Essent's response to investigations by Netherlands Competition Authority into profits of energy companies

In its report presented on Wednesday, 2 May 2007, the Netherlands Competition Authority (NCA) states that the energy companies realised more profit on the transport and distribution of electricity and gas in 2004 and 2005 than it considers reasonable.

Regulated model functions properly
According to the NCA, the amount involved comes to EUR 31 for each household. The conclusion is odd, given that the NCA as the supervisory body defines the regulated system for the network operations and hence the maximum tariffs as well.

In its regulated model, the NCA deliberately includes room for energy companies to make a profit, as an incentive for them to operate as efficiently as possible. In successive regulated periods, customers benefit from this in the form of lower tariffs. The NCA itself admits that the energy companies have realised all the profit within the existing legal framework and conducted no unlawful practices.

The NCA therefore concludes that its chosen regulated model functions properly. According to the authority, the model has already benefited Dutch society by an amount of EUR 1.9 billion in the form of lower tariffs for the period 2001 to 2005. The current regulated period expires at the end of 2007. For its investigation, however, the NCA only considered the years 2004 and 2005, ignoring the fact that the further improvements in efficiency led to a further reduction in tariffs for 2006 and that Essent has not implemented the tariff increases allowed by the NCA for 2007.

No unlawful cross-subsidies
Another area the NCA investigated was whether the profits of the energy companies were partly the result of unlawful cross-subsidies within the integrated energy enterprises, the main argument of the Ministry of Economic Affairs for unbundling them. The NCA concludes from its investigation that there is no evidence at all that cross-subsidising is occurring and that the likelihood of it happening in the future is practically zero.

Published: 08 June 2007