Closed electricity markets could spark retaliation

Date: 08/03/01

By Tim Jones

ENERGY Commissioner Loyola de Palacio is challenging seven EU governments to open their commercial electricity markets to full competition within three years or run a growing risk of retaliation from liberalising states.

Her ambitious new draft laws, which are due to be unveiled next Tuesday (13 March) in time for the Union's economic reform summit in Stockholm, will alarm above all French Prime Minister Lionel Jospin, who refused to set market-opening deadlines at last year's Lisbon summit.

France has promised to open just 33% of its market by 2003 - the minimum established by the EU's 1996 liberalisation directive - and has no plans to allow householders to choose suppliers, which de Palacio wants settled by 2005.

In the EU today, only Finland, Germany, Sweden and the UK have opened their markets completely but they will be joined within three years by Belgium, Denmark, the Netherlands and Spain. The last two countries have already invoked the 1996 law's 'reciprocity clause', threatening to deny French electricity access to their national grids unless France's market opens up.

"Reciprocity is very important," said Swedish Energy State Secretary Lars Rekke, who will oversee EU ministerial talks on the new law. "I know the French have problems with their national assembly and I understand that, but it is fundamental for liberalisation in the Union that agreements are fulfilled."

With presidential elections approaching next spring, Jospin is desperate to avoid a major confrontation with Electricité de France's (EDF) 120,000 unionised employees. Even after opening just a quarter of the market, EDF has lost 42 of France's 440 biggest power-guzzlers to competitors such as Electrabel, RWE and Endesa while soaring staff costs and public-service demands lopped 37% off the firm's operating profit last year.

EDF's largest union, CGT Fédération de l'Energie, has already slammed the proposals and cited the recent power crisis in California as an example of liberalisation's failings - an argument de Palacio's officials reject.

Unlike California, the EU model will allow new generators to be built to meet demand, avoid price-capping, ensure separation of transmission systems operators (TSOs, or grid managers) from producers and suppliers and allow some long-term supply contracts to encourage new businesses into the marketplace, said an aide.

Under her plan, TSOs will have to publish up front the tariffs they charge electricity producers, traders, distributors and suppliers for accessing their national grids. These rates will be policed by independent regulators. This will require a change of practice in Germany, where industry, consumers and the government meet once a year to set an access charge for the country's eight TSOs.

She will also propose hard-and-fast rules for cross-border transactions, specifying that the regulator-approved TSO access tariffs cover the costs of the network only and should be published in advance to avoid lengthy and costly negotiations. This would mean a company like Spain's Endesa Trading, which wants to sell electricity to Italian customers, must negotiate tariffs individually with the French and Italian TSOs.

Energy Commissioner Loyola de Palacio is challenging seven EU governments to open their commercial electricity markets to full competition within three years or run a growing risk of retaliation from liberalising states.