1999/791/EC: Commission Decision of 8 July 1999 concerning the application of the United Kingdom of Great Britain and Northern Ireland 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) 1551/1) (Only the English text is authentic)
Date: 1999-07-08
Institutions: European Commission
Subjects: Northern Ireland, United Kingdom, approximation of laws, electrical energy, single market, transitional period (EU)

11.12.1999

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Official Journal of the European Communities

L 319/1

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 8 July 1999

concerning the application of the United Kingdom of Great Britain and Northern Ireland 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) 1551/1)

(Only the English text is authentic)

(1999/791/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3) By letter of 16 October 1998,

the United Kingdom

Government submitted further information.

Having regard to the Treaty establishing the European
Community,

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 United Kingdom of Great Britain and Northern Ireland,

2. Structure of the electricity sector and the

implementation of Directive 96/92/EC in Northern
Ireland

(4) The present

the

structure of

electricity sector

in
Northern Ireland stems from April 1992 when the
electricity
and
industry was
privatised. The generation of electricity takes place
independent power producers
mainly within four
organised as limited companies:

restructured

supply

Whereas:

Ballylumford Power Ltd, now Premier Power Ltd

I. FACTS

1. Procedure

Belfast West Power Ltd

Coolkeeragh Power Ltd

Kilroot Power Ltd.

(1) On 30 January 1998, representatives of the Department
of Trade and Industry in the United Kingdom gave an
initial presentation on the content of the application for
a transitional
for Northern Ireland to the
Commission.

regime

(5) The total capacity of these plants is 2 063 MW. Two of
the four generators produce more than 82 % of
this
there are some small generators
power.
producing electricity from renewable energy sources.

In addition,

(2) By letter of 18 February 1998,

Government
Northern Ireland under Article 24 of the Directive.

applied for

transitional

a

the United Kingdom
for

regime

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

(6) A separate company, Northern Ireland Electricity plc
(NIE) is responsible for operating the transmission and
the distribution network,
for supply and for power
procurement. NIE is, through its responsibility for power
procurement,
electricity
generated by the main independent power stations. NIE
is price regulated, while the producers are not.

purchase

obliged

all

to

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(7) The

electricity system of Northern Ireland is not
connected to the system in the other parts of the United
Kingdom and is linked to that of Ireland only through
one interconnector. That 300 MW interconnector was
restored in 1995 after 20 years of non-use and is
In the
providing spinning reserve for both systems.
future, when trading systems in Northern Ireland and in
Ireland develop, the use of the interconnector is expected
to increase. A 250 MW interconnector to Scotland is
also being planned.

(8) Directive 96/92/EC has still not being implemented in
Northern Ireland. However, the intention is to introduce
third party access based on published tariffs. The group
of eligible customers will be defined as the largest
customers required to meet the market opening in any
year (see the minimum requirements for the market
opening defined in Article 19(1) and (2) of Directive
96/92/EC).

3. The transitional regime notified by the United

Kingdom Government

(9) The application, and this Decision,

limited to a
transitional regime that concerns only the territory of
Northern Ireland.

is

(10) The notification concerns

agreements

four main

the
between

NIE
electricity

existence of power
and
the
purchasing
abovementioned
generating
companies which were put in place when the sector was
those
restructured and privatised in 1992. Under
contracts, NIE is obliged to purchase its electricity
requirements from the four generators. The payment
(i) an availability payment
consists of
two elements:
which is based on the
availability and operating
to
characteristics of
contribute to finance the fixed costs such as financing
costs,
(ii) an energy
payment which corresponds to the costs of purchasing
and burning fuel and is calculated by reference to the
the thermal
contracted level of each generating unit,
level, and the cost of fuel.

the generating units and seeks

investment;

return of

salaries,

(11) The contracts expire between 2001 and 31 March 2024
at the latest. The contracts which have an expiry date
beyond 2012 may, however, be cancelled as from 1
November 2010 if certain conditions are fulfilled.

those smaller customers. Those additional costs have
been referred to as (cid:145)franchise customer excess costs(cid:146).
Those costs should not only be borne by the captive
customers but covered by all customers.

(13) The commitments in relation to the power purchasing
agreements can be subdivided in the commitments set
out below.

Stranded capacity

(14) With the implementation of Directive 96/92/EC, eligible
customers will be able to choose their source of supply.
If new authorised producers enter the market and they
are able to sell the electricity to eligible customers, the
capacity of
the existing generating companies may
exceed the demand for electricity in Northern Ireland.
This situation may be influenced by the construction of
an interconnector
and
Scotland as planned since 1991.

between Northern Ireland

Excess costs linked to gas contract

(15) On 1 April 1992, a gas conversion agreement, which
provides for the conversion of
the oil-fired units at
Ballylumford power plant to gas, was concluded between
NIE and Ballylumford Power Ltd, now Premier Power
the gas is bought under a form of a
Ltd. Most of
take-and-pay gas contract,
(cid:145)Long-Term Interruptible 3(cid:146).
That contract was concluded in 1992 and lasts until
2009 and contains prices which according to the
notification are GBP 20 million per annum above
prevailing market rates. The resultant costs are passed on
to NIE under the power purchasing agreement.

Cost of gas pipeline

(16) The introduction of gas to Northern Ireland necessitated
the construction of a gas pipeline from Twyholm,
Scotland, across the North Channel to Islandmagee and
the conversion of power station boilers from oil to gas.
The costs
the
pipeline and GBP 35 million for the conversion of the
boilers.

involved were GBP 130 million for

(12)

the

Problems may arise for NIE as the basis of the payment
obligation of NIE to the generating companies remains
unchanged under
existing power procurement
obligations, even if the number of consumers supplied
by NIE is reduced. As a high proportion of the payment
from NIE to the generators is fixed, those costs will have
to be recovered across a narrower customer base, which
would mainly comprise non-eligible customers. The
result would be an increase in the price of electricity for

(17)

Flue gas desulphurisation

Finally, there may be costs which arise from possible
future changes in environmental legislation such as the
requirement
desulphurisation
equipment.

to retro-fit

flue

gas

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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

electricity from NIE. The size of
determined from that estimate.

the CTC will be

(18) The notification contains the following estimation of the

stranded costs per annum (in GBP million):

Stranded capacity

Excess costs linked to gas contract

Cost of gas pipeline

Cost of flue gas desulphurisation

Total costs

0-25

0-25

0-14

0-18

0-82.

(19)

Such costs may occur until 2024 when the last power
purchasing agreement expires. However, under the terms
of the various licences issued to the generators and NIE,
some of those agreements may be cancelled early in
2010, subject to certain conditions being fulfilled. The
terms of the agreements may also be renegotiated with a
view to reducing the overall stranded costs. The United
Kingdom Government and the regulator stress in the
notification that the stranded costs can only be accepted
as eligible for compensation if such renegotiations have
proven to be unsuccessful.

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

(20) The notification has been drafted on the working
assumption that any eligible stranded costs will be
recovered through the introduction of a surcharge on
the final electricity consumption. The United Kingdom
Government, however, stresses that
the possibility of
sharing the costs between customers and the electricity
industry must be considered carefully before any final
decisions on the introduction of such a surcharge can be
taken.

(21) The working assumption envisages allowing NIE to
recover the part of the stranded costs which cannot be
recovered due to eligible customers not buying electricity
from NIE by introducing a surcharge, a competitive
for the use of the electricity
transition charge (CTC),
is called franchise customer
network. That amount
excess costs.

(23) The CTC will be collected from all customers by the
suppliers who will transfer it to NIE. It will be based on
the electricity consumed in kWh and shown as a
separate item on the customer’s electricity bill.

(24) At the end of each financial year, NIE will calculate the
amount of overrecovery or underrecovery and the CTC
for the following year will be corrected to ensure that
franchise
the
customer excess costs.

compensation does not

exceed the

II. LEGAL ANALYSIS

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

96/92/EC

(25) The United

Kingdom Government

application for a transitional regime with respect
alleged commitments
pursuant to Article 24 of Directive 96/92/EC.

an
to
and guarantees of operation

notified

2. Requirements of Article 24

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

(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

(22) Three months before the end of each financial year NIE
will prepare an estimate of
franchise customer excess
costs for the following financial year taking into account
factors such as expected availability of generation subject
to the power purchasing agreement, overall
system
demand and demand by eligible customers not buying

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)

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(27) Article 24(1) and (2) of Directive 96/92/EC, 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.

(32) The measures under consideration are based on a pure
compensation scheme, that is 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.

(28) 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
Directive 96/92/EC and the inability to respect
the commitment must be established.

(29) 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 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
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
In deciding on these issues the
be legitimate.
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.

(33) The application of such levies in the present case do not
require a derogation from Chapters IV, VI or VII of
Directive 96/92/EC and cannot therefore be regarded as
a transitional
regime in the meaning of Article 24
thereof.

can result

for electricity do not affect

such levies
substantially similar

(34) 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
payment of
in economic
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 the EC Treaty. In this hypothesis, it is
understood that measures of similar economic effect will
be treated in a coherent manner, independently of the
relevant procedure in each individual case.

(35)

In the light of the non-applicability of Article 24 of
Directive 96/92/EC, it is not therefore necessary to assess
the abovementioned further requirements A(1), (2), (3)
and B(2) and (3).

3. Assessment of the United Kingdom transitional

regime

4. Conclusion

(30)

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 of the transitional regime do not require a
derogation from Chapters IV, VI or VII of Directive
96/92/EC and thus do not meet requirement B(1).

(31) 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 by Chapters IV, VI or VII of Directive 96/92/EC.

(36) The application for a transitional regime notified by the
United Kingdom Government pursuant to Article 24 of
Directive 96/92/EC has been assessed pursuant to Article
that Directive. The Commission
24(1) and (2) of
concludes that a transitional regime under Article 24
cannot and need not be approved in this respect, since
the measures chosen do not constitute derogations from
Chapters IV, VI and VII of the said Directive. The regime
contains transfers of compensation payments to certain
electricity producers, financed through a levy or charge
on the consumers. Such measures are not directly
addressed by Directive 96/92/EC but need to be
examined pursuant
to the rules on state aid, and in
particular Article 87(3)(c) of the EC Treaty,

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HAS DECIDED AS FOLLOWS:

Article 1

This Decision concerns the application of the United Kingdom
for a transitional regime pursuant to Article 24 of Directive
96/92/EC, notified to the Commission on 18 February 1998
and completed on 16 October 1998. The notification concerns
power purchasing agreements concluded between NIE and
Ballylumford Power Ltd (now Premier Power Ltd), Belfast West
Power Ltd, Coolkeeragh Power Ltd and Kilroot Power Ltd.

Article 2

The transitional
regime notified by the United Kingdom
Government 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, therefore, not
applicable to the transitional regime notified by the United
Kingdom Government.

Article 3

This decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

Done at Brussels, 8 July 1999.

For the Commission

Christos PAPOUTSIS

Member of the Commission