The ESB could lose revenue of about £40 million (€50.8 million) annually if a supply of power for bulk sale to privately-owned electricity suppliers at discount rates is not capped, it claimed in an affidavit submitted to the High Court.

The State-owned company, which is a notice party in a challenge to a proposed change in the system, said its ordinary customers would be exposed to such a loss in the form of higher electricity charges.

EPower, a privately-owned supplier backed by Esat founder Mr Denis O'Brien, is seeking a judicial review of a decision by the commissioner for electricity regulation, Mr Tom Reeves, to limit the power available at top-up rates and impose secondary tariffs for electricity exceeding those limits. The company claims Mr Reeves's decision, published on August 29th, was ultra vires. The ESB's affidavit claimed the top-up rates are 16 per cent less than its production costs, which did not encourage competition.

"Independent suppliers can simply share the discount arising from the subsidised topup price between their customers and themselves," its affidavit said.

Mr Reeves's position - supported in a letter clarifying a 1999 policy direction by the Minister for Public Enterprise, Ms O'Rourke - is that the top-up system was never intended to provide cheap electricity on demand to private power companies. EPower plans to construct a power station in joint venture with BP Amoco and a US businessman, Mr Larry Thomas, but does not yet generate power. This means the company must source all the power it sells to 56 industrial customers from the ESB. This business had projected annual sales of £14.7 million, its counsel, Mr Paul Sreenan SC, told the court yesterday.

In an affidavit opposing ePower's application for judicial review, Mr Reeves claimed he did not cap supplies available at top-up rates when the market was partially liberalised last February because he believed it premature to do so until alternative power sources - particularly from a planned auction of ESB power to private companies - became available.

EPower claimed the top-up regime was its sole source of power because the ESB had refused to enter commercial negotiations to sell power at wholesale rates before the partial opening of the market. It had made a complaint to the Competition Authority about this, Mr Sreenan said.

The plan to cap the availability of top-up from September 1st was in conjunction with the proposed auction. The cap was set at 5 per cent of contracted supply and a multiplier of the top-up rates would be charged for power exceeding these limits.

Of the auction, Mr Reeves's affidavit said: "If the trading and settlement system continued to operate without a cap on top-up there would be no incentive for [ePower] or other similarly placed licensees to participate in the [auction] which would be thus likely to fail for want of industry participation . . . It is in the best interests of the industry as a whole and of competition that the [auction] be introduced as soon as possible so as to introduce competition."

Mr Sreenan said Mr Reeves's decision had breached ePower's legitimate expectation that a cap on the volume of top-up would not be introduced until capacity had been made available at auction. The new system, if introduced, would cause it to incur "very significant commercial losses".

The ESB said it would proceed with an auction of 600 megawatts (MW) - "under the guidance" of Mr Reeves.

It warned that continuation of the current system could lead to power shortages next winter because the availability of unlimited supply at top-up rates would limit the incentive for industrial users to reduce their load during peak periods.

Mr Justice Murphy ordered an "interim stay" on the introduction of the new system until the proceedings are concluded.