Energy unbundling faces switch-off

The European Commission’s plan to push for energy-producing companies to sell off their shares in transmission and distribution networks looks in doubt after last week’s (6 June) meeting of energy ministers in Luxembourg.

A majority of ministers expressed opposition to ownership unbundling, the Commission’s preferred option for ensuring a competitive energy market.

Competition Commissioner Neelie Kroes told ministers that the Commission believed ownership unbundling was "the best way" to ensure fair access to the network, open the market to new entrants and ensure independent investment decisions on the network. The UK, Sweden and the Netherlands back the Commission’s approach.

But Energy Commissioner Andris Piebalgs, speaking after the Energy Council, said: "The majority is not with me."

France’s Alain Juppé, the new minister for all aspects of ecology and sustainable development including energy, struck a very similar note to his predecessor, Industry Minister François Loos, who argued against ownership unbundling in March. "The separation of ownership of network management activities from production of commercialisation should be seen as one way among others," he said. Juppé called on the Commission to propose "options" for making the European energy market fully integrated and competitive.

German Economics Minister Michael Glos took a similar line, saying that ownership unbundling was "not a cure-all" but "only one of different ways to force competitive dynamism". He said that there should be closer co-operation among national regulators and network operators. Glos’ comments came on the day France, Germany, Belgium, the Netherlands and Luxembourg agreed to set up a regional transmission systems operator which is seen by many countries as a way of improving interconnection between national energy markets.

The lack of support for ownership unbundling came despite the Commission having made a strong case for this approach over other alternatives.

In four questionnaires on energy market regulation sent to member states ahead of the Council, the Commission restated its case for ownership unbundling. It insisted that there was no justification for a different approach to the gas and electricity markets. The Commission also believes that the separation of generating and network assets should extend to delivery to households, as distribution system operators had scope to make it difficult for customers to switch suppliers by withholding key data or by cross-subsidising supply and distribution activities.

Kroes also sent a forceful warning that regional independent system operators, like the one announced last week, might fall foul of competition rules if they exploited the scope for collusion and price-fixing.

The European energy regulators forum, ERGEG, backs the Commission’s approach. Last week, it said that ownership unbundling should be the model required in EU legislation, both for the energy and gas sectors. While a regional system operator would help market integration, it would not resolve the unbundling issue, said ERGEG. It also called for a stronger regulatory framework including independent regulators and an independent EU regulatory body to oversee the work of national regulators.

The message from ministers last week to the Commission was that it must offer a number of options when it presents new legislative proposals in September. France and Germany are firmly opposed to the Commission putting forward ownership unbundling as the only option.

The Commission’s strategy is to make the alternatives to ownership unbundling so onerous and intrusive in terms of implementation, regulation and enforcement to deter governments from choosing that path.

Kroes is clearly also pursuing a piecemeal approach to boosting energy sector competition. She has launched two rounds of dawn raids on energy giants in France, Germany and elsewhere, and followed up with two inquiries into Germany’s RWE and Italy’s ENI. Last week she said that these were unlikely to be the last.

The Commission is also looking at regulated energy prices to see if they represent a form of state aid to incumbents. But while a focus on the individual issues preventing a competitive energy market may address some of the worst abuses of the current situation, this approach is unlikely to make the wide-ranging contribution to opening up the market that ownership unbundling promises.

The European Commission’s plan to push for energy-producing companies to sell off their shares in transmission and distribution networks looks in doubt after last week’s (6 June) meeting of energy ministers in Luxembourg.