but not the total compensation. This
means that the transitional period would end before the
scheduled ten years, namely when the maximum
compensation amount has been used up.

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

isolated

(13) R e c o v e r y m e t h o d

2. The (cid:145)CTC(cid:146) regime

The cost of the CTC regime is recovered annually by
means of regulated tariffs and transmission charges. The
respective amounts are collected by the distribution
companies and transferred to the production companies
under the supervision of the regulator (CNSE).

is

for

earmarked

component, which

The amendment to the Electricity Act that came into
force on 1 January 1999 modified the compensation and
recovery method in so far as it introduced a fixed 4,5 %
tariff
the
compensation payments to the electricity companies.
This would prepare for
the possibility of a later
securitisation of ESP 1 000 billion of compensation
payments by the receiving companies. This possibility
has been introduced in exchange for a further reduction
of approximately ESP 250 billion in the overall CTC
payments. The remaining amount of approximately ESP
320 billion will be compensated in accordance with the
original method described above. This modification does
not affect
the ESP 295 billion of compensation for
indigenously-produced coal, which will be recovered
through the tariffs at a rate of one peseta per kWh.

3.3. Details of the systems on the islands and

outside the Iberian peninsula

(14) The notification does not include a request for specific
derogations from the Directive. The financial support,
which redistributes the higher electricity costs of these
isolated systems
is
recovered in a similar way to that described above for
the CTC regime.

to the overall Spanish system,

II. LEGAL ANALYSIS

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

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

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

Those Member States in which commitments or
(cid:145)1.
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

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)

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

(17) 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
the

and the
Directive
commitment must be established.

to respect

inability

(15) The Spanish Government notified an application in
accordance with Article 24 of Directive 96/92/EC. The
two parts which need to be
notification contains
assessed separately:

(18) B. Requirements concerning the measures proposed to achieve

the objectives in question

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

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

(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.

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(2) The transitional

regime must be of

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

expiry of

economic effect will be treated in a consistent manner,
regardless of the relevant procedure in each individual
case.

(3) The transitional

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

issues

2.2.3. Assessment of the (cid:145)CTC(cid:146) regime

(23) However, notwithstanding this and despite the fact that
in the notification of 18 February 1998 the Spanish
Government itself expressed a doubt as to whether it
was necessary to apply for transitional regime under
Article 24 of Directive 96/92/EC because (cid:145)although the
CTC corresponds to what is described in Article 24(1), it
is not deemed to come within the scope of Article 24(2)
as the new Spanish legislation transposing this part of
the Directive does not contravene Chapters IV, VI and
VII(cid:146),
the
complementary information provided to the Commission
by letter of 16 October 1998 that the Spanish CTC
regime would,
represent a derogation from
indeed,
Article 8 in Chapter IV of the Directive.

Spanish Government

argued

the

in

(19)

it

In the present case, concerning the CTC regime as
notified,
is not necessary to determine whether
requirements A(1), (2), (3) or B(2), (3) of recitals (17) and
(18) respectively are met because the measures of the
transitional regime do not require a derogation from
Chapters IV, VI and VII of Directive 96/92/EC and thus
do not meet requirement B(1).

(24)

(20) As stated above,

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

(21) The measures under consideration are based on a pure
compensation scheme, i.e. a system of charges or levies
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 does not require a derogation from Chapters IV, VI
or VII of Directive 96/92/EC and cannot therefore be
regarded as a transitional regime within the meaning of
Article 24 thereof.

can result

for electricity does not affect

such levies
substantially similar

(22) The fact that measures such as those under consideration
in this case can result in very considerable distortions of
the single market
this
conclusion. Indeed, the Commission recognises that the
in economic
payment of
consequences
to those resulting
from a total or partial derogation from some of the
IV, VI or VII of
obligations contained in Chapters
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

EC Treaty. Under

the

liberalisation,

is argued that

It
the Spanish price regulation before
liberalisation (Royal Decree 1583/1987) constitutes a
guarantee for the operation and full amortisation of each
the market
single power plant. After
operates under a merit order system according to Article
8 of
the Directive, which does not guarantee the
dispatching for plant operation at prices guaranteed by
Royal Decree 1583/1987.
In its letter of 16 October
(cid:145)the
1998,
absence of these stranded costs (CTC regime) would lead
to a different merit order compared to the one resulting
generation market(cid:146).
from the
competitive
(costes de
((cid:145)la
transici(cid:243)n a
a una
precedencia econ(cid:243)mica diferente a la que estÆ resultando
en el actual mercado competitivo de generaci(cid:243)n.(cid:146))

estos
competencia) dar(cid:237)an lugar

the Spanish Government concludes

ausencia de
la

costes hundidos

current

that

(25)

In other words, Spain contends that the introduction of
the CTC payments permits the recipients to use these
funds to sell electricity at lower prices than would be the
case in the absence of such a transitional regime. This, in
turn, will lead to a modification of the merit order based
simply on economic criteria, which is the basis of the
requirement in Article 8 of Directive 96/92/EC.

(26) Thus,

to

the

according

Spanish authorities,

the
compensation payments of the CTC regime put the plant
operators in the same position as if they still had a
guarantee of dispatch at cost amortising prices and as if
Article 8(2) of Directive 96/92/EC did not apply. In this
way, the CTC regime allowed Spain to opt for an early
market opening schedule and a simultaneous reduction
of electricity tariffs for captive consumers, instead of a
delayed market opening, which could have been the
result if Spain had opted for a derogation from Chapter
VII under Article 24 of the Directive.

(27) However, the Commission considers that this type of
compensation, which aims at (cid:145)neutralising(cid:146) in economic
terms and for a limited time the effects of applying the
provisions of
the Directive, cannot be regarded as a
(cid:145)derogation(cid:146) from the Directive within the meaning of
an
Article 24. The

Spanish

system,

based

on

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independent market operator and a transparent spot
market, clearly implements and conforms with the
requirements in Article 8 of
the Directive. The CTC
regime does not constitute a specific derogation from
Article 8. What is relevant here is the nature of the
notified measure rather than its purpose or aim. By its
very nature, the transfer of a compensation payment to
certain electricity producers, financed through a levy or
charge on the consumers is, as mentioned above, a
measure which is not directly addressed by the Directive
but one which needs to be examined under the rules on
competition, and in particular Article 87(3)(c) of
the
Treaty.

(28)

In the light of the non-applicability of Article 24 of
is not necessary to assess the
Directive 96/92/EC,
abovementioned further
requirements (2) and (3) of
recital (18).

it

3. The regime for systems on the islands and outside

the Iberian peninsula

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

96/92/EC

(29) Article 24(3) of

the Directive states

the following:
the
after
(cid:145)Member States which can demonstrate,
Directive has been brought into force, that there are
substantial problems for the operation of
their small
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

the

of

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

(1) Article 24(3) is in principle applicable only to small
the Directive
isolated systems. Article 2(23) of
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
other
systems(cid:146).

interconnection with

through

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

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

(4) In deciding on each application,

the Commission
applies 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 Spanish application

(31) By analogy with the above assessment of

the CTC
regime, also concerning the regime for systems on the
is not
islands and outside the Iberian peninsula,
necessary to determine whether requirements (1), (2) and
(4) are met, because the measures of the transitional
regime in question do not
fall within the scope of
derogations from Chapters IV, VI and VII of Directive
96/92/EC and thus do not meet requirement (3) of the
recital above.

it

(32) The Spanish notification itself does not apply for any
specific derogation from the Directive. Since the regime
for the systems on the islands and outside the Iberian
peninsula represents financial support for these systems
that is recovered through a levy or charge on electricity
consumption, the abovementioned arguments apply by
analogy. Thus, such a regime needs to be examined
under the rules on State aid, and in particular Article
87(3)(c) of
the Treaty. Under these circumstances, as
mentioned in point 2.2.3, 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.

(33)

If,
in the future, a derogation under Article 24(3) of
Directive 96/92/EC became necessary in order to avoid
an infringement of Chapters IV, V, VI or VII with regard
to specific rules for the electricity systems on the islands
Spanish
and
Government could submit an appropriate application at
any time as the application deadline specified in Article
24(2) does not apply with respect to Article 24(3).

peninsula,

outside

Iberian

the

the

4. Conclusion

(34) The Spanish application pursuant
Directive 96/92/EC has two elements.

to Article 24 of

First, the CTC regime, which has been assessed on the
basis of Article 24(1) and (2) of
the Directive, and,
second, the regime for the systems on the islands and
outside the Iberian peninsula, which has been assessed
on the basis of Article 24(3) of the Directive.

(35) The Commission concludes

a
transitional regime pursuant to Article 24 cannot and
need not be approved as the measures chosen do not

in both cases

that

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constitute derogations from Chapters IV, V (only in
respect of Article 24(3)), VI and VII of the Directive.

Article 2

(36)

Finally, it has been recognised that both the CTC regime
as well as the regime for the systems on the islands and
outside the Iberian peninsula systems involve transfers of
compensation payments to certain electricity producers,
financed through a levy or charge on the consumers.
Such measures
are not directly addressed by the
Directive but need to be examined pursuant to the rules
on State aid, and in particular Article 87(3)(c) of the
Treaty,

HAS DECIDED AS FOLLOWS:

Article 1

regime of

The transitional
the (cid:145)Costes de transici(cid:243)n a la
competencia(cid:146), defined in the sixth transitional provision of
Spanish Electricity Sector Act No 54/1997 of 27 November
constitute
1997,
derogations from Chapters IV, VI or VII of Directive 96/92/EC,
as referred to in Article 24(2) of the Directive. Article 24 of
the Directive is therefore not applicable to this part of the
transitional regime notified by the Spanish Government.

no measures which would

contains

Article 3

of

the

regime

(cid:145)Sistemas

transitional

The
y
extrapeninsulares(cid:146), as notified by the Spanish Government,
contains no measures which would constitute derogations
from Chapters IV, V, VI or VII of Directive 96/92/EC, as
referred to in Article 24(3) of the Directive. Article 24 of the
Directive is
the
transitional regime notified by the Spanish Government.

therefore not applicable to this part of

insulares

The present Decision concerns the application of the Spanish
Government for a transitional regime pursuant to Article 24 of
Directive 96/92/EC, notified to the Commission on 18
February 1998. This notification concerns:

Article 4

This decision is addressed to Spain.

(a)

the (cid:145)Costes de transici(cid:243)n a la competencia(cid:146), defined in the
sixth transitional provision of Spanish Electricity Sector
Act No 54/1997 of 27 November 1997,

Done at Brussels, 8 July 1999.

(b) the (cid:145)Sistemas insulares y extrapeninsulares(cid:146), defined in the
15th transitional provision of Spanish Electricity Sector
Act No 54/1997 of 27 November 1997.

For the Commission

Christos PAPOUTSIS

Member of the Commission