National energy regulators set to win greater powers

The European Commission intends to warn France and Germany that the two countries will have to accept significantly tougher powers for national energy regulators if they oppose moves to break up energy firms, according to Commission sources.

Commissioners earlier this month (2 December) discussed the energy strategy review that is to be launched on 10 January and a majority supported new measures to ensure that there was effective unbundling of energy firms’ generation businesses from their transmission and distribution operations. Several commissioners backed a call by Competition Commissioner Neelie Kroes for tough action to ensure unbundling of ownership.

But if measures to force companies to sell off their transmission and distribution businesses prove too difficult to achieve in the face of opposition from France and Germany, there is strong support for a major boost to national energy regulators’ powers, giving them the same competences and independent status throughout the EU.

German Chancellor Angela Merkel and French President Jacques Chirac are reported to have agreed last week on a common stance against ownership unbundling.

Germany and France want to protect their national energy giants, including E.ON, RWE and GdF, against being broken up, while EU energy regulators see ownership unbundling as the best way to prevent energy giants exploiting their control of transmission and distribution networks.

John Mogg, chairman of both the UK energy regulator OFGEM and the network of EU energy regulators ERGEG, told European Voice: "Without effective unbundling, preferably of ownership, genuine operation of an effective single market will not be achievable."

But the Commission’s view is that effective unbundling can be achieved by significantly strengthening the powers of national regulators and having an Independent System Operator so that the company running the distribution network is separate from the generation business.

Commission officials say President José Manuel Barroso has not yet decided whether to go for new measures to force through ownership unbundling or to strengthen national regulators. Speaking to the German parliament in Berlin on 30 November he said that reality showed that the existing provisions on the separation of energy companies’ production, distribution and supply businesses were "not yet strong enough".

He called the current set-up of 25 different national regulators a "potpourri" which made the system "incoherent".

Germany, as well as being opposed to forced unbundling, is also very wary of the prospect of a pan-European energy regulator. In Berlin Barroso stressed that he was not considering creating a single "EU body with the same configuration as for example the Bundesnetzagentur", Germany’s regulator. But he added: "The status quo is not an option."

One possibility is to ensure that all national regulators are equally independent from government and wield the same powers to set tariffs and impose conditions on operators. At present they have widely varying degrees of independence and powers. In Spain, members of the regulator CNE are appointed by the government and they voted against the bid by Germany’s E.ON to buy Endesa. The French regulator CRE does not have the power to set tariffs.

OFGEM head Mogg said that there was "far more recognition that the lack of independence of regulators is bad for efficiency of national markets".

Increasing the powers of the group of European gas and electricity regulators would also help improve competition on the market, he said, so that regulators had cross-border powers to tackle issues such as the lack of interconnection capacity.

The German government, which takes over the presidency of the EU in January, does not see "strict ownership unbundling as the solution to reducing prices on the energy network", said a German diplomat. He added that Germany was, however, "open to discussing what measures below the level of ownership unbundling are appropriate" when the Commission had presented its paper in January. Berlin wants to assess the degree of opening of the energy market from July before discussing additional steps on unbundling. But the Commission is expected to put forward legislative proposals after the March summit when EU leaders will respond to the energy strategy paper.

The European Commission intends to warn France and Germany that the two countries will have to accept significantly tougher powers for national energy regulators if they oppose moves to break up energy firms, according to Commission sources.