RNS Number:1215S
OFGEM
17 November 2003


R/108

             EMBARGOED UNTIL 07:30 HOURS ON MONDAY 17 NOVEMBER 2003

Monday 17 November

SUBSIDY REMOVAL NECESSARY TO ENSURE COMPLIANCE WITH EUROPEAN LAW

*         Proposals announced to remove Scottish 'hydro benefit' subsidy
*         Ofgem no choice but to take action

Energy regulator Ofgem today (Monday) said it had decided to propose removing a
subsidy benefit for electricity customers in the north of Scotland to comply
fully with European law.

'Hydro benefit' is a subsidy which requires the generation business of Scottish
and Southern Energy plc to fund reductions in the charges that electricity
suppliers pay the company for distributing electricity to customers in the north
of Scotland.

Ofgem Chairman, Sir John Mogg, said: "The Ofgem Authority has decided to propose
the removal of this subsidy in a timely way, following detailed legal advice,
primarily based on European law. The Authority had no choice but to take this
action.

"It is not in our powers to be able to put forward a replacement scheme. I note,
however, Energy Minister Stephen Timms' comment today that he is considering the
possibility of such a move."

                                      ends

Notes to editors:


 1. Hydro benefit is a subsidy from the generation business of Scottish and
    Southern Energy plc. The subsidy was in existence before privatisation and
    it was formalised as 'hydro benefit' in the arrangements set up at the time
    of privatisation by the Government through licence obligations placed on the
    companies.The subsidy has the effect of reducing the charges to electricity
    suppliers of its distribution business.

 2. All British regulation, including obligations placed on licensees, must
    comply with EU legislation. Ofgem has clear legal advice that certain
    features of the present hydro benefit arrangements may be contrary to EU
    law. Therefore, Ofgem intends to issue a document as soon as possible
    proposing the removal of the relevant licence conditions.

3.  Ofgem is the Office of the Gas and Electricity Markets, regulating the gas 
    and electricity industries in Great Britain. Ofgem's aim is to bring choice
    and value to all gas and electricity customers by promoting competition and
    regulating monopolies. Ofgem is governed by the Gas and Electricity Markets
    Authority. Its powers are provided for under the Gas Act 1986, the 
    Electricity Act 1989 and the Utilities Act 2000.


For further press information contact: Richard Hunt 020 7901 7158; Mark Wiltsher
020 7901 7006; Out of hours contact: 0781 8457 969


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