In a recent speech, EU energy commissioner Andris Piebalgs said that the European Commission is proud of its energy market achievements. The question now, he said, is how to further improve these achievements from the legal point of view and how to ensure consumers are better informed so that they can fully exercise those rights.
Central to the Commission’s energy policy is its third energy internal market package, announced last September, which has three broad objectives: to mitigate climate change; to ensure security of supply; and to develop a fully competitive internal EU energy market.
These bold aims are not new, and indeed Piebalgs believes the stepping stones for the development of Europe’s internal energy market were put in place back in 2003 with the Commission’s second energy package.
‘The Electricity and Gas Directives were already far-reaching in their recognition of energy provision as a universal public service, thus establishing the right to be supplied with electricity and gas at reasonable, easily and clearly comparable and transparent prices’ said Piebalgs.
If, as Piebalgs suggests, the second package put in place a framework for a progressive and competitive energy market, then why the need for a third package? The answer of course is that the second package failed to develop a competitive market, and so Piebalgs’ decided to write a third.
Failure is not a word in the Commission’s dictionary, and neither is it deemed politically correct to blame one’s predecessor for a failed policy, so Piebalgs tells his audience that using the ‘solid basis provided by the second package, the objective of the third package is to further improve customer rights.’ He explains that these rights are impacted by non-discriminatory and transparent access to the grid, by cross-border trade that enables more electricity and gas interconnections between member states, and through closer co-operation between transmission system operators.
The Commission believes that achieving this
requires effective unbundling and effective regulation. Indeed unbundling and effective regulation are included in the second energy package, it’s just that the market has ignored these clauses and the Commission has failed to enforce them. So instead of legal unbundling the Commission increased the onus on unbundling to ownership (ie structural) unbundling. And just for good measure it decided to reinforce the importance of effective regulation; it is worth noting that if the Commission had itself practised effective regulation it may have avoided the need to write its third energy package.
Since last September the Commission has been on a crusade to win over opponents of ownership unbundling. Having failed with a reasoned argument approach it decided to take a more confrontational approach by offering to drop antitrust investigations against dominant utility groups in France and Germany (whose governments are leading the political opposition to ownership unbundling) if these utilities sold their networks.
And in February the Commission sensed it was winning the battle when E.On surprised energy and equities markets with the announcement that it would try and sell its high-voltage power grids and certain generation assets in order to settle two cartel cases with the Commission. And this month E.On announced it would file an undertaking with the European Commission by the end of May detailing the proposed divestments of its transmission system and 4800 MW of generating capacity that includes nuclear, lignite and hard coal generation nut no gas-fired capacity.
The Commission had hoped other utilities, and in particular RWE and EDF, would follow E.On’s lead, but these hopes faded in May when RWE chief executive Juergen Grossmann said the German utility intended to keep its high-voltage power network, explaining: ‘We want to employ our networks strategically for our entrepreneurial success.’
Grossmann said that the supervisory board of RWE had discussed the matter thoroughly and decided against a sale. He also said he detected no signals from Brussels that RWE faced anti-trust penalties for either its gas or power business, and there was no need to change RWE’s behaviour in the marketplace just now.
Grossmann’s comments followed the majority decision of a European Parliament committee to back the Commission’s ownership unbundling plan, although 20 members of the 52-member committee had previously tabled an amendment in favour of the Franco-German proposed ‘Third Way’ alternative to unbundling.
Almost on cue, as soon as RWE confirmed it would call the Commission’s bluff on its antitrust investigations it was widely reported that the Commission was planning a series of new measures to be included in the so-called ‘Third Way’ proposals as a means of reaching agreement with eight EU member states over its controversial unbundling package.
Under the Commission’s new proposals, energy companies would have to leave management of their grids to an independent subsidiary, which would have to submit a ten-year investment plan to the national-level energy regulator on an annual basis. It would also have a supervisory body that would make decisions that could have an impact on the value of the utility in question.
It would appear that far from remaining strong in challenging the grip of Europe’s energy monoliths on much of Europe’s gas and electricity networks the Commission is now giving ground as it desperately seeks a compromise to move its third energy package forward, with the dominant utilities seemingly content to call the Commission’s bluff.
If member state governments are serious about increasing competition then the new compromise is a weak alternative to the Commission’s original plan for ownership unbundling. Energy companies would not have to sell grids and pipelines, with management of these assets instead passed to an independent subsidiary. Indeed there is a possibility that even if the eight member states that oppose ownership unbundling now fall in line behind these new concessions, the other 19 member states that had supported ownership unbundling may well reject the compromise.
Opponents of ownership unbundling argue that strong national champions are needed to ensure supply security, and when one supplier is so dominant they argue that the debate about asset ownership is an irrelevance. They also dispute suggestions that power prices would fall if integrated companies were broken up, arguing that gas and electricity prices are unlikely to respond to structural changes in the market because they track moves in international oil markets.
The original case for a more radical reform of Europe’s energy sector remains persuasive, with insufficient competition hindering investment in market infrastructure, which in turn leads to artificially high energy prices. But the latest compromise will not spur competition, nor will it lead to a fully competitive European energy market.
As this Commission comes towards the end of its five-year term it seems to be looking for a legacy. And with any progress on climate change at the UNFCCC Copenhagen summit in December 2009 coming a month after the next Commission takes office, maybe the current Commission has identified a more competitive energy market as its desired legacy.
Energy will almost certainly be one of the legacies for this Commission, as it was for its predecessor, but in both cases it will be that energy progress had not been made. The question now is – will Piebalg’s successor fall into the same trap and produce a fourth energy package?
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