EU unveils plan to dismantle big energy firms[fr][de] 

Central to the proposals, unveiled by Commission President José Manuel Barroso on 19 September, are measures aimed at ensuring "the effective separation between the operation of electricity and gas transmission networks from supply and generation activities". To achieve this, the Commission proposes two options:

1) Ownership unbundling 

This option, which is the Commission’s clear preference, would prevent companies involved in transmission of gas and electricity from being involved in energy generation or supply at the same time.

In other words, such companies would be obliged to sell part of their assets. Investors would be able to keep their participation in the dismantled groups via a system of 'share-splitting' where they are offered two shares for each one that they already own.

"This does not mean that a person or company cannot hold shares in both a network operator and a supply undertaking," the Commission explained. "For example, an individual investor (…) could still have a minority stake in both supply undertakings and network operators." However, this is allowed "as long as these shares represent a non-controlling minority interest".

2) Independent System Operator (ISO)

Faced with a veto threat from France, Germany and seven other member states that sent a letter in July expressing their opposition to full unbundling, the Commission has proposed a possible "derogation" in the form of a "fully independent system operator" (ISO).

Under this second option, companies involved in energy production and supply would be allowed to retain their network assets, but would lose control over how they are managed with commercial and investment decisions left to an independent company to be designated by national governments (the ISO).

However, the Commission warned that this would come at a higher price in terms of regulatory burden:

• Network owners must follow decisions by the ISO to finance investments in transmission capacity, and;
• comply with a ten-year network investment plan proposed by the national energy regulator.

The designation of the ISO by national governments will have to receive prior approval from the Commission to ensure a sufficient level of independence.

On the question of ownership, the ISO option is also aimed at fending off criticism, likely to arise in France, that the Commission is trying to privatise energy utilities such as EDF.

"It is up to each country to decide if transmission network is privately owned or state-owned," said a Commission official, "but they have to prove that they are completely independent from the state."

More powers to national regulators and new EU agency

Lack of coherence in the powers and remits of national energy regulators was identified as one of the biggest hurdles towards a well-functioning EU energy market. The third liberalisation package aims to resolve this by:

• Harmonising and strengthening the powers and duties of national regulators so that they are able to issue binding decisions on companies and impose penalties on those that fail to comply;
• ensuring that all national regulators are truly independent of industry interests and government intervention. This means that they will have authority over their own budgets and that strict rules apply for management appointments, and;
• mandating all national regulators with a binding requirement to co-operate with each other.

To close the current "regulatory gap for cross-border transaction in gas and electricity", the Commission proposes to create a European agency for the co-operation of Energy Regulators. The agency will have decision-making power to review "on a case-by-case basis" decisions made by national regulators and ensure there is enough co-operation between network operators.

However, the agency’s powers will be strictly limited to cross-border issues. "The agency is not a substitute for national regulators, nor is it a European regulator," the Commission said.

More co-operation between transmission system operators (TSOs)

Co-operation between national TSOs for gas and electricity, which currently takes place only on a voluntary basis, will be formalised under the Commission’s plans, through the establishment of a European Network for Transmission System Operators. It will have three core tasks:

• Developing harmonised standards for how companies access the pipelines and grids (common procedure for booking and allocating network capacity);
• ensuring co-ordination, especially in the case of electricity, to allow synchronous network operation and avoid possible blackouts, and;
• co-ordinating and planning network investments.

Increased market transparency

Finally, market participants will come under stricter scrutiny as they will be forced to keep records of their daily operations to help possible market-abuse enquiries.

"At the moment, regulators cannot effectively assess allegations of market abuse. For regulators to be able to act they must be able to study the behaviour of market participants in the past, to investigate if their operational decisions were based on sound economic reasoning or if their decisions tried to manipulate market prices."

"Electricity generators, gas network operators, and supply undertakings will therefore be required to keep record of all data relating to operational decisions and trades," the Commission added.

Presenting his proposals to the press, Commission President José Manuel Barroso said that further liberalisation was needed for five reasons:

• "Promote fair energy prices through real choice of suppliers;
• guarantee that small companies have a real chance of investing in renewable energy with fair access to the market;
• encourage investment in power plants and transmission networks;
• stimulate energy efficiency and investments, and;
• allow the emissions trading scheme to work properly."

Explaining the Commission’s insistence on full ownership unbundling, he said: "If a company sells electricity and gas and at the same time owns the networks, it has every incentive to make sure that its competitors do not get fair access to 'its' grid." 

"It's a bit like a supermarket that has its own brands but does not want to make shelf space available for other brands, let alone build new shelves, or open up new branches."

Commenting on the ISO, Barroso said this option is "more complicated than ownership unbundling, and involves an increased regulatory burden. This is the trade off for those member states that choose this option." In a thinly veiled criticism of Germany, he added: "It is somewhat ironic that some of those arguing for the Independent System Operator are the same people who on other subjects argue for cutting red tape and berate the Commission for imposing excessive administrative burden."

Reacting to the Commission’s proposals, German Economy Minister Michael Glos said he "strictly rejects" the package, describing it as "all in all too bureaucratic". "The high quality and security of German electrical power networks should not be put in danger," Glos said.

A similar reaction came from France where Christine Lagarde, economy minister, said that she rejected ownership unbundling. "We will do everyting we can to oppose it," she told the National Assembly in Paris. Lagarde also promised that the French cherished regulated tariff, under attack by the Commission, would not disappear. "The government is extremely attached to regulate tariffs and European directives do not foresee anything on this topic," she said, adding: "They will not disappear in 2010."