Whilst the Commission had already begun pursuing infringements of EU competition law across the sector in co-operation with the National Competition Authorities after the publication of the preliminary report of the Inquiry, it will continue to do so and also use the knowledge of the electricity and gas markets gained in the Inquiry in its assessment of large energy mergers which fall within its jurisdiction. At the same time, the Commission noted that the number of mergers and acquisitions in the energy sector which come within its jurisdiction have increased threefold in 2006 and risen to 22 cases.

In addition to the enforcement of the existing legal framework in the realm of competition; the Commission has unveiled a detailed action plan for its new energy policy which encompasses both legislative initiatives resulting from the Inquiry and the Green Paper which have been presented in the Communication and eight detailed individual documents (entitled “Renewable Energy Road Map”, “Progress in renewable electricity”; “Progress in Biofuels”; “Internal Market for Gas and Electricity”; “Gas and Electricity Infrastructures”; “Nuclear Energy”; “Sustainable Power Generation from Fossil Fuels”; and “Strategic Energy Technology Plan”, respectively)2 pertaining to certain aspects of the proposals on 10 January 2007. The remainder of this article will present and examine the main proposals in greater detail:

  • Options for a new unbundling regime The Commission is considering two unbundling options which build on and expand the unbundling provisions of the Second Gas Directive. One of the options would lead to full so-called “ownership unbundling”. Under this model, network-related business activities of vertically integrated energy companies would be split from the non-network related activities of the companies and would have to be in different legal ownership. The other option considered by the Commission is the creation of independent system operators. Under this model, system operation would be separated from ownership of the assets. The Commission has made clear that whichever unbundling method adopted chosen council must apply to all operators and across all Member States so as to avoid discrepancies between the national regulators’ competences and the European dimension of the single energy market.
  • Whilst the Commission has chosen to include both options in its Communication, it acknowledges that economic evidence has shown that ownership unbundling is the most effective means to ensure choice for energy users, to encourage investment and that it will avoid too detailed and complex regulation and associated administrative “red-tape”. By contrast, the “independent system operator approach” contemplated under the second option, whilst improving the status quo, requires detailed regulation. This option might be less effective in addressing the disincentives to invest in networks.

New regulatory powers - but for whom?

The Commission also identified that national regulators should be granted additional “ex-ante” powers to prevent abuse of dominant positions by established market players. Some decisions by national regulators – especially in as far as they concern cross border issues and the effective development of competition – may, under the regime contemplated by the Commission, have to be notified to the Commission. As part of the legislative package it is developing on the basis of the results of the Inquiry, the Commission is now considering three options to strengthen the position of regulators: 

  • The first option has been termed “Gradually Evolving the Current Approach” and would consist in reinforcing co-operation between national regulators by requiring Member States to give national regulators a Community objective and the introduction of a mechanism under which the Commission would have power to review decisions of national regulators affecting the internal energy market. 
  • The second option has provisionally been dubbed “ERGEG+”. In this option, the role of the current European Regulators’ Group for electricity and gas (ERGEG), which the European Commission set up on 11 November 2003 by Decision 2003/796/EC as an Advisory Group of independent national regulatory authorities to assist the Commission in consolidating the Internal Market for electricity and gas, would be formalised and expanded. The so strengthened ERGEG would be “given the task to structure binding decisions for regulators and relevant market players, such as network operators, power exchanges or generators, on certain precisely defined technical issues and mechanisms relating to cross border issues”3. The Commission would need to be involved in that decision making to ensure that any decision made was in the interest of the European Union. 
  • The third regulatory option considered by the Commission is the creation of a new, single body at Community level. It would be responsible for individual decisions for the EU electricity and gas market related to regulatory and technical issues relevant to making cross border trade work in practice.

The Commission believes that the approach of gradually evolving the current situation would be insufficient as it would largely be based on the voluntary co-operation of 27 national regulators whose interest are not congruent. Instead, the Commission’s preferred option is the “ERGEG+” approach, as it is most likely to resolve technical issues to facilitate cross-border trade

Interconnection investments

The Commission is currently analysing several different methods to facilitate cross-border trade, as it is hoping that the integration of national markets will have a positive impact on gas and electricity prices. At the same time, it is keen to encourage investment into the electricity and gas networks to ensure a competitive market and to guarantee security of supply. The Report identifies a number of actions to accelerate investments in key bottlenecks, mainly at cross-border links. A number of most problematic missing links has been identified, such as power links between Germany, Poland and Lithuania, off-shore wind power connections in North Europe, electricity connections between Spain and France, and gas pipelines from the Caspian to central Europe.

In the Priority Interconnection Plan4 published as part of the Communication, the Commission sets out five priorities for investment which are quoted in full below: 

  • “Identifying the most significant missing infrastructure up to 2013 and ensuring pan-European political support to fill the gaps. 
  • Appointing four European coordinators to pursue the four of the most important priority projects: the Power- Link between Germany, Poland and Lithuania; connections to offshore wind power in Northern Europe; electricity interconnections between France and Spain; and the Nabucco pipeline, bringing gas from the Caspian to central Europe. 
  • Agreeing a maximum of five years within which planning and approval procedures must be completed for projects that are defined as being “of European interest” under Trans-European Energy Guidelines. 
  • Examining the need to increase funding for the Energy Trans-European networks, particularly to facilitate the integration of renewable electricity into the grid. 
  • Establishing a new Community mechanism and structure for TSOs responsible for coordinated network planning.”

Action concerning the gas market

The Commission has pledged that it will focus on two key issues for the gas market. One of its concerns relates to long-term contracts between external producers and companies supplying customers and the market foreclosure caused by such contracts in certain national markets within the European Union. The second issue relates to access to gas storage facilities. The Commission believes that it is necessary to maintain conditions for effective third party access for companies whilst maintaining investment incentives for new storage facilities.

Market transparency

The Commission will propose new legislation establishing minimum requirements in respect of market transparency. Whilst currently TSOs provide some, albeit varying, levels of information the discrepancy in scope and extent of the information available creates different levels of market conditions for new market entrants. The Commission believes that uniform transparency requirements, including those relating to generation capacity, will help combat price manipulation. At the same time, the Commission will propose common minimum, binding network security standards to ensure greater technical cohesion of the market

Energy Customers’ Charter

The Commission will propose an Energy Customers’ Charter which will include measures to address fuel poverty, information to customers to choose a supplier and supply options as well as actions to protect citizens from unfair selling practices.