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The Court of Appeal in Warsaw allowed the appeal of the ERO President regarding the settlement of value of annual adjustment of the stranded costs (so-called LTC compensations) for 2008 for Lublin-Wrotków CHP

  • No. of the report: 9/2012
  • Report date: 08.03.2012
  • Report legal ground: Art. 56 section 1 p. 1 of Act on Public Offering – confidential information

Contents of the report

The Management Board of PGE Polska Grupa Energetyczna S.A. (“PGE”) informs that on March 7, 2012 the Court of Appeal in Warsaw allowed the appeal of the President of the Energy Regulatory Office (the “ERO President”) against a judgement of the Regional Court in Warsaw – the Court of Competition and Consumer Protection (the “CCCP”) regarding the settlement of value of annual adjustment of the stranded costs for 2008 for Lublin-Wrotków CHP due as a result of the termination of long-term contracts of sale of capacity and electricity (so-called “LTC compensations”), and changed the CCCP judgement by dismissing the appeal of Lublin-Wrotków CHP. The judgement is final and binding, however Lublin-Wrotków CHP is entitled to file a cassation appeal with the Supreme Court.

The Management Board of PGE does not agree with the verdict, especially that in a similar case, in its judgement of February 2, 2012 regarding the settlement of value of annual adjustment of the stranded costs for 2008 for Rzeszow CHP (the Management Board of PGE informed about this case in current report no 3/2012), the Court of Appeal in Warsaw took different position and dismissed the appeal of the ERO President as groundless. As a consequence, it has uphold the judgement of the CCCP, which had allowed the appeal of the generator and changed the decision of the ERO President in accordance to the company’s standpoint.

The Management Board of PGE informs that basing on precautionary accounting principle and assuming the conservative attitude towards the further course of events with regard to the disputes with the ERO President on settlement of value of annual adjustment of the stranded costs for 2008-2010, it will adjust the LTC compensation settlements by approximately PLN 1 billion, what will lower the consolidated financial results of PGE Capital Group for 2011. PGE and PGE Górnictwo i Energetyka Konwencjonalna S.A. will use all legally available actions in order to solve the disputes in their favour, including the filing of cassation appeal with the Supreme Court.

The total claim value of disputes concerning LTC compensations for 2008 due to generators from the PGE Capital Group, calculated as a difference between the amount of annual adjustment calculated by the companies and the amount settled by the ERO President in decisions, amounts to PLN 434.7 million. The claim value in the CHP Lublin-Wrotków case was PLN 26.7 million.

Description of the case:

On July 31, 2009, the ERO President issued six decisions in relation to some generators from the PGE Capital Group, i.e. PGE Elektrownia Opole S.A., PGE Elektrownia Turów S.A., PGE Zespół Elektrowni Dolna Odra S.A., PGE Elektrociepłownia Rzeszów S.A., PGE Elektrociepłownia Lublin – Wrotków Sp. z o.o., PGE Elektrociepłownia Gorzów S.A., concerning the annual adjustment of stranded costs due under the Act of June 29, 2007 on the principles of compensating for generators’ costs arising in connection with the early termination of long-term contracts for the sale of capacity and electricity (Dz. U. of 2007 No. 130, Item 905, as amended). Pursuant to the decisions mentioned, the above companies were obliged to return amounts indicated in the decisions to Zarządca Rozliczeń S.A. or were given lower adjustments that expected. The companies from the PGE Capital Group appealed against the decisions of the ERO President to the CCCP. On May 26, 2010 the CCCP changed decisions of the ERO President in accordance with the appeals filed by the generators from the PGE Capital Group. The ERO President appealed against those judgements.

Generators from the PGE Capital Group are in similar disputes with the ERO President regarding stranded cost compensations for 2009 and 2010. These cases have not been settled yet.

Legal ground: Art. 56 section 1 point 1 of the Act on public offering, conditions governing the introduction of financial instruments to organised trading, and public companies (Dziennik Ustaw 2009 no 185, item 1439, as amended).
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