Commission wields big stick at EU energy sector 

Competition Commissioner Neelie Kroes announced on Thursday (16 February) that she will launch a series of antitrust crackdowns on companies operating in the EU electricity and gas sectors. 

"In the coming weeks and months the Commission will launch individual antitrust investigations," Kroes said at a public conference presenting the preliminary results of an enquiry in the liberalised energy sector.

Although she refused to name individual companies, she did point out that market liberalisation has so far been unsuccessful in tackling the "inefficient monopolised energy markets of the past".

All eyes are thus now turning to former state monopolies and incumbent groups which have succeeded in maintaining a stronghold on the market. France's EDF and Germany's E.on-Ruhrgas and RWE, are amongst the most widely cited likely targets.

Kroes further hinted at what the investigations might look in: "By way of example, these cases could cover vertical foreclosure caused by long-term downstream contracts, and the hoarding of capacity on pipelines, gas storage and interconnectors," Kroes said. "We will probably also take a closer look at the price-setting mechanisms on electricity wholesale markets, including power exchanges."

Mrs Kroes highlighted the following market flaws uncovered by the sector enquiry:

• Market concentration: reflecting the "old market structure of national or regional monopolies" giving for instance some electricity operators control over prices in the wholesale market. In the gas sector, "incumbents tend to control imports and/or domestic production," Kroes indicated.
• Vertical foreclosure: from integrated incumbents who operate simultaneously at network, wholesale, and distribution levels, thereby preventing new entrants from entering.
• Market integration: gas and electricity markets are still largely national.
• Transparency issues: characterised as "endemic" by Kroes, who considers access to information as "crucial for establishing a level playing field". She says market participants need "more information on technical availability of inter-connectors and transmission networks. They want to know more about generation, about balancing and reserve power, and about load."  
• Price formation: Although Kroes recognises the many contributing causes for the "dramatic rise in prices for gas and electricity over recent months, she says "anti-competitive practice" may be one of them. "A well-functioning and transparent market mechanism for setting prices is essential," she said.
• "grandfathering rights": of incumbents, allowing them to reserve capacity on bottlenecks such as pipelines, are a further significant barrier to entry, Kroes said.
• Market bundling: of generation, supply, pipelines or grids, and distribution. "Owners and operators of critical networks often compete with companies that need to have access to these same networks. Can we expect such integrated companies to treat competitors in a fully fair manner? Their own self-interest would suggest not," said Kroes.

Competition Commissioner Neelie Kroes said that, while "the problems [in the energy sector] appear clear, the appropriate remedies less so." She pointed out that competition law, by ensuring liquidity in liberalised markets, can only provide part of the solution. "Competition enforcement is just one partner. […] It dances not alone, but in step with regulation. Andris Piebalgs and I myself are fully committed to just that," she said.

Energy Commissioner Andris Piebalgs said completing the internal energy market will be pivotal in achieving the EU's objectives for a "secure, sustainable and competitive energy [sector]". He said a country-by-country review on the transposition and implementation of the electricity and gas directives revealed continued shortcomings.

"I will propose to the Commission, by the end of March, the launching of a package of infringement procedures against those Member States not having ensured full compliance with the provisions of the gas and electricity directives," Piebalgs announced. 

"A segmented approach weakens Europe's position vis-a-vis external suppliers and acts as a severe disincentive to investment," he said in reference to the recent Ukraine-Russia gas dispute. 

The European Chemical Industry Council (CEFIC), which claims to be the largest energy consumer in the EU manufacturing sector, confirmed the findings of the Commission sector inquiry. "Progress in opening up markets […] since the entry into force of the Liberalisation Directives has been disappointing and small," CEFIC said. It therefore calls for "rigid and coordinated actions from the EC, member states, regulators and producers." 

The European chemical sector, which sees itself directly at risk from the forthcoming REACH regulation on chemical safety, said "the deficiencies in the EU energy sector are an immediate threat to the global competitiveness of the European chemical industry."

Eurelectric, the union of European electricity industry, pointed at its ongoing efforts as a satisfactory way forward for increased price transparency. "The best way to make progress on market concentration is to take steps towards further integration of markets and market transparency as set out in the Eurelectric road map," said President Rafael Miranda.

"The overall snapshot [in the sector enquiry] is not fair because the report does not take into account that things are moving in the right direction," a spokesperson for Eurelectric told the Financial Times. 

Eurelectirc recommends a regional approach with transparency standard in each regional market as the best way towards achieving a pan-European level playing field.

Large industrial electricity consumers in the Alliance of Power Intensive Industries  (alloys, cement, ceramics, chlor-alkali, glass, iron & steel, lime, non-ferrous metals and paper industries) say lack of cross-border competition means there is "no real alternative from the nationally-established suppliers". "The electricity markets in many Member States continue to be highly concentrated and new entrants are discouraged," it says. In addition, the alliance points to the EU CO2 emissions trading system for pushing electricity prices up. This, it says is "an exclusively European pheonomenon" which should be "critically reviewed".