Council of State opposes levies to decrease market share of Electrabel

The Belgian Council of State, the highest administrative body, rejects two legislative proposals aiming at curbing the market share of Electrabel.

Recently, members of parliament submitted two proposals aiming at curtailing Electrabel's market share in the Belgian electricity production market.

The first proposal intended to cap the market share of any electricity undertaking in the production market at 45%. In case an undertaking would hold more than 45% market share, this undertaking was subject to a levy equal to the annual turnover of the share above 45%. The second proposal intended the same, but did not opt for a levy. Instead, the electricity undertakings could avoid such levy by decreasing its market share.

The Council of State rejected the proposals. It was of the opinion that both infringe the European rules on free movement of capital and the fundamental ownership rights.

Council of State opposes levies to decrease market share of Electrabel

Tax on unused electricity production sites

Wednesday, minister Magnette responded to several questions relating to the tax (or levy) on the unused sites suitable for electricity production. This tax was established by the Act of 8 December 2006 and is levied on all plots of land on which a production installation with a capacity of 400 MW (gas fired), 250 MW (coal or biomass fired) or 250 MW (CHP) can be build. All existing unused sites are property of Electrabel. Aim of the Act was to incite Electrabel to sell these sites to competitors. Notwithstanding the fact that the amount of tax was 51,150,000 EUR (yearly) in 2006, 2007 and 2008, and 67,500,000 EUR/Year in 2009, Electrabel only sold one such site to E.ON. All others are still its property.

Electrabel unsuccessfully challenged the legality of the Act of 2006 before the Constitutional Court. It also challenged the amounts to be paid before the court of first instance in Brussels claiming that most of the sites do not fall under the conditions of the Act of 2006.

The minister declared that he is waiting for the judgment of the court before starting discussions with Electrabel on the compliance with the provisions of the Act.

Tax on unused electricity production sites

Postponement of the nuclear phase out

On 13 October 2009 the Belgian federal government decided to postpone the nuclear phase out of the three eldest nuclear plants with 10 years. This would mean that in the soon to be adopted new regulatory framework all Belgian nuclear plants will close between 2022 and 2025.

As a favour in return, GDF Suez and Electrabel would have agreed to pay 170 M EUR per annum from 2010 until 2014. The other nuclear market participants (EDF Belgium, SPE and eventually E.ON) will have to pay the remaining 45 to 75 M EUR per annum (until 2014). GDF Suez will also invest in R&D on CCS and nuclear waste, in renewable energy and in energy efficiency.

At the same time, a 'Follow Up Committee' will be installed. This Committee will be composed out of representatives of the nuclear producers, the government and the social partners, and of representatives of the National Bank of Belgium. The main tasks of this Committee will be to yearly evaluate the production costs of nuclear energy and to evaluate the electricity market prices. It will also have to verify that the household prices of all suppliers will in no way be higher than the average of the prices in the neighbouring countries.

The decisions still must be transposed into formal legislation. Nevertheless, some ideas can raise concerns about the development of a liberalised energy market in Belgium and about the position of other market players (will they contemplate building new power plants? will they be able to raise their market share?). From a legal point of view, it remains to be seen whether this decision to postpone the nuclear phase out will stand the test of EU law and of Belgian constitutional law.

In any case, interesting regulatory and legal times lay ahead.

A free English translation of the relevant excerpt from the governmental declaration will be send to you at first request. Please e-mail me.

Postponement of the nuclear phase out

Flemish energy regulator consults the market on proposal for new technical code

The VREG, the Flemish regulator for electricity and natural gas had opened a public consultation on draft amendments to the Flemish electricity and natural gas technical codes.

The proposal aims at:
- Leaving out all reference to direct lines and direct pipelines, and private networks (or closed distribution systems) as these are not yet legally regulated in the Flemish region;
- Submitting all contracts and regulations of the distribution system operators to the review of the VREG;
- Giving sufficient attention to decentralised production;
- Inserting a conciliation procedure.

Flemish energy regulator consults the market on proposal for new technical code

CREG Examines EDF's Share In SPE

Following a question by federal representative Tinne Van der Straeten, the federal minister of energy, Mr Magnette, yesterday declared that the CREG, the federal energy regulator, is examining the take-over by EDF of Centrica's shares in Segebel, the majority shareholder of SPE. According to the minister, the CREG is looking at the consequences of the operation on the competition of the Belgian electricity production market. If the CREG would raise objections, it will propose the necessary measures to the Competition Council or the minister of energy.

CREG Examines EDF's Share In SPE

Levy On Unused Electricity Production Sites

In 2006, the Belgian federal legislator imposed a levy on unused sites for electricity generation. In 2008 the amount of this levy was approximately EUR 50M. The Constitutional Court declared that the imposition was in line with the Belgian Constitution.

The aim of the levy was to force the incumbent electricity producer, Electrabel, to sell some or all of this sites to competing energy undertakings.

In 2008, the federal legislator amended the amount of the levy. As from the entry into force, this amount would be increased with EUR 20M.

In response to a question of Katrien Partyka (CD&V), the minister of energy acknowledged that imposing the levy did not reached the goals of releasing or selling these sites to other energy undertakings. All sites are still property of Electrabel and remain unused.

Levy On Unused Electricity Production Sites

250M EUR levy on the electricity producers in Belgium

Last week, the federal Council of Ministers agreed upon an one time indirect levy on the nuclear electricity producers in Belgium (SPE and Electrabel). The federal state will charge Synatom, the company responsible for the provisions for the phase-out of nuclear installations, for 250M EUR. Within 15 days, the nuclear electricity producers are obliged to reimburse Synatom with 250 M EUR. If the companies do not reimburse Synatom, a penalty of 2% of their annual income could be imposed upon them. The act prohibits passing the charge on in higher prices for the final customers.

250M EUR levy on the electricity producers in Belgium

Monitoring of costs by the CREG

As set out in a previous blog, the federal government has submitted a draft act allowing the CREG to monitor the electricity and natural gas prices in Belgium.

The draft act modifies the Electricity Act and the Gas Act and stipulates that electricity and natural gas prices must be in reasonable proportion to the costs of the electricity and natural gas undertakings. The CREG will evaluate the relation between the costs and the prices by comparing the costs and prices of comparable undertakings, if possible also in an international context. If electricity or natural gas undertakings are affiliated companies, an abuse of a dominant position is suspected if it offers discriminatory prices or conditions to third parties.

If the CREG judges that there is no objective reasonable relation between the costs and the prices, it will draft a report for the minister of energy that will include its findings and the measures it proposes. The CREG will also communicate the alleged infringements to the Competition Council.

It goes without saying that the new draft act leaves more questions open than answered.

Monitoring of costs by the CREG

Pax Electrica II Agreement between Electrabel and SPE

In the framework of the “Pax Electrica II”, Electrabel and SPE reached an agreement in principle on the conditions for the putting at the disposal of SPE of 635 MW nuclear capacity of Electrabel. The first 100 MW consists of a swap with Chooz. The next 250 MW will be sold to SPE. The last 285 MW will be object of a long term supply contract “until 2025 at the earliest”. The agreement will be submitted for approval to the Belgian and European competition authorities and must be fully implemented by the end of the Summer 2008.

It is curious to note that this agreement in principle implicitely neglects the fact that the Act of 2003 on the nuclear phase-out foresees that the last nuclear reactors (Doel 4 and Tihange 3) will have to be shut down in 2025. By stating "until 2025 at the earliest", SPE, Electrabel and Verhofstadt, the Belgian prime minister present at the signing of the agreement, confirm that the nuclear phase out will without any doubt be reviewed by the next governement.

Pax Electrica II Agreement between Electrabel and SPE

Energy in the governmental declaration of the "interim"-government Verhofstadt III

The CD&V-N-VA, PS, Open VLD, MR and cdH agreed upon the following passus on energy and climate in the governmental declaration:

"6. Climate and energy will also be on top of the interim government's agenda. Next to measures with regard to spending power and in view of affordable prices and a guaranteed supply, we shall take additional measures to increase the stake of the consumers in the energy market. Belgium ranges itself with the goals of the second Kyoto-allociation plan and with the new goals for renewable energy. It will negotiate thereto with the European Commission on an ambitious and realistic contribution of our country. In the same spirit, the federal government will support the regions, the industry and the European community in finding solutions for the problems related to the allocation of CO2-quota for the 2008-2012 period. Furthermore it will activate and enlarge instruments to reduce the emission of CO2 in the residential sector and to decrease the bills of the families."

Energy in the governmental declaration of the "interim"-government Verhofstadt III

IPCC, Climate and Energy

In its Summary for Policymakers of the AR4 Synthesis Report, the Intergovernmental Panel on Climate Change proposes "a wide variety of policies and instruments available to governments to create the incentives for mitigation action". With regard to Energy Supply, the Summary mentions:

Improved supply and distribution efficiency; fuel switching from coal to gas; nuclear power; renewable heat and power (hydropower, solar, wind, geothermal and bioenergy); combined heat and power; early applications of Carbon Dioxide Capture and Storage (CCS) (e.g. storage of removed CO2 from natural gas); CCS for gas, biomass and coal-fired electricity generating facilities; advanced nuclear power; advanced renewable energy, including tidal and wave energy, concentrating solar, and solar photovoltaic.

The following policies, measures and instruments show to be environmentally effective:

• Reduction of fossil fuel subsidies; Taxes or carbon charges on fossil Fuels; and
• Feed-in tariffs for renewable energy technologies; Renewable energy obligations; Producer subsidies

The Key Constraints for these policies are:

• Resistance by vested interests may make them difficult to implement; and
• May be appropriate to create markets for low emissions technologies

IPCC, Climate and Energy

Partial governmental agreement on energy and sustainable development

The would-be federal political majority has not yet finalised the coalition agreement for the formation of a new federal government. However, a partial agreement on Energy and Sustainable Development was reached at the end of October.

"The federal government endorses the climate change goals set by the European Union (20% less emission of greenhouse gases, 20% more energy efficiency, 20% more renewable energy production). A national climate change commission will elaborate a multi annual climate plan. The Belgian government will use its international influence to have all industrialised countries participating in a reduction of greenhouse gases with 30%.

The government makes sure that the dominant player will observe nothing less than the obligations entered into vis-à-vis the previous government.

The government will closely follow the evolution of the energy prices and will create the conditions to allow an adequate competition. To that end, several additional electricity producers must be present on the Belgian market each having the possibility to acquire a considerable market share. The government will contribute to that as follows:
– To incite the dominant player to swap assets with competitors abroad; and/or
– To put at the disposal or to sell to other players, under the supervision of the CREG and against reasonable market conditions, a considerable share of the capacity (in MW) of the depreciated power stations; and/or
– To offer to other players (trough actioning or exchange) a considerable production share (in MWh) of the dominant player, under the supervision of the CREG, against a price composed of the production costs including the maintenance and replacement investments and a fair profit margin; and/or
– To create the preconditions allowing and encouraging other players to develop additional production capacity in Belgium (inter alia sites and access to natural gas and electricity grids);
– To put in all efforts to realise as soon as possible interconnectivity at the borders in order to obtain true competitive natural gas and electricity markets on a European level.

Moreover, the government encourages companies wanting to construct alone or in consortium a production unit for electricity.

The competition on the wholesale market for electricity must improve considerably. The electricity exchange BELPEX must be offered more marketable volume increasing the available liquidity for the suppliers. By analogy with the electricity market, the wholesale market for natural gas must become competitive. This will be realised by creating a gas exchange (GASPEX), on the basis of what currently exists and with safeguards for sufficient transparency, that will dispose of sufficient marketable volumes.

The government will give the federal regulator CREG the necessary independence to act against and to supervise ex ante an actual competition on the production and supply market and to monitor the price evolutions closely. It will evaluate the functioning and the tasks of the CREG. The government will grant a clear and plain strategical mandate to develop a long term vision.

The federal government will give the CREG a mission to monitor the tariffs. Moreover, the CREG will be able to propose to the government every measure contributing to the improvement of the functioning of the regulated activities and the applicable tariffs.

The government resolutely opts for the independence of the system operators and for an independent operation of the transport systems by reducing gradually the share of producers/suppliers under 25% and with a substantial presence of the public sector. Energy companies can obtain shares but cannot, individually or collectively, have or use a blocking minority for example through a shareholders agreement or special share related (voting) rights, nor can they appoint independent directors.

The network system operators must have disposal of sufficient financial elbow room for carrying out replacements and new investments and to carry out the necessary maintenance to the grids, inter alia to allow Belgium to continue its development as junction of the European transit and transport grid. The system operators must fully independently allow equal access to the grids to all market players.

The government will invite the regions to tune the different systems of renewable energy certificates guaranteeing at the exchangeability, inter alia to promote the lowest price for the Belgian consumers. The government will improve the fiscal measures in favour of sustainable energy, inter alia by organising a system of take-along or of tax credits for investments that encourage energy efficiency and/or sustainable energy sources (...).

The government will take care that equal access conditions exist for competitors to import, store and transport natural gas. In order to guarantee the natural gas supply, the government will see over a tariff policy by the CREG (...) allowing the transport system operators to invest in natural gas storage capacity and in interconnections. The government continues the conversion of the Zeebrugge Hub enforcing its position as international spill for the natural gas supply. In general, the government take care that the policy of the CREG allows the system operators to guarantee an optimal quality of the networks without this leading to an excessive price increase of the distribution grid tariffs.

The government will discuss with the regions the consequences of a progressive replacement of L-gas by H-gas.

The government maintains the nuclear phase out of the existing nuclear facilities as set out in the Act of 31 January 2003. In order to comply with the goals of reducing greenhouse gases and to guarantee the affordability and security of supply, it will extend the operational term of some nuclear reactors for a limited time and in safe circumstances. In dialogue with all stakeholders, the government wants to obtain a national transversal multi annual alternative for fossil energy and nuclear energy, also translating the CO2 reduction goals. In the meantime, it will have carried out all necessary investments in the electricity power stations guaranteeing a safe exploitation and it will have modernised the existing very polluting power stations in order to reduce the pollution per MWh. The revenues of the taxes on the exceptional profits of the production of the depreciated nuclear and coal power plants will partially be used in a new fund “depreciated energy production” for the production and development of alternative energy sources and energy efficiency, the roll out of decentralised grids, the decrease of the federal contribution, the technique of carbon sequestration, the support of the MYHHRA-project, a social energy policy.

In the framework of the discussions about the prolongation of some nuclear installations, the government will have thought for the problem of the final price for the consumers."

Partial governmental agreement on energy and sustainable development

New draft governmental agreement

Today, the Belgian media publish the new draft on their respective websites. Below is a (free and quick and almost literal) translation of the part on the TSO's:

The Government resolutely chooses for the independence of the TSO’s through a predominant public ownership and a public operation of the systems and by reducing the share of the producers/suppliers below 25%. Energy sector companies can acquire shares, but cannot have or use a blocking minority, for example by means of a shareholders agreement or special voting rights, nor can they appoint independent directors.

The TSO’s must have sufficient financial means to carry out replacements and new investments and the necessary maintenance to the system, inter alia in order to allow Belgium to continue its development as junction of the European transmission system.

The government watches over the promotion of interconnections at the borders.

The government will provide non-discriminatory access conditions to competitors for the import, storage and transport of natural gas. In order to safeguard our natural gas supply, the government will see to it that the policy of the CREG relating to the monitoring of the costs of the TSO’s allow the latter to invest in natural gas storage capacity and interconnection capacity. The government will continue the transformation of the Zeebrugge hub in order to strengthen the position as international pivotal point for the supply of natural gas. In general, the government will see to it that the policies of the CREG allow SO’s to guarantee an optimal quality of the systems.

New draft governmental agreement

Investigation by the CREG on the retail price increases announced by Electrabel

After the announcement by Electrabel of a price increase of electricity and natural gas on the retail market in Belgium, the federal minister of energy, Marc Verwilghen, requested an investigation by the CREG, the federal energy regulator, and the Competition Council.

Today, the CREG issued a press release with the telling title: “The CREG finalises its investigation on the price increases announced by Electrabel, notwithstanding the limited cooperation of Distrigas”.

The CREG concludes that the reasons invoked by Electrabel to justify the retail price increases of natural gas “are sometimes but not always equally pertinent”:
- The higher fuel prices were already charged to the end consumers;
- The new natural gas contract between Electrabel and Distrigas entered into force on 1 January 2007. Consequently, eventual negative price effects arising out of this contract would have been noticed at that date and will not have effect only as from 1 September 2007;
- Only the part of the price increase related to a fixed term in the new natural gas contract was not yet charged to the end consumers.
- The CREG has noticed that at the moment of the opening of the Walloon and Brussels energy market (1 January 2007) Electrabel has set its prices very low, which could imply predatory pricing. Although there are indications for such predatory pricing, the CREG is unable to prove this due to of the limited cooperation by Distrigas. Lacking the necessary cooperation, the CREG was also unable to conclude that Electrabel tried to provoke a price squeeze. The CREG asks the Competition Council to investigate this further.

The reasons invoked by Electrabel to justify the retail price increases for electricity for professional customers are again “sometimes but not always equally pertinent”:
- The prices Electrabel wants to increase differ on the basis of parameters taking into account the fuel and employment costs. These parameters are less volatile than parameters based upon more volatile price changes on the exchange. Electrabel invokes the increased wholesale prices. According to the CREG it is “strange” that Electrabel uses parameters in its contracts with industrial customers different from the increased wholesale (exchange) prices.
- The price increase seems to be inspired by the concern of Electrabel to safeguard its profit margin.

The CREG gives some recommendations:
- Price regulations can be temporarily adopted;
- Structural measures to improve competition must be adopted;
- CREG’s competences must be strengthened (including the possibility to conduct market monitoring);
- Part of Electrabel’s production capacity must be put at the disposal of other market players;
- The independence of the system operators must be strengthened;
- Investments in production, transmission/transport, distribution and transit must be carried out.

Investigation by the CREG on the retail price increases announced by Electrabel

Proposals for the new federal government

Yesterday Yves Leterme presented his memorandum for negotiations with a view of the formation of the next Belgian federal government.

In his memorandum, two pages are dedicated to the energy market.

At first sight, Leterme did a good job in hiding his understanding of the liberalised energy markets.

A short overview of his proposals:

- SPE must be "structurally strenthened";
- Next to SPE and Electrabel, only one third producer must enter the market;
- Both SPE and the third producer must be able to buy together a 30% stake of the nuclear capacity at a cost plus price;
- Producers and suppliers cannot hold more than 25% of the shares of the TSO;
- The import and transport of natural gas must be based on non-discriminatory conditions for all parties;
- The federal state will invest in storage capacity and interconnection capacity;
- Zeebrugge must remain an important hub;
- The nuclear phase-out is softened;
- The CREG must be strengthened, but also more monitored.

On my Dutch weblog I give a full overview of and some first comments on the memorandum.

Proposals for the new federal government

Abundance of new regulation

Yesterday, 19 June 2007, the Belgian State Gazette (Belgisch Staatsblad/Moniteur belge) published an abundance of new energy regulation (all texts are available in Dutch and French only):
- The Royal Decree of 8 June 2007 on the tariffs for the use of the gas transmission system, the LNG-terminal and the storage facilities;
- The Royal Decree of 8 June 2007 on the tariffs for the use of new gas transmission facilities, LNG-terminal facilities and storage facilities;
- The Royal Decree of 8 June 2007 setting the amounts for the financing of the CREG;
- The Ministerial Decree of 30 March 2007 setting the maximum princes for the supply of natural gas to protected customers;
- The Ministerial Decree of 5 June 2007 approving the by-laws of Apetra;
- The Decree of the Flemish Parliament of 25 May 2007 modifying the Electricity Decree and the Natural Gas Decree.

Since I'm still reading trough these new regulations, I will comment (if necessary) later on this blog.

Abundance of new regulation

Pax Electrica Ter?

During the "big debate" in view of the federal elections next Sunday 10 June 2007, prime minister Verhofstadt said that he is convinced, based upon his discussions with the French president Sarkozy and the French prime minister Fillon, that the merger between Suez and Gaz de France will not take place.

Nevertheless, Verhofstadt is of the opinion that even in the event the merger would not succeede, the Belgian government should enter into discussions with Suez in order to agree upon a new Pax Electrica, aimed at the release of 30% of Electrabel's production capacity in Belgium to two other players. Strangely enough, it still appears that one of the two potential candidates is already known: the Belgian company SPE.

Pax Electrica Ter?

New tariff system for the Electricity TSO

On 1 June 2007, the Belgian federal government held its last cabinet meeting before the elections of next Sunday. During this meeting, the draft royal decree laying down the procedures for the setting of the electricity transmission system tariffs of Elia was adopted (French text), thus executing the new provisions of the Electricity Act of 29 April 1999, as modified by the Act of 1 June 2005.

Because of the federal elections, the King will not sign this royal decree until the formation of a new government has succeeded. Consequently, it might not enter into force before the fall.

The new royal decree also develops the “four years” tariffs, allowing greater stability for the use of the transmission system.

However, it appeared from an article in the Flemish newspaper De Standaard (registration required) that in its advice on the draft royal decree the Council of State was very critical on the possibility of setting tariffs for four years. This seems strange, since this new tariffs-system was one of the cornerstones of the Act of 1 June 2005.

New tariff system for the Electricity TSO