1999/798/EC: Commission Decision of 8 July 1999 concerning the Danish application 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) 1551/8) (Only the Danish text is authentic)
Date: 1999-07-08
Institutions: European Commission
Subjects: Denmark, approximation of laws, electrical energy, single market, transitional period (EU)

11.12.1999

EN

Official Journal of the European Communities

L 319/47

COMMISSION DECISION

of 8 July 1999

concerning the Danish application 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) 1551/8)

(Only the Danish text is authentic)

(1999/798/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

2. Structure and development of the electricity sector

in Denmark

Having regard to the Treaty establishing the European
Community,

(4)

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

there were 111 companies in the Danish
In 1997,
electricity industry. 46 of
the companies are directly
owned and run by municipalities, 43 are organised as
consumer owned cooperatives, nine are partnerships, 11
are private
stock
companies.

and two are

foundations

joint

Having informed the Member States of
submitted by Denmark,

the application

Whereas:

I. FACTS

1. Procedure

(1) By letter of 19 February 1998, the Danish Ministry of
Environment and Energy (Miljł- og Energiministeriet)
applied for a transitional regime pursuant to Article 24
of the Directive.

(2) On 25 June 1998, a meeting between the Commission
from the Danish Ministry of
and representatives
Environment and Energy was held in Brussels to discuss
the application. The Ministery was asked to provide
more detailed information.

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

this information.

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

(5) The transmission network in Denmark is divided into
two separate vertically integrated systems. Eltra (separate
legal entity and separate management and governing
board) operates a network which covers the western part
of Denmark (Jutland and Funen) and is linked to the
UCPTE net and Elkraft System (organised within Elkraft
but has separate management) operates a network which
covers the eastern part and is linked to the Nordel net.
The distribution companies are responsible for the sale
of electricity to the consumers, and for the planning,
operation
low and
medium-voltage grid.

and maintenance

the

of

(6) The generation of electricity is undertaken by eight
companies which are owned by
the distribution
companies. The generation of electricity and the sale of
electricity to the distribution companies are coordinated
by Elsam (in the Eltra area) and by Elkraft.

three
as well

electricity undertakings which are
(7) There are
producers
Kłbenhavns
Belysningsv(cid:230)sen (the municipality of Copenhagen),
(cid:216)stkraft
the
on
municipality of Randers.

of Bornholm,

distributors:

island

and

the

as

(8) The electricity is mainly produced in combination with
heat production. Coal is the predominant fuel in these
plants; however, natural gas is growing in importance.
Traditional power plants producing only electricity have
been phased out in recent years. In addition, renewable
energy sources such as biomass and wind power are
becoming more important in electricity production. It is

L 319/48

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Official Journal of the European Communities

11.12.1999

the policy of Denmark that
continue.

this development should

4. The transitional regime notified by the Danish

(9) Historically, Denmark has been a net

importer of
electricity, but since 1995 it has had a surplus which has
been exported.

3. The Electricity Supply Act and the Electricity

Market Directive

(10) The Danish electricity market is regulated through the
Electricity Supply Act (ESA), which entered into force in
1977. Since then it has undergone several amendments,
but the structure remains unchanged.

the same time ensuring that

(11) The transition towards a more market-based system
commenced with the adoption of an amendment to the
ESA by Parliament in May 1996. The purpose of the
amendment was to introduce competition in Denmark
while at
the electricity
industry would have to fulfil a number of public service
obligations relating to environmental protection, security
of supply and consumer protection. The amendment
entered into force on 1 January 1998 after the approval
of certain elements of the Bill by the Commission on 3
December 1997 (State-aid procedure) (2).

(12)

Since 1 January 1998, distribution companies with an
annual supply of electricity above 100 GWh and final
consumers with an annual electricity consumption above
100 GWh per consumption site have been considered as
eligible customers. The Danish electricity market
is
characterised by having only a few large electricity
In fact, only seven consumers exceed the
consumers.
100 GWh threshold and their market share equals about
total consumption in Denmark. By including
5 % of
distributors
involved indirectly
increases to about 90 % of the market.

the potential market

(13) Denmark has opted for negotiated third party access in
the present legislation. In practice, however, Eltra and
Elkraft System have introduced third party access based
on published tariffs
to the transmission
for access
networks. The distribution network is still characterised
by negotiated third party access.

(14) There are still a number of outstanding issues of detail to
be covered by new legislation in order to fully comply
with the Directive. The Danish Government is preparing
these remaining
inter alia, covers
legislation which,
issues.

Government

4.1. Introduction

(15) The Danish Government has notified transitional regimes

for three types of commitments:

(1) Take-or-pay gas contracts

(2) Closure of power plants

(3) Pension obligations.

4.2. Take-or-pay gas contracts

The commitment

(16) Two Danish undertakings, Elkraft AmbA and I/S Elsam
have concluded three take-or-pay gas contracts with
Dangas A/S.

(cid:151) 1991 (cid:151) contract, which runs from 1996 until 2020
and requires Elkraft to take a minimum of [(cid:133)] (*)
million Nm3 per annum,

(cid:151) 1994 (cid:151) contract, which runs from 1996 until 2020
and requires Elsam to take a minimum of [(cid:133)] (*)
million Nm3 per annum,

(cid:151) 1995 (cid:151) contract, which runs from 2001 until 2010
and requires Elsam to take a minimum of [(cid:133)] (*)
million Nm3 per annum and Elkraft
to take a
minimum of [(cid:133)] (*) million Nm3 per annum.

(17) The gas price is [(cid:133)] (*).

(18) The contracts include a clause which [(cid:133)] (*).

(19) The contracts are [(cid:133)] (*).

(20) The gas is destined for use at four central combined heat
and power plants which are partly covered by a (cid:145)CHP
guarantee(cid:146) which exists in Denmark, according to which
Danish distribution companies are obliged to purchase
the heat-driven electricity produced by these plants at
cost-covering prices if
the electricity cannot be sold
without making a loss on the free market. This
guarantee has been examined by the Commission and
accepted in relation to the Treaty provisions on State aid
(see footnote 2). It has also been analysed in relation to
the provisions of the Directive, and the Commission has,

(2) State aid N 305/96 (cid:151) Denmark (cid:151) Measures

in favour of

centralised electricity generating plants.

(*) Business secret.

11.12.1999

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Official Journal of the European Communities

L 319/49

in a preliminary assessment,
found the scheme to be
compatible with the Directive. This assessment has been
transmitted to the Ministry of Environment
and
Energy (3).

losses.

cover actual
In cases of overcompensation the
surplus will have to be paid back to the consumers. The
undertakings must have
the
support in order to avoid cross-subsidising and ensure
transparency. The amount will be indicated separately on
consumers’ electricity bills.

separate accounts

for

2,

of

the

bulk

Blok

(21) The (cid:145)CHP guarantee(cid:146) operates until 2006 and for three of
the plans, H. C. (cid:216)rstedsv(cid:230)rket, Svanemłllev(cid:230)rket and
Avedłrev(cid:230)rkets
electricity
production would be covered by the guarantee, as it is
produced in combination with heat. The Danish
Government
therefore does not foresee any problems
before 2006 regarding take-or-pay contracts for these
plants,
the
heat-driven electricity can be sold at a price which
covers the production costs. Regarding the last plant,
Sk(cid:230)rb(cid:230)kv(cid:230)rket, only 30 % of the electricity production
is expected to be covered by the (cid:145)CHP guarantee(cid:146) and,
with respect to this plant, the gas take-or-pay contracts
may pose difficulties depending on the movements of
gas market prices compared to that
fixed in the
contracts.

guarantee(cid:146)

ensures

(cid:145)CHP

that

the

as

Extent of stranded costs

(22) The Danish Government has calculated the commitment
related to the three take-or-pay commitments at DKK 8,9
billion, corresponding to the value of the natural gas
destined for electricity production, which is not covered
the
by the (cid:145)CHP guarantee(cid:146);
natural gas price will
figure is
calculated on the basic assumption that the electricity
price would be reduced to zero.

the assumption is that

remain stable. This

(23) The Government assumes, however,

it

that

is more
realistic that
the market price of electricity would
increase from the present level of DKK 0,12 per kWh
(current price in Nordic electricity pool as reported by
in its letter of 16 October
the Danish Government
1998) to DKK 0,15 per kWh in 2000. Thereafter, the
Government expects [(cid:133)] (*).

(24) Under

the above assumptions of

increasing market
the Government has
prices of electricity and gas,
estimated the stranded costs
related to take-or-pay
contracts at DKK 993 million in total over the period
1999 to 2020.

Method of recovery

(25) The Government is considering allowing the electricity
undertakings
electricity
consumption. This will be levied at final consumer level.
The amount will be calculated ex post and may only

surcharge

put

on

to

a

(3) Letter of 31 October 1997 from DG XVII of the Commission to

the Ministry of Environment and Energy.

4.3. Closures of power plants

The commitment

(26)

(27)

Electricity generating companies in Denmark have until
now not been allowed to make provisions for future
costs for closing and dismantling production plants.
an
Thus,
(cid:145)as-and-when(cid:146) basis through the electricity tariffs, which
could if necessary be increased to meet these costs.

dismantling were met

costs

for

on

In a non-competitive market this has not therefore posed
any problems for the generation companies, as the costs
in the end have been passed on to the final consumers.
In a competitive market where consumers are no longer
captive, it may no longer be possible to pass on these
costs.

(28) The Danish Government

are

has

that

reported

expected to be

30
production units
closed and
dismantled in the period 1999 to 2025 and that six
production units have recently been closed and are being
dismantled. The normal lifetime of a production unit is
estimated at 30 years. In certain cases, the closure and
dismantling has been ordered by the Energy Agency for
environmental reasons. Dismantling can only take place
with a licence from the Energy Agency, (see Article 5(1)
of the Electricity Supply Act).

Extent of stranded costs

(29) The Government has estimated that

the dismantling
costs per production unit amount to between DKK 100
million and DKK 170 million depending on the size of
the unit. The dismantling costs for a 137 MW unit
closed in 1996 (Nordjyllandsv(cid:230)rket, Blok 1) have been
estimated at DKK 87 million. However, according to the
Danish notification, these costs are below normal costs,
as part of the unit will not be dismantled, but will be
used in connection with the other units of this power
plant.

(30)

Following the adoption of the new Electricity Supply Act
(expected during 1999), electricity companies will be
able to make provisions
such costs. The
Government has therefore only notified costs for power
units for which a licence for dismantling has been or is

to cover

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Official Journal of the European Communities

11.12.1999

expected to be issued in the period from 1 January 1998
to 31 December 2007. Companies with plants that are
expected to close after this date will be required to make
adequate provision for decommissioning between now
and closure. The stranded cost regime is intended to
the
finance, or contribute towards the financing, of
plants to close before this date. For such plants, no
provisions to cover costs have yet been made and
insufficient
time remains for adequate reserves to be
built up prior to closure. In total, 21 units and six plants
currently being dismantled will be covered.

(31) The Government estimates the total stranded costs at

DKK 2 750 million, broken down as follows:

(cid:151) Sj(cid:230)llandske Kraftv(cid:230)rker

(part of

Elkraft

area):

DKK 800 million, relating to eight power units,

will be indicated separately on consumers’ electricity
bills.

4.4. Pension obligations

The commitment

(36) Municipal undertakings operating in the electricity sector
have traditionally employed a large number of staff as
civil servants. Their terms of employment oblige the
regular pension
municipal
payments to retired employees. Money has not been put
aside to cover present and future costs related to pension
payments. Instead the costs have been included in the
price of electricity on an (cid:145)as-and-when(cid:146) basis when they
occurred.

undertakings

to make

(cid:151) Kłbenhavns Belysningsv(cid:230)sen (part of Elkraft area):

DKK 600 million, relating to six power units,

(37)

(cid:151) Elsam: DKK 1 350 million, relating to seven power
currently being

and costs of

six plants

units
dismantled.

Since 1 January 1997, new staff have been employed on
a contractual basis, and the undertakings pay pension
contributions throughout the period of employment. The
change from hiring staff as civil servants to employment
on contract
implies that municipal undertakings for
some years will have to pay pension contributions for
to former
present
employees for which no provision has been made.

employees as well as pensions

(32) The Government envisages granting a subsidy of up to
DKK 170 million per unit for which an application for a
dismantling licence is submitted to the Energy Agency
before 1 January 2001. The maximum subsidy will be
reduced for applications after this date.
In 2001, the
maximum amount will be DKK 102 million and this will
be reduced by DKK 17 million for each of the following
years. Dismantling must commence at the latest one year
after the licence has been issued.

(33) The aggregated costs of the subsidy schemes have been
calculated by the Danish Government at DKK 2 300
million.

Method of recovery

(34) The Government is considering introducing two separate
schemes to finance the subsidy; one for Elsam and one
for Elkraft. They will be permitted to put a surcharge on
electricity consumption through a separate charge to
final consumers in their area, and the costs will therefore
be paid by both consumers of the electricity generated
by the undertakings themselves and by consumers of
electricity purchased on third party contracts.

(35)

In cases of overcompensation the surplus will have to be
paid back to the consumers. The undertakings must have
separate accounts for the support
in order to avoid
cross-subsidising and ensure transparency. The amount

(38) The Danish Government feels that this will only pose
for generating companies, as distribution
problems
companies will continue to have a supply monopoly in
their distribution area and can therefore always cover
pension costs through their distribution tariffs. Only one
generating
also a distributor,
Kłbenhavns Belysningsv(cid:230)sen, will need a transitional
regime. The company has not hired any new staff on
civil servant conditions since 1 January 1997, which was
before the Directive entered into force.

company, which is

Extent of stranded costs

(39) Assurandłrgruppen (Group of insurers) has calculated the
capital value of the pension obligation for Kłbenhavns
Belysningsv(cid:230)sen to be DKK 600 to 700 million (end of
1997) depending on the assumptions of the retirement
age for the employees covered by the obligation.

(40) Concerning future pension rights for employees with
civil servant status, Kłbenhavns Belysningsv(cid:230)sen will
pay a pension contribution equal to 15 % of salary to
cover these costs.

Method of recovery

(41) The Government

is considering a transitional regime
where Kłbenhavns Belysningsv(cid:230)sen, for a period of ten

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Official Journal of the European Communities

L 319/51

years, receives the right to collect DKK 700 million from
electricity consumers. The notification does not contain
any further description of how the scheme will be
designed.

account, amongst other things, the size of the
system concerned, the level of interconnection of
the system and the structure of
its electricity
industry.

(42)

In cases of overcompensation the surplus will have to be
paid back to the consumers. The undertakings must have
separate accounts for the support
in order to avoid
cross-subsidising and ensure transparency. The amount
will be indicated separately on consumers’ electricity
bills.

(45)

II. LEGAL ANALYSIS

3. Assessment of the notification

it

In the present case, concerning the transitional regime as
notified,
is not necessary to determine whether
requirements A(1), (2), (3) or B(2), (3) are met, because
the measures in question do not fall within the scope of
derogations
the
Directive and thus do not meet requirement B(1) above.

IV, VI and VII of

from Chapters

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

following:

(46) Article 24(1) and (2) of Directive 96/92/EC states the

(43) The Danish

transitional
96/92/EC.

notification

a
explicitly
regime under Article 24 of Directive

applies

for

2. Requirements of Article 24

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

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.

(47)

(3) A causal link between the entry into force of the
the

inability to honour

Directive
and the
commitment must be established.

(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)

that

is clear,

in order

therefore,

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

B. Requirements concerning the measures proposed to achieve

the objectives in question

(1) The measures of the transitional regime must fall
within the scope of derogation from Chapters IV,
VI and VII of the Directive.

(2) The transitional

regime must be of

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

expiry of

(3) The transitional

restrictive measures
achieve
themselves must be legitimate.
these issues

regime must apply the least
reasonably necessary to
in question, which
In deciding on
take into

the Commission must

the objectives

(48) Thus, 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 the Directive, cannot be regarded as a
transitional regime within the meaning of Article 24
of Directive 96/92/EC. The application of
such a
derogation from the
require
levy would not
abovementioned chapters of the Directive.

a

(49) The fact that measures such as those under consideration
in this case can result in very considerable distortions of
competition in the single market for electricity do not
affect this conclusion. The Commission thus recognises
that the payment of such levies can result in economic
consequences
to those resulting
from a total or partial derogation from some of the

substantially similar

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Official Journal of the European Communities

11.12.1999

envisaged by the Directive. 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
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
the EC Treaty. Under
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.

to Article 87(3)(c) of

take-or-pay gas contracts, closures of power plants and
pension obligations as notified by the Danish Government in
its letter of 19 February 1998.

Article 2

The transitional regime notified by the Danish Government
contains no measures which would constitute derogations
from Chapter IV, VI or VII of Directive 96/92/EC. Article 24 of
the Directive is therefore not applicable to the transitional
regime notified by the Danish Government.

(50)

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

it

Article 3

HAS DECIDED AS FOLLOWS:

Article 1

The proposed transitional
undertaken by Danish electricity undertakings

regime relates

to commitments
regarding

This decision is addressed to the Kingdom of Denmark.

Done at Brussels, 8 July 1999.

For the Commission

Christos PAPOUTSIS

Member of the Commission