On 14 May, the Commission published a short working document outlining its practice in assessing the existence of a conflict of interest in full ownership unbundling cases. 

The document explains the principles applied by the Commission, and then usefully provides examples from a number of the Commission's opinions on the certification of TSOs. A particular focus is on the treatment of financial investors, and the document provides confirms the Commission's approach in this area, which will be of interest to financial investors with shareholdings in TSO businesses.

The Commission first recalls the principal purpose of the unbundling rules in the third package directives, namely the elimination of conflicts of interest between transmission businesses and generation, supply and production businesses. The Commission notes that it would not be in line with this objective, notwithstanding the strict rules in the directives, if certification of a TSO were to be refused where it could be demonstrated that the shareholder in the TSO had no incentive to use its shareholding in the TSO in order to favour its generation, production and/or supply activities to the detriment of other network users. This might be the case where on the facts it was evident that there was no conflict of interest.  An example would be where a shareholder in a TSO in Europe also had investments in generation activities in the US or Australia, with no connection between the energy systems concerned. To refuse certification would be disproportionate in view of the objective of unbundling. Similarly, a financial investor may have holdings in transmission as well as renewable generation businesses, but with no incentive to favour the latter interests. 

The examples set out in the document illustrate the principles very usefully:

  • In the case of National Grid in GB, the Commission concluded that although the unbundling rules caught generation and supply interests outside the EEA, National Grid's US generation interests gave rise to no conflicts of interest because there was no connection between the electricity systems; and
  • The Commission also assessed common ownership of TSOs and generation interests located within the EEA, in cases involving the Swedish gas TSO Swedegas, the Spanish electricity and gas TSOs Red Eléctrica de España and Enagás, the German electricity TSO 50Hertz Transmission and the Italian gas TSO Società Gasdotti Italia, which owned various small generation facilities either producing energy as a by-product (Swedegas and 50Hertz Transmission), or under a specific regulatory framework benefiting from priority dispatching (REE, Enagás and Società Gasdotti Italia). In none of these cases could the shareholder influence the TSO so as to favour its generation activities.

The Commission notes that an in-depth analysis may be required in order to assess whether a conflict of interest exists. Both the national regulator (which takes the certification decision) and the Commission (which gives an opinion) will need to carry out that assessment. The burden of proof of establishing the absence of a conflict lies on the TSO, which must therefore submit detailed information. Information that is likely to be relevant includes:

  • The geographic location of the transmission and generation, production and/or supply activities;
  • The value and nature of the investments;
  • The size and market share of the generation, production and/or supply activities; and
  • Whether the evolution of wholesale prices of the electricity or gas could give rise to a conflict in future.

Access to confidential information will also be an important consideration, even in the absence of the ability to influence the decision-making of the TSO.

Finally, the Commission notes that changes of circumstances – such as new investments – may trigger the need for a reassessment of compliance with the unbundling rules.

Overall, the document adds little to the conclusions that may be drawn from a review of the existing Commission certification opinions, but nevertheless provides useful confirmation of the Commission's approach.  With a number of applications for certification still pending, as well as reassessments that will undoubtedly follow future investment and consolidation in the sector, the guidance provided here is welcome.