Brussels seeks greater powers for national energy watchdogs


Proposals to be unveiled this week introduce a ‘softer option’ that would avoid breaking up major energy utilities in an attempt to ease tensions with France and Germany over market liberalisation.

The Commission is set to propose new policy options on how to proceed with the opening of Europe’s energy markets in an attempt to win backing from Paris and Berlin which have so far resisted moves towards further liberalisation.

The proposals, to be unveiled on 10 January 2007, are part of a wide-ranging set of measures described by the Commission as “the most important and ambitious energy package it has ever presented”.

Certain to attract attention will be the final results of a Commission competition inquiry into the gas and electricity sector opened by Commissioner Neelie Kroes in June 2005.

The probe looks set to confirm the Commission’s preliminary findings about high concentration in gas and electricity markets leading to restrictive business practices and abuse of dominant positions (EURACTIV 15/11/05).

In a separate report, obtained by EURACTIV, the Commission says that the probe “demonstrates that the present rules and measures have not yet achieved” the objectives of liberalisation, namely fair competition and “a genuine choice” for consumers.

However, the Commission refrains from proposing radical measures, stating that “two options might be considered to redress this”:

  • ‘Ownership unbundling’ where the energy-generation business is kept fully separate from distribution activities over the network, and;
  • a full independent system operator’  where companies remain as owners of the network but receive a set price for allowing others to use it.

Currently, EU legislation only requires energy utilities to manage infrastructure and service provisions under two legal names and keep separate accounts. But they may continue to own the physical networks and continue energy-supply activities.

Although it favours ownership unbundling, the Commission has had to back down in the face of stiff resistance from Paris. Full 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 Energy Green Paper.

The Commission therefore considers other options which have greater chances of being backed by Paris:

  • Harmonising the level of powers and independence of national energy regulators, and giving them the task of looking after the interests of the EU internal energy market, not just their national market;
  • reinforcing collaboration between national energy regulators and introducing a mechanism whereby the Commission would play a role reviewing some of their decisions based on an approach already used in the telecoms sector (article 7, directive 2002/21/EC);
  • granting the European Regulators’ Group for electricity and gas (ERGEG) a binding decision making power on certain issues;
  • setting up an EU energy regulator, an idea that was already rejected by EU leaders at a summit in March 2006.

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 Green group vice-president and MEP Claude Turmes said "the promised tough line of Commissioner Kroes has been sidelined by President Barroso", adding that the Commission's proposals were "weak on the internal market".

"The promised action on ownership unbundling and a strong EU regulator are only options. This is a big disappointment and a gift to the German Presidency," he said, asking: "Who can imagine the German Presidency favouring a discussion in Council promoting ownership unbundling and a strong EU regulator?"

The European Regulators' Group for Electricity and Gas (ERGEG) agrees. In a recent report, the group criticised what it described as "the vague implementation of the unbundling provisions of the existing directives".

EREGEG 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."

But this view is not shared by all. Eurelectric, the association of the electricity industry in Europe, said it "believes that the existing electricity directive has found the right balance, allowing companies to keep their network assets, while putting in place strict rules to ensure independence of network operators in the day-to day business".

Anne-Malorie Géron, head of Eurelectric's markets unit said that "a proper organisational structure" is needed in order to develop "a culture of unbundling" allowing "non discriminatory procurement of services". 

Such a culture, said Géron, "can only be achieved through a firm separation of personnel, at least at management level, together with an appropriate compliance programme".

"A more consistent and efficient regulatory process at EU level is surely needed to remove regulatory obstacles and pave the way for increasingly integrated markets," she added. 

But she insisted that regulatory responsibilities be clearly defined between the EU, national and regional levels. "Eurelectric…proposes that a number of issues relevant to market integration be covered under this regional remit, such as investment relevant to regional markets, cross-border capacity allocation and congestion management, cross-border intraday markets, transparency guidelines, and so on."

The European Commission is losing patience with the slow liberalisation of energy markets. In December, it sent "reasoned opinions" to a raft of countries, including France and Germany, in the second step of legal procedures launched earlier in 2006 to speed up the implementation of gas and electricity liberalisation directives (EURACTIV 14/12/06).

However, at the same time, it needs to secure member states' backing for an ambitious common energy policy at a summit in March, a project that will not work without approval from Paris and Berlin.

  • 10 January 2007: Commission to present 'energy package' comprising: 
    • Strategic energy review: analysing advantages and drawbacks of national energy choices and their impact on other EU member states. Foreign relations and internal EU energy market also to be considered.
    • Communications and reports on: coal, biofuels, nuclear.
    • Renewables road map with new targets for 2020.
    • Final report on competition enquiry  into electriticy and gas markets.
    • Communication on the costs and benefits of global warming action post-Kyoto. Environment Commissioner Stavros Dimas told reporters in Brussels that the aim should be a 30% reduction in greenhouse-gas emissions from developing countries by 2050.
    • Commission consultation (Green Paper) on adaptation to climate change.

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