01.07.2022 | Council of States debates the safety net: a fact check

Safety net: right or wrong?

On 16 June 2022, the Council of States spent several hours debating the safety net for electricity companies. With the National Council’s Energy Commission set to meet on 4 July, we ran a fact check on a number of noteworthy statements. 

 

‘Time is pressing.’ Correct

  • The current situation is impacting the entire European electricity sector. There is the risk of a domino effect which could even take its toll on healthy companies in Switzerland.
  • Since mid-2021, and to an even greater extent since the beginning of the war in Ukraine, prices on international energy markets have reached historically high levels, with electricity producers having to furnish far more liquidity than  before.
  • Gas deliveries from Russia have reduced significantly in recent days further exacerbating the situation.
  • Rejecting the draft and thus losing a year would be careless.

 

‘The electricity sector is in trouble because of speculation.’ Wrong

  • Producers sell electricity from their power stations up to three years in advance. This is a way of hedging against future fluctuations in energy prices. It means that producers – and their customers – can estimate their energy prices for the coming years and gain planning security.
  • Hedging is a proven risk management tool, and precisely the opposite of speculation.

 

‘Companies are at risk of incurring excessive debt.’ Wrong

  • This is a paradoxical situation. While electricity production companies are actually becoming more profitable, short-term security deposits required for regulatory purposes are leading to huge outflows of funds. The companies are healthy, their businesses lucrative and their future prospects promising – and yet liquidity shortages cannot be ruled out in the short term.
  • The deposits are returned on or before the date the electricity is delivered.
  • Restructuring or bankruptcy proceedings – if a company requests money – are therefore not appropriate. On the contrary, they damage the company on the capital markets and prevent it from rapidly exiting the safety net.

 

‘We don’t need a new law: the Federal Council has recourse to emergency law.’ Mostly wrong

  • That is far fromcertain. Lawyers are largely of the opinion that the Federal Council cannot impose measures under emergency law when Parliament has previously rejected them.
  • If Parliament or one of the two councils decides not to take action it would also be a clear signal to the Federal Council that it should act alone.

 

‘Other countries have already made provisions.’ Correct

  • The European Commission grants exceptions to the rules for state subsidies when companies receive liquidity assistance.
  • Other countries have already introduced rulings. That includes Germany, where the KfW has made lines of credit available on behalf of the federal government. In total, Germany has earmarked around EUR 100 billion for short-term liquidity assistance.
  • In light of these developments, it would hardly be opportune if Switzerland failed to act, even though it has acknowledged the problem.

 

‘It’s not about saving individual companies.’ Correct

  • The name of the proposal is unfortunate, because it is not about individual companies, but rather the security of supply in Switzerland.
  • Individual companies are not systemically important and can declare bankruptcy.
  • The systemic risk resulting from the current geopolitical situation is affecting all market participants simultaneously. If one large player, or several smaller players, are shut out of exchanges in Europe because they cannot fulfil the higher liquidity requirements, we could see the contagion spreading.

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