Irish Supreme Court Restores Common Sense to the Single Electricity Market

Fri May 18 17:04:21 EDT 2012
By Graham Shuttleworth and George Anstey

In this issue of NERA's Energy Regulation Insights (ERI), Graham Shuttleworth and George Anstey delve into a recent dispute in Ireland over the nature and treatment of a levy imposed on the market value of electricity generators' emissions of CO2. The Irish government had hoped that generators would not pass through the cost of the levy into wholesale (and hence retail) electricity prices. The generators, however, were required to set their offer prices into the wholesale market equal to "short-run marginal costs" and to value cost items at "opportunity costs." The Irish regulator decided that the levy did not meet these conditions, even though it was a cost clearly tied to output. The High Court agreed with the regulator, but the Irish Supreme Court decided that paying the levy was a cost by any normal definition, and that giving up cash to pay the levy represented an opportunity cost. Mr. Shuttleworth and Mr. Anstey were involved in the case, providing expert reports that set out the view eventually adopted by the Supreme Court. This ERI explains the basic concepts behind the case, and describes the twists and turns in the regulatory definition of costs along the way.

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