EU issues latest energy deregulation plan

19 September 2007 – The European Commission proposed Wednesday that energy generators sell their power grids and gas pipelines as part of a package of measures to boost competition and investments – and shield markets from outsiders such as Russia’s Gazprom.

The European Union’s executive arm said foreign companies wishing to enter EU gas and electricity markets must separate their supply and network businesses _ a swipe at Gazprom, which supplies 25 percent of Europe’s gas and has expressed interest in European acquisitions.

EU energy companies now control the generation and the transmission of their gas and electricity. That dominance gives them “an inherent interest to limit new investment when this will benefit its competitors,” the EC said in a report to the 27 EU governments.
It said billions of dollars are needed to upgrade Europe’s energy grid, connecting fragmented markets and preventing power blackouts or gas shortages.

The EU head office listed two options: governments either force energy companies to sell off their power grids or pipelines, or create full independent transmission operators. In the latter case, energy companies can retain their networks but must lease these to operators not active in energy supply, generation and production.

Because “energy is the driving force of our economy we need (to) achieve greater energy security and provide abundant energy at a fair price for citizens,” EC President Jose Manuel Barroso said. “This is only possible if we have a competitive gas and electricity market.”

The Commission prefers “ownership unbundling”, whereby energy companies cast off their transmission networks to create more market access and lower prices. But given stiff resistance to that notably in France and Germany, the “independent (transmission) system operator solution will ensure similar results … with strong regulatory oversight.”

In the past decade, energy deregulation has not been an EU success story. The bloc largely remains a hodgepodge of national or regional monopolies that can manipulate gas and electricity prices and supplies since they operate at the network, wholesale and distribution levels – keeping newcomers at bay and pricing unclear.

“It is now time to complete this process and ensure that the benefits of this market are real, effective and available to each and every person and company,” said Energy Commissioner Andris Piebalgs.

The unbundling of energy companies is endorsed by Britain, the Netherlands, Denmark, Belgium, Finland, Romania, Spain and Sweden have supported it but half a dozen others, led by France and Germany, reject it.
The European Commission also proposed that EU markets are shielded from foreign bidders suspected of being driven by political rather than commercial interests.

The EU has long been irked by Moscow’s refusal to open its energy sector to foreign investors while state-controlled OAO Gazprom has easy access to the EU market.

Non-EU companies must “comply with the same unbundling requirements as EU companies,” the EC report stated. It proposed that non-EU companies can buy all or part of an electricity or gas transmission network only if its home country signs a treaty with the EU in which it commits to returns the favor of free market access.