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Discussion of Lorenzo Coppi’s presentation: An economic perspective on compensation

Discussion of Lorenzo Coppi’s presentation: An economic perspective on compensation. Valérie Guigue-Koeppen European Commission – DG COMP. Is the net avoided cost (NAC) methodology likely to result in lower compensation?. Well-run Undert. PSO Undert. Cost allocation. Comm. Costs Contr.

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Discussion of Lorenzo Coppi’s presentation: An economic perspective on compensation

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  1. Discussion of Lorenzo Coppi’s presentation:An economic perspective on compensation Valérie Guigue-Koeppen European Commission – DG COMP

  2. Is the net avoided cost (NAC) methodology likely to result in lower compensation? Well-run Undert. PSO Undert. Cost allocation Comm. Costs Contr. Procurement Net avoid cost PSO Fix Costs Costs PSO Var. Costs All advan-tages PSO Var. Costs Reason. Profit Reason. Profit Not so clear It depends on the counterfactual (scenario without public service obligations) Objective when switching to NAC: better estimate the economic cost of the public service obligation so as to fix the compensation at the right level 2

  3. Is the reasonable profit likely to be reduced? • Draft framework: • rate of return on capital that would be required by a typical company considering whether or not to provide the SGEI (…) taking into account the level of risk • Safe-harbour • Ceiling in the absence of substantial risk • 2005 framework: rate of return on own capital that takes account of the risk, or absence of the risk, incurred by the undertaking by virtue of the intervention by the Member State • Objectives of providing a safe-harbour and a ceiling in the absence of substantial risk: clarification/simplification

  4. Case of incurred costs lower than expected: efficiency reward Will efficiency incentives lower compensation in the long term, but may result in compensation above the net costs in the short term? Expected costs Compensation Incurred costs time

  5. Is it the role of SA provisions to drive towards more efficient provision of SGEI? • Allowing full compensation of incurred costs might affect competition and trade • Efficiency means reduction of costs and/or increase of quality -) lower tariffs and/or budgetary burden -) better quality if requested by the public authority -) increased competitiveness and growth Imposing efficiency incentives does not obstruct MS’ margin of discretion when defining the SGEI

  6. Thank you for your attention

  7. Case of incurred costs higher than expected : efficeincy penalties Will efficiency incentives lower compensation in the long term, but may result in compensation above the net costs in the short term? Incurred costs Compensation Expected costs time

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