Electricity companies: Council of States supports rescue package

The thing seems strange. Electricity trading prices in Europe have multiplied since the beginning of 2021. This promises good profits for the electricity producers, but the state is now supposed to suddenly offer emergency aid to the large producers. In May, the Federal Council passed a legislative project on a rescue package for system-critical electricity companies in the form of liquidity support in the event of a crisis of up to a total of 10 billion francs suggested.

In the last twelve months, the European electricity trading prices for a delivery in 2023 per megawatt hour of electricity have risen from 50 euros to around 220 euros. It’s not just the war in Ukraine that’s to blame. The increase began as early as 2021. According to market observers, key additional factors included the energy strategies in Europe with the decline in coal and nuclear energy, the strong increase in demand in Asia and production losses at various French nuclear power plants. The Swiss electricity group Alpiq had already asked the supervisory authority for liquidity support in December 2021 and thus before Russia’s open invasion of Ukraine.

Solvent but not liquid?

Alpiq subsequently withdrew the request, but the issue of emergency aid for electricity companies remained on the agenda and became even more acute with the market turbulence following the Russian invasion of Ukraine and the subsequent debate on energy sanctions. In normal times, the electricity producers hedge the prices of their production over several years in order to have calculable returns.

However, the mechanics of the futures exchanges can mean that, due to sharp price increases, power companies suddenly have to provide additional collateral in the billions within 48 hours on the exchange and thus find themselves in a liquidity bottleneck – although the price increases promise high additional earnings for the future. The basic idea of ​​the Federal Council: In such extreme cases, the federal government provides liquidity support to system-critical electricity producers under strict conditions in order to prevent the collapse of solvent companies and thus not to jeopardize the security of supply.

The Energy Commission of the Council of States had changed a number of points in the Federal Council’s proposal. The Federal Council wanted to limit the protective shield to the three largest groups, Axpo, Alpiq and BKW. According to the Council of States commission, regionally important electricity companies should also be considered critical to the system and thus have access to the federal liquidity insurance. The Grisons Repower Group is the main candidate for this expansion.

unclear intentions

The legislative project passed a political endurance test in the Council of States on Thursday. In principle, it was undisputed that in crisis situations where the power supply was at risk, the Federal Council should intervene directly with emergency aid, based on the emergency law article in the constitution. On the other hand, there was much debate as to whether the proposed law is the right answer to the energy crisis. Up for debate were two civil motions to have the entire project rejected by the Federal Council with the mandate to revise it.

The intentions of the various critics were not entirely clear and in some cases probably inconsistent. Here is a list of the points of criticism mentioned: The legislative project focuses on rescuing companies instead of securing the power supply; the law does not solve Switzerland’s electricity supply problem; the federal government is already making specifications for the electricity companies with the law before emergency aid would flow; It is difficult to explain to the citizens if domestic electricity prices are rising this year, the profits of electricity companies are increasing significantly and the federal government is opening up a rescue package for these companies; one should not save companies that have speculated; in a systemic crisis, the cost ceiling of CHF 10 billion would probably not be enough.

Among the critics there are likely to be those who would prefer not to have a protective shield law at all. Others seem to have the idea that power companies should be forced into (partial) sales or bankruptcy or composition proceedings with strong intervention by a federal authority if they need emergency help from the federal government.

The proponents of the draft law defended the bill with the following arguments in particular: in line with the wishes of the critics, the draft law focuses on securing the electricity supply; securing the power supply cannot be separated from the survival of the largest electricity companies in the short term; no power company will be forced to take out a federal loan; in the case of applications for rejection, it was unclear what they actually wanted; if the business is referred back to the Bundesrat, there will be no protective shield law for a long time and, in the event of a crisis, the Bundesrat will have to rely on emergency law until at least next year without the opportunity for parliament to have a say.

For the medium-term security of the power supply, according to the proponents, it is not this legislative project that is the right reason for discussion, but rather the legislative project on renewable energies that is also in parliament and the law announced by the Federal Council with requirements for companies in terms of emergency plans, liquidity, equity capital and transparency.

The two core questions

One of the core questions here is to what extent security of supply is actually linked to the survival of the large electricity companies. In a crisis in an electricity company, “operating out” the system-critical parts and continuing them without interruption are “not realistic in the short term,” said Energy Minister Simonetta Sommaruga. The supervisory authority Elcom also seems to see it that way at the moment – ​​in contrast to some critics in the Council of States. It remains to be seen to what extent this will change if the announced discussions about emergency plans by the large electricity companies bring concrete results.

A second key question: How can it be that solvent corporations with good earnings prospects on the market do not receive sufficient liquidity in the form of loans or equity? For the banks, such companies should actually be highly profitable credit customers. When answering this question, similar keywords come up as after the outbreak of the financial crisis: psychology of uncertainty, fear of a conflagration with a systemic crisis, market failure. An exponent put it this way on Thursday: If electricity prices were to multiply again this year, for example because of a natural gas boycott, the banks would hardly give enough additional credit to service all of the electricity companies’ additional payment obligations on the stock exchanges.

In the end, the proponents of the legislative project had the upper hand in the Council of States. One of the two motions to dismiss was withdrawn, and the other failed by a vote of 18 to 26, with one abstention. In the detailed discussion, the proposal from the Council of States came through unchanged. The matter now goes to the National Council. As soon as possible, the law can come into force this fall.