Wednesday June 21
OFGEM LAUNCHES FORMAL INVESTIGATION OF EDISON MISSION ENERGY UNDER
THE MARKET ABUSE LICENCE CONDITION
Energy regulator Ofgem today (Thursday) announced that it has launched a formal
investigation into the circumstances surrounding Edison Mission Energy’s decision to
withdraw, and continue to withdraw, 500 MW of generating capacity from the system.
The investigation is being made under the market abuse licence condition and Ofgem is
now seeking views from customers and other interested parties by Thursday 22 June on
EME’s decision to withdraw and continue to withhold capacity.
Notes to editors:
1. A copy of the investigation consultation document is attached.
2. Edison Mission Energy Ltd is a leading global power producer based in London.
Through wholly-owned subsidiaries, it is the sole owner of First Hydro Company and
Edison First Power Ltd. First Hydro comprises Dinorwig and Ffestiniog Power Stations
and Edison First Power comprises Fiddler’s Ferry and Ferrybridge Power Stations. The
company also has interests in Derwent Cogeneration Ltd and Lakeland Power Ltd.
3. The market abuse licence condition was introduced by Ofgem in April and is aimed at
preventing abuse of the wholesale electricity market by generators.
4. Ofgem is the office of the regulator for the gas and electricity industry, which was
formed in June 1999 to protect the interests of consumers, ensuring they get genuine
value and choice, by promoting effective competition in both gas and electricity
markets and regulating monopolies.
For further press information contact: Richard Hunt on 020 7932 5158
Rob Jones on 020 7932 6384
Out of hours contact: 0781 8457 969
Ofgem launches a formal investigation of Edison Mission
Energy under the market abuse licence condition
1.1 Ofgem today (Thursday) announced that it has launched a formal investigation
into the withdrawal by Edison Mission Energy (EME) of generating capacity from
the system, with a view to determining whether there has been a breach of the
market abuse licence condition.
Market Abuse Licence Condition
1.2 The market abuse licence condition was introduced into the generation licences of
National Power, PowerGen, BNFL Magnox, TXU Europe and Edison Mission Energy
groups on 12 April 2000. London Electricity’s generation licence was also
modified to include the market abuse condition on 24 May 2000. AES and British
Energy companies refused to give their consent to the modification and this
matter has been referred to the Competition Commission.
1.3 The market abuse licence condition requires that a licensee should not engage in
conduct, whether alone or with one or more undertakings, which amounts to an
abuse of a position of substantial market power in the determination of wholesale
electricity prices under the relevant trading arrangements.
1.4 The market abuse licence condition lists examples of possible abuse. These
include acting in such a way as to prejudice the efficient and economic balancing
of the transmission system, limiting generation or capacity availability and
pursuing discriminatory pricing policies.
1.5 The investigation will first consider whether Edison First Power1, whether alone or
with one or more undertakings, is regarded as having a position of substantial
market power2 in the determination of wholesale prices for electricity under the
relevant trading arrangements. If it is found that Edison First Power, whether
alone or with one or more undertakings, is in a position of substantial market
power then Ofgem will consider if an abuse has occurred. In particular Ofgem will
consider whether the Licensee, alone or with other undertakings is, without good
cause, limiting generation or capacity availability in such ways as materially to
increase wholesale prices for electricity, to the potential detriment of customers
Edison Mission Energy’s decision to withdraw capacity
1.6 EME decided to withdraw 0.5GW of capacity at Fiddlers Ferry Power Station on 31
March 2000.3 Prior to the withdrawal EME explained to Ofgem that the
withdrawal would be justified on the basis that it would be temporary, and on
forward projections of the costs which could be avoided were the plant to be
withdrawn compared to revenue which could be earned from running it.
Ofgem’s preliminary enquiry
1.7 On 6 April 2000 Ofgem indicated that this principle was acceptable, but asked
EME for additional information, which we have now analysed.
1 Edison First Power is the Licensee for Fiddlers Ferry and Ferrybridge power stations
2 The market abuse licence condition defines substantial market power as the ability of the Licensee (Edison
First Power) (or the Licensee together with its affiliates and relating undertakings (First Hydro Ltd and
Lakeland Power Ltd) to bring about, independently of demand or cost conditions, substantial changes in
wholesale electricity prices.
3 By withdrawing the plant before 1 April Edison Mission Energy were able to avoid significant fixed costs, in
particular the NCG connection use of system charges.
1.8 Ofgem is concerned that the continuing withdrawal of capacity by EME may be
inconsistent with the ‘avoidable cost’ principle described above, given the changes
in trading conditions which have occurred over the period. For this reason Ofgem
has launched a formal investigation.
1.9 Ofgem invites views from companies’, customers and other interested parties on
this matter. In particular Ofgem requests evidence as to the effects on customers
and competition of EME’s withdrawal, and continuing withdrawal, of this capacity.
Please provide views, representations or evidence by 22 June 2000. Responses
should be sent to:
Dr Eileen Marshall CBE
Deputy Director General, Competition and Trading Arrangements
Office of Gas and Electricity Markets
130 Wilton Road
London SW1V 1LQ.
1.10 Respondents are free to mark their responses as confidential, although the
information may be made available to the Advisory Body if Ofgem were to
conclude that Edison Mission Energy were in breach of the market abuse licence
condition. Any responses which are not marked as confidential will be placed in
the Ofgem library. If you have any queries concerning this document Stephen
Smith (020 7932 5927) or Sonia Brown (020 7932 6312) will be pleased to help.
1.11 Ofgem will announce its conclusion of the formal investigation as soon as is
reasonable after 22 June 2000.