Paris, Berlin resist calls to dismantle energy groups

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New EU legislation that would split power distribution from network ownership are being resisted by France and Germany amid a growing body of reports calling for full ‘ownership unbundling’.

EU energy regulators have called on the Commission to put forward new legislation to finalise the liberalisation of energy markets and free regulators from political intervention.

The European Regulators Group for Electricity and Gas (ERGEG), an advisory body to the European Commission, submitted a report on the development of EU energy markets on 8 December 2006.

It calls for new sweeping legislation on ‘unbundling’ that would fully separate network ownership from service delivery and reinforce the powers of national regulatory authorities.

ERGEG Chairman Sir John Mogg, said: “Some integrated energy firm may claim that ownership unbundling will not help competition. This is untrue. Insufficient unbundling is often the most persistent barrier to competition.”

The ERGEG report criticises what it describes as “the vague implementation of the unbundling provisions of the existing directives”. 

“When they are transposed into national law, they leave a lot of discretion to the integrated companies, and companies often act without fear of enforcement because of a lack of adequate powers of the regulators,” ERGEG said.

The main suggestions in the report include:

  • Full unbundling legislation;
  • freeing regulators from political intervention;
  • stronger political commitment to regional energy initiatives, and;
  • abolishing regulated energy prices which “distort competition”.

According to Competition Commissioner Neelie Kroes, the absence of full unbundling in power markets leads to "systemic conflicts of interests" where operators deny network access to new competitors.

In a speech on 30 October, Kroes said: "There has to be a structural solution that once and for all separates infrastructure from supply and generation. In other words: ownership unbundling."

But a French diplomatic source in Brussels said that it was too early for the EU to consider unbundling network ownership from service provision. New measures are not necessary until July 2007 when the household market open up to competition, the source said. Uunbundling, the source added, is "not a solution that will favour investments" in new generation and interconnection capacity in the medium term. Such a move would "destabilise operators", the source added.

A crucial element for France is to preserve regulated energy prices that secure affordable electricity supplies to households. It proposes that an analysis be carried out after the 1 July deadline to see whether liberalisation has achieved its objectives.

Unbundling would "dilute investment capacities" and would be "detrimental to supply security and to consumers", said France in an official reply to the Commission's Green Paper on the EU's future energy policy.

German Chancellor Angela Merkel backed the French position at a meeting with President Jacques Chirac in Paris last week.

Commission President José Manuel Barroso has adopted a more cautious stance on the unbundling issue. "No decision has been taken yet, but no option has been ruled out," he told a conference on 30 October. "What is clear is that the status quo is not delivering the outcomes we want."

According to a report in the Financial Times, the Commission is revising its stance on unbundling in the face of French and German opposition. Under new plans considered in Brussels, the network would be supervised by an "independent service operator" which would ensure fair access to the network by other companies.

Ownership unbundling is a hot topic for large power utilities such as E.ON in Germany and EDF in France. As things stand, EU legislation only requires these former energy monopolies to manage infrastructure and service provisions under two legal names and keep separate accounts. But they may continue to own the physical networks while at the same continue energy-supply activities that run on the network.

The situation is under increased scrutiny from the Commission which sees this as a major obstacle to opening Europe's electricity markets.

  • 10 January 2007: Commission to present strategic energy review to identify measures needed to complete the internal electricity and gas markets.

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