Price controls are likely for electricity, warns de Palacio

Date: 05/06/03

By Peter Chapman

ELECTRICITY markets face price controls to safeguard competition, despite this week's deal on energy liberalization under plans being drawn up by Energy Commissioner Loyola de Palacio.

A draft 'medium-term vision for the internal energy market' obtained by European Voice says price caps on wholesale electricity supplies and a swathe of other measures could be the only way to counter growing levels of market concentration.

"Electricity wholesale markets need to be closely monitored since there is always likely to be a degree of concentration which may be manipulated," the report says, adding that a spate of cross-border mergers makes such manipulation even more likely. In such cases, the report recommends "a higher degree of regulatory control" over wholesale markets, "for example the possibility of imposing a cap on wholesale power prices".

Other restrictions suggested in the report include a limit on the rights of companies with a dominant position in energy importing regions to bid for extra import capacity "in the interests of efficient functioning of the market".

Electricity market sources pledged to fight the price cap plan, claiming it could be a further blow to investment in the electricity sector. "There has already been a parting of the ways between the financial sector and utilities," said one. "This would make it unattractive to put money into electricity."