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Liberalization of
Austria's Electricity Market
I. Introduction
In July 1998 Austrian parlament enacted the "Elektrizitätswirtschafts- und -organisationsgesetz" ("ElWOG"), opening the Austrian electricity supply industry to competition. The Act was adopted to implement the EC directive 96/92/EC of December 19, 1996, concerning common rules for the internal market in electricity (the "Directive").
From February 1999 on, European producers of electricity will have the possibility to supply electricity to industrial customers of a certain size in Austria and acquire up to 50 percent of the interest of Austrian electricity suppliers.
The liberalization of the European market for electricity is supposed to bring down prices by confronting national suppliers with competition and to promote integration of the common European market. In the beginning, however, it will be only industrial entities of a substantial size that will profit from the right to choose from electricity suppliers all over Europe.
II. Description of the Act
A. Organisation of Access to Transmission and Distribution Systems
Qualified industrial customers, so called eligible consumers, will have the option to choose their electricity supplier within Europe. Such industrial entities will have access to the common market for electricity once their consumption exceeds a certain benchmark, which will be 40 GWh effective February 19, 1999, 20 GWh effective February 19, 2000 and 9 GWh as of February 2003.
The key problem that the completion of the internal energy market is faced with is transfer of electricity. Both customers and producers depend on the possibility to use the European power supply system. ElWOG tries to achieve equal access to the supply system by creating a regulated system of access. Therefore the respective operator of transmission or distribution systems is obliged to allow access to its system to any system user (generator or consumer) of a certain size. Conditions to get access must not be in any way discriminatory and must not contain any unjustified provisions. To keep business entities that generate electricity and operate the supply system in Austria (so called vertically integrated undertakings) from taking prohibitive measures, general conditions and tariffs for the use of transmission and distribution systems are determined by the Austrian Minister for Economic Affairs.
B. Tariffs
These tariffs must be established according to the principle of equal treatment of all system users, price-reductions for certain categories of customers are to be avoided. The Minister of Economic Affairs ordered an expert opinion to determine the amount of fees that may be charged for transmission and distribution of electricity by the respective operators of the supply systems. This opinion (which was presented to the public in September 1998) suggests calculating the tariff according to the so called gross method: According to this method, the costs of operating the highest-voltage transmission systems are to be distributed between all consumers according to their consumption, irrespective of their purchase of electricity actually transferred via such transmission systems, the idea behind this calculation method being that all consumers are at least potentially in the same need of such a highest-voltage supply system.
Regional electricity transmitters and distributors that operate power stations of their own don't rely exclusively on the supply of electricity transferred via high-voltage lines.Therefore they don't want to be burdened with the full costs and oppose the calculation of tariffs after the gross method. On the other hand, eligible customers that are interested in taking advantage of a competitive electricity market by considering offers of electricity producers that are located in other EU member-states prefer the suggested gross method calculation, since this calculation method keeps costs for long-distance electricity-transfer low. The directive of the Minister of Economic Affair is still to be enacted.
The relevant expert opinion provides for the following prices for the use of the highest-voltage transmission system:
For customers: AS 0,05318 per kWh
For producers: AS 0,00851 per kWh
This suggested tariff is comparable with the ones in Germany and Great Britain, but higher than the tariff in Scandinavian countries, for instance. For the use of high-, medium- and low-voltage supply systems the suggested tariffs vary substantially in different regions of Austria. According to the experts'suggestion, customers will have to pay for each level of voltage beyond the one they are connected to.
C. Stranded Investments:
According to Art. 24 of the Directive, those member states that otherwise would not be able to honour certain commitments or guarantees of operation because of the provisions of the Directive may apply for a transitional regime that may be granted by the Commission. ElWOG therefore authorizes the Minister of Economic Affairs to determine the conditions under which eligible customers will have to participate in bearing the costs of so called stranded investments of Austrian electricity suppliers. It is still being discussed in which form subsidies for producers that had to register such stranded investments with the Ministry of Economic Affairs will be granted and how the necessary means will be raised. It should be noted, however, that the option to burden only customers that opt out of their current contracts with Autrian suppliers may not be in compliance with the Directive, since it might seriously disturb the establishment of the internal market in electricity.
D. Priorities
In case of capacity problems, ElWOG determines certain priorities. Therefore compliance with existing supply contracts is priviliged as well as the supply of power generated in hydro-electric power stations or transit of electricity from one EU-member country to another, passing through Austria. Priority of existing supply contracts has no foundation in the Directive, however, and may cause a disturbance of the opening of Austria's electricity market, given the long-term supply contracts between the largest national producer (and operator of the highest voltage lines), the Verbundgesellschaft, and regional supply undertakings.
E. Possible Denial
Access to transmission and distribution systems may be denied to system users by the Austrian Minister of Economic Affairs in various cases, among them system-failures and general lack of capacity. Acces may also be denied to consumers that do not qualify as eligible customers in the member country where the supply of electricity originates and if production of electricity from renewable sources would otherwise be displaced.
III. Potential Conflicts with EC-law:
The main aim of the Directive was to allow the completion of a competitive electricity market as an important step towards a functioning internal European market. Certain aspects of ElWOG leave serious doubts whether this act will open Austria's electricity supply industry to fair competition throughout Europe. The fact that long-term contracts between national producers and regional suppliers will enjoy priority in case of a lack of capacity and the distribution of the burden of stranded investments only among eligible customers both have the potential to disturb the transition to a competitive market. Beyond that it is more than questionable whether the Austrian Minister of Economic Affairs can play the role of the independent regulation authority he was assigned by ElWOG. Conflicts with Brussels are foreseeable.
IV. Equity Participation in Austrian Electricity Undertakings:
Simultaneously with ElWOG, Austrian parlament enacted an "Act regulating the ownership of undertakings of the Austrian electricity supply industry". This act provides for a certain minimum share of these business entities that has to stay in public ownership. At the moment, public ownership of many of Austria's players in the electricity business is still at or close to 100 %. It can be expected that the acquisiton of 25 % of STEWEAG, a regional supplier, by French electricity industry giant Electricité de France gave the starting signal to a fundamental internationalization of Austria's once tranquil electricity supply industry.
Vienna, October 22, 1998
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