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New Methodology to No Avail?

A Review of the European Commission’s Case Practice Regarding the Net Avoided Cost Methodology Following the 2012 SGEI Package

Mikael K. Lund


Keywords: services of general economic interest, SGEI compensation, public service compensation, net avoided cost, NAC methodology

Seeking to improve cost estimates for services of general economic interest (SGEI), the European Commission in the 2012 SGEI package introduced the new net avoided cost (NAC) methodology for calculating the cost of such services. This article conducts a comprehensive review of the Commission’s case practice with respect to the application of the NAC methodology. The review shows that the Commission has a low threshold for what is considered a ‘duly justified’ reason for not using the NAC methodology. First, the Commission has held that the undertaking performing the SGEI must be known in advance. This effectively means that it cannot be used in conjunction with tenders or public procurement. In practice, the NAC methodology can only be applied where the undertaking is already engaged in the activity in question. Second, the Commission has implicitly established two criteria for when a relevant counterfactual scenario can be defined. These criteria are interpreted strictly, effectively restricting the application of the NAC methodology to very few cases not already covered by sector specific regulation. The implication of these findings is that the introduction of the NAC methodology did not contribute anything substantial to SGEI regulation.
Keywords: services of general economic interest; SGEI compensation; public service compensation; net avoided cost; NAC methodology.

Mikael K. Lund, PhD Research Scholar, NHH Norwegian School of Economics. For correspondence: <>. All links accessed 7 May 2021.


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