30 March 2007

Following hot on the heels of electricity generators in Great Britain and in Finland, GB suppliers of gas and electricity were granted on 1 March 2007 an exemption from the relevant EU procurement rules.  The European Commission has considered an application under Article 30 of Directive 2004/17 (the "Utilities Directive") and determined that GB electricity and gas supply is "directly exposed to competition on markets to which access is not restricted", in accordance with the requirements of the Directive.


Shepherd and Wedderburn was closely involved with the Association of Electricity Producers in obtaining the exemption for electricity generators, the first of its kind in the EU.  Now that the trail has been blazed, a number of other industries are looking to see if they can follow suit.


The application in respect of GB electricity and gas supply (i.e. not including Northern Ireland) was submitted in October 2006.  The application sought an exemption for both wholesale and retail supply.


The European Commission looked at factors in the GB gas and electricity markets such as market shares, liquidity of trading, the balancing market mechanisms and the extent of customer switching in finding that the supply market in Great Britain is sufficiently competitive to permit a finding that the Utilities Directive should not apply to GB electricity/gas supply.


The requirements of the Utilities Directive to conduct a competitive procurement are generally seen as being less onerous than the equivalent public sector rules and so it remains to be seen how significant an impact the Commission Decision will actually have for GB suppliers.  Also relevant is the fact that a number of the companies benefiting from the Decision will still choose to conduct a competitive market-testing of some form in order to ensure value for money.  The real value of the Decision may be in giving the companies added flexibility to be able to tailor their procurement processes so as to be more closely attuned to their own needs as opposed to being mandated by the Utilities Directive's requirements.


Richard Cockburn 

01224 343 544