Update on the unbundling legislation debate

On April 13, 2006, the Second Chamber of Dutch Parliament debated the draft legislation on ownership unbundling of integrated energy companies for the first time in a plenary session. The debate was continued on April 19.

Update on the unbundling legislation debate

For the reasons previously made clear on numerous occasions, Essent continues to be strongly opposed to the legislative proposal.

Essent believes that the efforts made in recent weeks to validate the legislation have produced limited and inadequate assurances in respect of previously identified concerns and, as modifications have been made to the legislation and additional items of particular interest to various constituencies have been proposed to be added, the result is a legislative proposal that lacks consistency in policy goals, is contradictory, is unlikely to achieve its most fundamental objectives and continues to have the potential to inflict harm on customers, shareholders, employees, financiers and suppliers.

Essent would draw particular attention to the following items that have received attention in recent weeks:

• Members of Parliament (MP's) have voiced concern over the possible discontinuation of public control over generation and supply activities and the creation of a non-level-playing field in Europe as the Minister of Economic Affairs (MEA) has, in his proposal, so far assumed that privatisation of these activities is the next logical step. Essent notes that, if Parliament would oppose privatisation of the type contemplated by the MEA, there would no longer be a need for ownership unbundling as the current shareholders would continue as shareholders in the two resulting sides of the presently integrated business. In any event, when seen in the context of the cross guarantees that are anticipated by the legislation, the foregoing further underscores the mutual economic interdependence that will likely exist between the shareholders of the two resulting sides of the business.
• MP's have also voiced concern over partial privatisation of the electricity and gas networks. MEA has proposed a minority privatisation of 49%, but it appears that this may be limited to economic ownership only. MEA has indicated that such a compromise seems 'workable'.
  Essent believes that, although economic ownership embodies most economic benefits and risks related to the relevant assets and activities, it does not comprise free and unencumbered ownership and, therefore, would further (and needlessly) complicate the already complex structure of the energy industry in the Netherlands.
• MP's and the MEA appear to be in agreement that the structural costs of ownership unbundling should not be passed on to the Dutch consumers. Essent believes that the statements made in this regard are for all practical purposes a complete fiction and reflect an alarming lack of appreciation for the realities of the manner in which municipal and provincial authorities finance spending on public works. Specifically, any structural costs of ownership unbundling and related loss of value will be manifested in lower dividends to shareholders of the energy companies (i.e., the respective Dutch municipalities and provinces). Since these dividends constitute a material part of the budget of the relevant municipalities and provinces, the structural costs of ownership unbundling will be passed on to the Dutch consumers. All that the legislation will achieve in this regard is to establish a basis for discriminating as to which consumers will bear those costs.    

The foregoing items are merely illustrative of the concerns that Essent has, and are to be seen in the context of the many issues previously identified.
Essent would emphasize that, even if the Second Chamber of Dutch Parliament adopts the legislative proposal, such action would only mark the next phase of the legislative process. Thereafter, consideration of the legislative proposal will move to the First Chamber of Dutch Parliament. Based on the already existing legislative calendar before Parliament, Essent does not expect final action to be taken on the legislation before at least the end of the summer.

As the legislative process continues, Essent will continue to articulate its concerns with respect to ownership unbundling in the interest of customers, shareholders, employees, financiers and suppliers.

Although Essent remains convinced that the current integrated form of its business gives the best guarantee of safe, cost-effective and sustainable generation, distribution and supply of energy, in the event that ownership unbundling would in the future become reality, Essent will do its utmost to mitigate any impact that would arise as a result thereof.

21 April 2006

Published: 21 April 2006