Parliament insists on splitting energy giants

MEPs have rejected a deal between the Commission and member states whereby large electricity producers could retain ownership over power distribution assets under strict conditions. Parliament is pushing for full ownership separation as the ‘only option’ for EU electricity market liberalisation. 

MEPs gathered for their first reading vote in plenary yesterday (18 June) on the Commission’s proposal concerning the EU’s internal market in electricity. A sizeable majority –  449 in favour and 204 against – backed a report drafted by UK Socialist MEP Eluned Morgan. Morgan’s report, endorsed by the Industry Committee in May, backs ownership unbundling as the only option for liberalising the EU’s electricity sector (EURACTIV 07/08/08). 

In a statement published after the vote, Morgan accused the Commission of bending to the will of a minority of member states, and affirmed the Parliament’s intention to push forward with full ownership unbundling.

“You’ve backtracked. We haven’t,” she said.

Burying unbundling?

The vote puts Parliament at odds with the Council, which reached a general agreement on a ‘third way’ alternative to ownership unbundling based on a joint Commission and Slovene EU Presidency compromise (EURACTIV 10/06/08). It also eliminates the possibility of a first-reading agreement, as requested by EU heads of state during the European Council in March, raising the spectre of an indefinite delay.

The French government, which is among the eight member states that oppose full ownership unbundling, takes over the EU’s six-month rotating presidency on 1 July. Faced with an extremely busy agenda that has been weighed down further by Ireland’s rejection of the Lisbon Treaty, there are concerns among EU diplomats that Paris will not give enough attention to the liberalisation file (EURACTIV 06/06/08).

But both Parliament and Council have also indicated their desire to wrap up talks before the end of Parliament’s legislature in March 2009.

In addition, the European Council has given the French EU Presidency a clear mandate to tackle the issue. And despite her pledge to push ahead with unbundling, Morgan indicated at a press conference following the vote that she is “ready to negotiate” on the third way option.

This position was backed by fellow MEP Alejo Vidal-Quadras, a Spanish Christian Democrat whose report on the establishment of a new agency to regulate energy markets was also endorsed in plenary yesterday.

The MEPs are making it clear, however, that any potential deal with the Council on the third way will depend on at least two conditions: that the third way option is ‘effective’ from the perspective of fair competition and market access, and that transmission system operators (TSOs), who control electricity distribution through the grids, are truly independent from electricity producers.

The gas vote

Negotiations between the two sides are unlikely to begin in earnest until after Parliament votes in July on a separate proposal concerning the EU’s internal market for gas.

Unlike for the electricity sector, MEPs in the Industry Committee in May said they could support exceptions to full ownership unbundling in the gas sector (EURACTIV 20/05/08). An endorsement by the plenary of this kind of ‘separate’ treatment for gas could give a boost to supporters of the third way in the electricity sector, while a negative plenary vote could weigh in favour of full unbundling.

The impact of the gas vote on the electricity file may ultimately prove to be limited, however. The Parliament’s criteria with respect to effective separation and TSO independence have not been clearly defined and remain subject to detailed negotiations with member states at expert level, according to a Commission source close to the file. 

If the two sides cannot agree relatively quickly on precise measures that would satisfy both proponents and opponents of full unbundling, the issue may be dragged into conciliation, the source said.

Protecting consumers

The Parliament is also calling for a number of measures designed to protect energy consumers, including impoverished sectors of society that are struggling with rising fossil fuel and related electricity costs.

Consumers should be allowed to change energy suppliers within two weeks and be permitted to withdraw from contracts without penalty, according to the Parliament. National authorities should also be able to impose temporary price caps “in uncompetitive markets for a defined and limited period”.

UK Socialist MEP and rapporteur Eluned Morgan called the vote "a victory for European consumers, who will be put firmly back in the driving seat".

In contrast, French Conservative MEP Dominique Vlasto slammed the Morgan report as "simplistic and dogmatic". By endorsing her report, the Parliament has "removed itself from the realities" of the EU's electricity markets, she said.

Lithuanian Liberal MEP Sarunas Birutis, the ALDE Group's shadow rapporteur on the file, said unbundling would "guarantee SMEs better access to the grids, thus consumers will be able to buy electricity at a competitive price".

But Finnish Left MEP Esko Seppänen raised doubts about the overall benefits of the liberalisation drive, which he believes will lead to "increasing prices due to a pricing mechanism in which market prices are defined by stock, in other words the most expensive producer's most expensive production costs". 

German Green MEP Rebecca Harms praised the outcome. "The Parliament has recognised that a fairer and more transparent electricity market is only possible if ownership of electricity production and the grid are separated," she said.

EU consumer organisation BEUC also welcomed the vote. "The European Parliament today took a first, but important step towards ensuring benefits for consumers by signalling more competition is needed. We now call on the Member States to endorse these proposals," said Monique Goyens, BEUC's director general. 

The European Wind Energy Association  (EWEA) rejoiced that the Parliament "has shown its commitment to fair access to the electricity grids, which is essential if the EU is ever to attain effective competition in the power market while meeting its objective of 20% renewable energy by 2020," said Christian Kjaer, EWEA chief executive.

On 19 September 2007, the Commission presented its proposals for a 'third package' of proposals to further liberalise the EU's energy market (EURACTIV LinksDossier).

The proposals sparked a major controversy over the issue of 'ownership unbundling', meaning the break-up of large vertically-integrated energy firms like EDF and E.ON, which simultaneously control the assets to produce and distribute electricity.

France, Germany and six other member states have been leading the resistance to the unbundling plans.

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