Unbowed, Piebalgs remains defiant

There seemed to be two clear winners at last week’s (15 February) energy ministers meeting. German Economics Minister Michael Glos, on behalf of the German presidency of the EU, said that the meeting had delivered a "breakthrough" by agreeing a "middle way" between the full-throated advocates of breaking up energy giants and sticking with the status quo. French Energy Minister François Loos also expressed satisfaction with the outcome, saying that it would guarantee that energy networks would receive the required level of investment.

The loser of the session would, at first sight, seem to have been the European Commission. Commission President José Manuel Barroso had insisted in January when he unveiled the energy strategy paper that the preferred option for ensuring effective competition in the energy sector was "ownership unbundling", for example separating power generation from the transport network over which electricity is transmitted or gas distributed.

The Commission has said that in the absence of ownership unbundling it could also accept an independent system operator with tough new powers for regulators including where decisions had cross-border impact.

But these two options disappeared from the text agreed last Thursday, which set the framework for adoption of the energy action plan. Following a series of bilateral meetings with the French, UK and Polish energy ministers and a dinner with his 26 counterparts the evening before the Energy Council, Glos won backing for a new text which dropped the Commission’s favoured options. Instead, according to the new wording, the way to increase competition in the energy sector was "effective separation of supply and production activities from network operations based on independently run and adequately regulated network operation systems which guarantee equal and open access to transport infrastructures and independence of decisions on investment in ­infrastructure".

Given French minister Loos’s emphasis on the importance of guaranteeing adequate levels of investment, it sounded like the new approach perfectly described the existing French model.

At present the electricity transmission grid RTE is owned by electricity giant EdF but is legally and operationally separate, and controlled by the French energy regulator CRE.

Loos said that CRE had greater powers than similar bodies in other member states, including the right to approve or reject investment plans. This, he said, ensured that each energy producer was treated equally by the network. The outcome sounded ominously like a victory for the status quo and defence of the French energy giants EdF and GdF which have a near dominant position on their national energy markets.

Speaking after the Council, Energy Commissioner Andris Piebalgs rejected suggestions that the Commission’s plans had been rebuffed and the status quo allowed to prevail. "We made progress on unbundling. The Council supported the line [in favour] of effective unbundling. I’m not disappointed on any points," he said.

Given that the UK has been one of the strongest advocates of ownership unbundling as the most effective way to ensure effective competition, the reaction from London was surprisingly positive. A senior British official called the result a "significant step forward". The official rejected suggestions that it would simply shore up the status quo, saying that there was strong support for ownership unbundling from around ten countries.

The agreement is to be signed off by EU leaders at the 8-9 March summit. After that Piebalgs said he would provide "clarification" on a number of issues in time for the June Energy Council. He said some member states, especially new ones, needed more explanation about ownership unbundling because they assumed it meant privatisation. They also had concerns about "vertically integrated companies from third countries" buying unbundled transmission companies, a thinly veiled reference to Gazprom and its acquisitive forays in searh of western European downstream energy firms.

Supporters of strong new measures to ensure effective unbundling maintain that the agreement at the Energy Council keeps the way open for the Commission to propose tough measures. The Commission has hinted that it will give member states the alternative of ownership unbundling or an independent system operator with very intrusive regulation when it presents its legislative proposals, expected in September.

Whereas EU leaders have to reach unanimity on the way forward for the energy sector in March, the proposals, as internal market legislation, will have to be agreed by majority voting. Loos said last week that ten countries were opposed to ownership unbundling, citing Luxembourg and the three Baltic states. Slovakia and Bulgaria are also opposed, and Poland and the Czech Republic have doubts on the basis of concerns about third countries snapping up distribution firms.

But EU officials said that at least ten countries supported full unbundling (Portugal, Belgium, Denmark, the Netherlands, Sweden, Slovenia, the UK, Romania, Spain and Italy) while Poland could accept it for transmission but not for distribution to final users.

It was clear that France was not going to sign up to ownership unbundling at this stage, least of all with the French presidential elections in April and May and that Germany was not going to push hard on the issue, given its own concern about unbundling.

Last week’s compromise by energy ministers avoided frightening French utility workers and voters in general with the spectre of enforced liberalisation. It also leaves the field open for Barroso to honour his pledge that the "status quo" is not an option. But, as a soccer fan, Barroso knows only too well, the long ball game can be a risky strategy without the required level of teamwork.

There seemed to be two clear winners at last week’s (15 February) energy ministers meeting. German Economics Minister Michael Glos, on behalf of the German presidency of the EU, said that the meeting had delivered a "breakthrough" by agreeing a "middle way" between the full-throated advocates of breaking up energy giants and sticking with the status quo. French Energy Minister François Loos also expressed satisfaction with the outcome, saying that it would guarantee that energy networks would receive the required level of investment.

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