Commission supports ‘third way’ for EU energy regulation

The European Commission has endorsed an alternative approach backed by France and Germany to the regulation of Europe's energy markets. But in response to the 'third way' approach promoted by the EU's two biggest countries, the Commission is insisting that there should be additional safeguards to ensure that energy transmission networks operate independently of generating firms.

The Commission had originally proposed that countries should opt either for full ownership unbundling, ie, requiring generating companies to sell off their stakes in transmission networks, or for giving up direct control and creating an independent transmissions system operator.

A paper produced by the Commission this week on the third option proposed by France, Germany and six other countries for improving competition on the EU's energy market is much more positive about the plan than an earlier assessment.

In its initial evaluation of the alternative, the Commission said that it would "not lead to the effective separation of supply and production activities from network operations". But the new paper says that the third option, which would allow generating firms to maintain ownership of transmission businesses, could achieve effective unbundling provided certain additional measures are taken. These include guarantees that a transmission system operator (TSO) ensures sufficient investment in the infrastructure to eliminate bottlenecks, either by increasing the company's capital base through new loans or other external sources of financing.

The Commission also insists that the gas and electricity sectors should be treated the same. Some countries and companies argue that there should be a different approach for gas and electricity, but the Commission maintains that as electricity prices are determined by the gas market it makes no commercial sense to take a different approach to the two sectors.

The Commission accepts that one member of the board of a TSO could come from a supply and generation company which owned the network operator and could have veto rights over commercial decisions. But it insists that this veto could be overturned by a two-third majority of other members of the board.

The Commission's more positive approach to the third option indicates that it is prepared to accept a deal based on this alternative proposal.

One EU official said that the Commission was trying to "split the difference" between the camp of eight countries who insist on ownership unbundling and the eight who wanted large energy firms to keep shares in transmission businesses.

EU energy ministers will take stock of the state of debate in the energy market at their Council meeting on 28 February and assess the third option. Slovenia, the current holder of the EU presidency, is aiming to reach agreement on the proposals in June.

The European Commission has endorsed an alternative approach backed by France and Germany to the regulation of Europe's energy markets. But in response to the 'third way' approach promoted by the EU's two biggest countries, the Commission is insisting that there should be additional safeguards to ensure that energy transmission networks operate independently of generating firms.