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Competition: energy sector inquiry confirms serious problems and sets out way forward

Commission Européenne - IP/06/174   16/02/2006

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IP/06/174

Brussels, 16th February 2006

Competition: energy sector inquiry confirms serious problems and sets out way forward

The European Commission will pursue investigations under EC Treaty anti-trust rules into specific cases of closing off gas and electricity markets by means of long-term downstream contracts and of restricting access to gas and electricity transport infrastructure and storage capacity. The Commission will also consider competition and regulatory remedies to a number of other serious malfunctions in the energy sector that have been confirmed in the preliminary report just published on the findings of the energy sector inquiry launched in June 2005 (see IP/05/716 and IP/05/1421). The report is based on responses from the energy industry and customers. Interested parties can comment on the preliminary report during a two month consultation period.

Competition Commissioner Neelie Kroes said: “We will act decisively to remedy the serious malfunctions identified on the energy market in order to uphold the interests of European consumers and industry and to help Europe become more competitive.”

The report confirmed the five main areas of electricity and gas market malfunctioning highlighted in the initial findings published on 15th November 2005 (see MEMO/05/425):

  • Wholesale markets generally maintain the high level of concentration of the pre-liberalisation period, creating scope for incumbent operators to raise prices.
  • Consumers are denied choice due to the difficulties for new suppliers to enter the markets. Insufficient separation of infrastructure and supply functions prevents new entrants from reaching the final consumer.
  • There is no significant cross-border competition. New entrants in gas are unable to secure transit capacity on key routes and integration in electricity is hampered by insufficient inter-connector capacity and long-term capacity reservations.
  • New entrants cannot get the information they need to compete effectively. This lack of transparency benefits incumbents and undermines new entrants.
  • Prices are often not determined on the basis of effective competitionand many electricity users distrust the way prices are set and this requires careful attention.

Actions

Market concentration is a major problem, highlighting the importance of action under the Merger Regulation. The inquiry has helped to identify assessment criteria and the most efficient remedies for these cases.

The Commission will pursue investigations into possible violations of EC Treaty rules on restrictive business practices and abuses of dominant positions (Articles 81 and 82) in the following areas:

(1) closing-off electricity and gas markets by long-term downstream contracts

(2) restricted access to capacity on gas pipelines, gas storage and on gas and electricity interconnectors between Member States.

Further work

There are a number of other issues of concern where further analysis is necessary before any conclusions can be reached but where action under the anti-trust rules may be necessary, such as:

  • the setting of prices on electricity wholesale markets, including power exchanges
  • the competitive assessment of the gas/oil price linkage in many contracts
  • various practices which inhibit customers from switching suppliers.

A number of other issues may require further action using competition and/or regulatory measures:

(1) There is a broad consensus on the need to strengthen transparency obligations on incumbent operators, be it under competition law or by regulation.

(2) There are strong indications that the remaining “grandfathering rights” (capacity rights stemming from pre-liberalisation monopoly contracts) seriously impede effective entry of competitors and therefore undermine competition on the market, requiring action under competition law or by regulation.

(3) Whilst progress has been made in fixing common rules regarding the interconnectors between national grids, much more needs to be done. The inquiry’s findings suggest that purely voluntary cooperation schemes of regulators are unlikely to provide the necessary investment certainty and regulatory protection that is needed to develop international pipelines and interconnectors and to keep them open.

(4) In a number of Member States, the powers of national regulators need to be increased, in areas such as the surveillance of the conditions concerning Third Party Access for competitors and of prices for such access.

(5) The provisions of the second electricity and gas Directives on unbundling need to be fully implemented, not just in their letter but also in their spirit. If real progress in this respect does not develop and a true level playing field result, further measures such as full structural unbundling (i.e. separation of the supply and retail business from monopoly infrastructures) should be considered.

The Commission's Communication to the 2006 Spring European Council concerning the renewed Growth and Jobs strategy (see IP/06/71) put an efficient and integrated energy policy as a core Commission priority. The February 11-12 meeting of G8 Finance Ministers, in preparation for the G8 St Petersburg Summit, has further emphasised the goal of open energy markets, stating that market mechanisms are vital to the effective functioning of the global energy system. The Commission’s policy will be further developed in the Commission’s March 2006 Energy Policy Green Paper.

For more details on the findings, see MEMO/06/78.
For further information:

http://ec.europa.eu/competition/antitrust/others/sector_inquiries/energy/


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