Commission set for climb-down on ‘ownership unbundling’

A proposal to further liberalise the EU’s energy market, due on 19 September, is to present member states with alternative options to full ‘ownership unbundling’ in an effort to ward off a veto threat from nine countries led by Germany and France, EU officials have told EURACTIV.

  • Weighing the options

The EU executive is currently considering two main options for its upcoming proposal, scheduled for release on 19 September, it emerged from discussions with EU officials, speaking on condition of anonymity.

The first option is to force “integrated” energy companies, which own both energy production and distribution infrastructure, to completely sell off their gas and electricity-transmission networks, so-called full ownership unbundling. 

But German and French energy giants, backed by their respective governments, have put up staunch opposition to this proposal. In addition, a clause in Germany’s Constitution prohibits public authorities from forcing companies to sell their assets.

As a possible compromise, the Commission may allow companies to maintain ownership as long as the shares of the energy producing company are “split” from the shares of the transmission network company. 

The idea is that shareholders of the energy transmission company would push for greater investment in transmission networks in order to attract more market entrants, thus fostering the kind of competition the Commission believes is currently being stifled by integrated energy firms, which have little incentive to to increase the number of competitors on their grids. 

The second option on the table would also allow companies to maintain ownership of their assets, but the management, including investment and other commercial decisions, would have to be transferred to an Independent System Operator (ISO), which would pay a fee for the use of the networks.

Any ISO, according to leaked Commission documents, would need to be bolstered by increased oversight powers for national regulatory authorities in order to guarantee price transparency, network access and investments. National regulators would in turn be supervised and/or assisted by a new European agency with powers of arbitration, particularly in the case of cross-border disputes.

  • Ownership unbundling: a non-starter? 

During their last meeting in June, a majority of EU energy ministers voiced their opposition to the idea of full ownership unbundling, prompting Energy Commissioner Andris Piebalgs to lament that “the majority is not with me at this stage” (EURACTIV 07/06/07). 

Member-state reluctance is also reflected in the Conclusions of the March 2007 European Council, which call for “timely and full implementation of the letter and spirit of existing internal-market legislation relating to the opening up of the gas and electricity markets”. In other words, member states are asking that exisiting Directives are fully implemented before more far-reaching legislation is tabled.

The March conclusions do call, however, for “effective separation of supply and production activities from network operations (unbundling)”, as well as increased powers for regulators. But this is in reference to the “legal unbundling” stipulated in the second energy liberalisation package, and there is no mention or explicit support in the Council’s conclusions for full ownership unbundling.

  • Plus ça change?

The absence of member state support for ownership unbundling might prompt the Commission to give more consideration to the so-called ISO+ option.

But a Commission official, speaking on condition of anonymity, admitted that some key industry officials are no more enthusiastic about increased regulatory pressure resulting from an ISO scenario than they are about ownership unbundling. One industry official apparently compared the choice to putting either salt or pepper in one’s coffee.  

The Commission has also expressed its own reservations about the ISO option. In its “Energy Policy for Europe” paper, published in January 2007, the Commission notes that, in the absence of full unbundling, “disincentives to adequately invest in networks without ownership unbundling can not in any event be fully addressed by Regulators”.

Given the apparent lack of enthusiasm for either option being discussed by the Commission, there is also some speculation that the EU executive may opt to maintain the current status quo while pushing for better implementation of existing directives and reinforced powers for national energy regulators.   

This last option is apparently being championed by Enterprise Commissioner Günter Verheugen, along with German Chancellor Angela Merkel and French President Nicolas Sarkozy. 

  • Investments and price signals  

“Providing that the right policy and legislative frameworks are in place, the Internal Energy Market could stimulate fair and competitive energy prices and energy savings, as well as higher investment”, writes the Commission in its Energy Policy for Europe paper.

France, which is able to provide low energy prices through massive state-backed investments in nuclear power several decades ago that are now fully amortised, argues that the best way to guarantee low prices and network investments is by regulating prices with the help of state-backed guarantees.

But, according to one Commission official, current EU state-aid rules mean that massive “Pompidou style” investments in conventional energy sources are “out of the question” for the future, meaning that the French model of low, regulated prices will expire once masive re-investments in energy infrastructure are required. 

Despite signals given at the June Energy Council, a number of member states, notably Denmark, The Netherlands, Sweden and the UK, support ownership undbundling, in part because it would give their companies access to lucrative energy markets in France and Germany.

France, on the other hand, agrees that parts of the EU's energy market are "dysfunctional", but refutes the notion that the presence of large integrated firms is to blame since regulators guarantee fair grid access. France has also made the argument that large energy firms are in a better position to guarantee low cost and long term supply contracts with third countries, thereby guaranteeing EU energy security.

In a joint letter received by the Commission on 30 July, Austria, Bulgaria, Cyprus, Greece, Latvia, Luxembourg and Slovakia expressed their support of the French and German position that ownership unbundling is not the best way to build the EU's future energy market.

But Green MEP Claude Turmes, a strong supporter of unbundling, told EURACTIV that some of the signatories of the joint letter were in talks with the Commission over the summer and may be swayed to vote in favour of unbundling. Turmes predicts that France and Germany will ultimately be out-voted in the Council.

A majority of MEPs have also expressed their support for unbundling.

Concerned about drawn-out legal complications resulting from ownership unbundling, Eurelectric, an industry body that represents EU electricity-producing companies, argues that "the excessive emphasis on 'ownership unbundling' and its supposed impacts on current market shortcomings is shifting attention away from the core requirements for fostering market integration. At the very least, enforcing such asset separation across the EU27 would inevitably be a lengthy and complex process and would not address the key issue of market integration."

The liberalisation of energy markets is one of longest and most controversial sagas in the EU's legislative history (see our LinksDossier). 

Since the early 1990s, the Commission has pushed for the creation of a single European energy market on the grounds that this would increase Europe's competitiveness and welfare, in part by stimulating jobs and by bringing lower energy prices to consumers. 

Now, with climate change at the top of the EU's political agenda, the Commission (in particular EU Energy Commissioner Andris Piebalgs and EU Competition Commissioner Nellie Kroes) considers further liberalisation as a pre-requisite for guaranteeing the EU's energy security, for promoting the use of renewable energies, and for ensuring the proper functioning of the EU Emissions Trading Scheme.

But some member states, notably France and Germany, question the Commission's logic that further liberalisation must also include the breaking up of large national and regional energy monopolies, arguing that this may actually undermine energy security and drive up prices for consumers.

  • 19 Sept 2007: Commission to present third energy liberalisation package.
  • 03 Dec 2007: European Council - possible Conclusions on liberalisation package.
  • 1st half of 2008: Possible political agreement in Council under Slovene EU Presidency. 

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