Utility Week

Utility Week 4th October 2013

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Policy & Regulation Europe briefs Energy High energy costs a 'big problem for industry' High energy costs are contributing to the "de-industrialisation of Europe", according to the European Commission. To help tackle to problem, the Commission is preparing a new policy document this year and there will be an summit in February next year focused on industry. Nuclear France to tax nuclear to fund renewables The French government has unveiled plans to tax its nuclear generation fleet to help finance an "energy transition". The proposed levy would be applied to EDF's 58 nuclear reactors, while the carbon tax would be introduced "progressively" on fossil fuels, to help raise €4 billion (£3.4 billion) in 2016. French prime minister Jean-Marc Ayrault said: "All change is expensive in the short term even if it's beneficial in the long term. Our nuclear fleet will be asked to contribute." Distribution Hamburg votes to buy back power grid Hamburg is preparing to spend £1.5 billion to buy back its electricity and gas grids. Germany's second-largest city sold the grids to Vattenfall and Eon more than 20 years ago but in a referendum 51 per cent of citizens voted for the state to retake ownership. Berlin is due to hold a similar referendum on 3 November. 16 | 4th - 10th October 2013 | UTILITY WEEK Market view Privatisation pensions risk? Will the pensions safeguards put in place on privatisation survive the government's pensions reform? By Terry Saeedi. T here are currently two parts to state pension provision: the basic state pension and the state second pension. The first is flat rate, the second related to earnings. Many occupational pension schemes (including utilities pension schemes) are "contracted out" of the state second pension. In return for providing those benefits from the scheme, both the employee and the employer pay reduced National Insurance Contributions. Currently the National Insurance Contribution rebate is 3.4 per cent for employers and 1.4 per cent for employees. From 6 April 2016 the basic state pension and state second pension will be replaced by a single pension and the National Insurance rebate will no longer apply. Consequently employee National Insurance contributions will increase by 1.4 per cent and employers' contributions by 3.4 per cent. Employers may wish to change their pension schemes to offset this increased cost, and the Pensions Bill 2013 contains a modification power allowing employers, for a limited period and without trustee consent, to amend future benefits to "the extent that they offset the cost of additional employer National Insurance contributions" or to increase member contributions. What do these changes mean for utilities? When the utilities industries were privatised, protections in respect of pensions for employees in service on privatisation were agreed, effectively protecting their pensions. The protections for the coal and electricity are set out in the relevant Protected Persons Regulations. Broadly, these regulations require pension benefits to be at least as good as those offered before privatisation. The regulations also prevent amendments being made to the scheme that reduce future accrual or increase employees contributions. The protections for the water and gas sectors are contained in the relevant pension scheme rules. Utilities have been lobbying the government in relation to the end of pensions contracting out. They have been particularly concerned to ensure the Pensions Bill modification power will allow them to treat all employees (particularly those covered by the Protected Persons Regulations) in the same way for pensions purposes. The companies consider that any difference in treatment is unfair and will have serious negative implications for industrial relations. The government has taken on board these concerns. In January it issued a consultation paper looking at whether or not utilities with employees subject to the Protected Persons Regulations should be able to use the modification power in the Pensions Bill to amend pension benefits or member contributions to the extent needed to offset the employer National Insurance Contributions increase. As an overriding principle, the paper makes it clear that the government is keen to balance the rights and expectations of both affected employers and employees. The consultation closed on 14 March 2013. It did not deal with the water and gas industries with pensions protections set out in scheme rules. Presumably the government considers that those schemes will be able to take advantage of the Pensions Bill power. The consultation responses that are available fall into two categories. The National Association of Pension Funds said that applying the statutory modification power across the board to all private sector pension schemes was the fairest and most appropriate approach. The Protected Persons Regulations were introduced against the background of the current state pension system and did not envisage the end of contracting out. In contrast, Unison considers that the statutory power should not be extended to Protected Persons. The union notes that only a relatively small number of people are covered by the Protected Persons Regulations and most of those individuals are nearing retirement. It considers that affected individuals should be treated the same as members of public sector schemes who will not face any pension scheme changes arising from the abolition of contracting out. The government's consultation response is eagerly awaited. Terry Saeedi, partner and head of the pensions team at law firm Gordons

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