Concerns abound over EC energy package

The EC's third energy package, which recommends that generators and suppliers sell off their transmission assets, has met with resistance from incumbent utilities and raised questions among traders. Oliver Holtaway reports

The EC's latest package of EU energy market liberalisation legislation – the third in 11 years – has stopped short of insisting on full ownership unbundling of transmission infrastructure from generation and supply assets, and of creating a fully-fledged European energy regulator.

Instead, the EC intends to offer countries the choice of bringing about full ownership unbundling – a choice the EC heavily and explicitly favours – and introducing an independent system operator model. Under this, energy companies would retain ownership of any grid assets but would have to surrender commercial and operational control of them to an independent company. This will apply to both the gas and electricity markets.

On the regulatory front, the EC proposes the creation of the European Agency for the Co-operation of Energy Regulators, which will promote co-operation and arbitrate cross-border disputes, but will not be able to overrule national regulators' domestic decisions. The EC will also look to create greater regulatory consistency by insisting that all EU countries have just a single energy regulator, and that all such regulators are free from political influence (as opposed to a situation where, say, a country's parliament must approve grid fees.)

At a press conference in London, an EC spokesperson said the commission felt that ownership unbundling was the most simple and logical solution to the challenge of increasing competition but was not "blind to the political reality". Europe's vertically integrated companies have fiercely resisted ownership unbundling, and the EU Council of Ministers, which must approve the package, has so far not committed to the idea.

"Competition Commissioner Neelie Kroes has had to bite her tongue to some extent," says Adam Collinson, partner at international law firm Eversheds. "[Offering] the less draconian International Organization for Standardizaion (ISO) option as an alternative does create some risks that the objective of achieving full liberalisation will not be achieved."

In response to the package, RWE has described both the ownership unbundling and ISO options as "equally unacceptable". "We support the EC in its efforts to step up competition in the electricity and gas markets, but we can see no empirical evidence that ownership unbundling will improve competition or increase investment in infrastructure," an RWE spokesperson told Energy Risk. The ISO model is "not an acceptable option" for the same reason, the spokesperson said.

The spokesperson said that, in Germany at least, there is already non-discriminatory access to the power and gas grids, thanks to the German network regulator: "If we really want the EU energy market to grow closer together, we need to strengthen cross-border co-operation between grid operators."

Like many European utilities, RWE participates in voluntary regional initiatives intended to facilitate higher levels of cross-border trading. There is a concern that the EC's proposals may hinder the progress of such initiatives.

Rafael Miranda, chief executive of Endesa and president of power industry association Eurelectric, echoed these concerns, describing the package as "a step in the right direction, but still lacking essential elements needed to foster European market integration".

Regional integration should be an essential element of the package, he argued, and warned that the creation of national ISOs "will merely reinforce the prevailing national focus and delay the integration process", whereas mandating regional ISOs would "kill two birds with one stone."

The European Federation of Energy Traders (EFET) has welcomed both the move towards deeper unbundling and the creation of an EU regulatory agency to foster co-operation among national regulators, but complained in a statement that the commission's emphasis on institutional controls may prove unwieldy and ineffective.

"EFET is concerned at the Commission's reliance on new bureaucratic processes, rather than on simply releasing market forces. Officials appear to be prioritising institutional arrangements at either national or pan-EU level, while largely ignoring the potential for pragmatic regional market development, using principles based regulation," it said.

Less controversial elements of the package include transparency measures on a wholesale and retail level, and measures designed to promote co-operation among transmission system operators.

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