An unjustified reproach. The European Commission has been criticised for paying too much attention to imperfections in the single energy market at a time when attention should be focussed on external supplies. Controlling the ins and outs of opening national markets, and the level of competition between operators smacks of unjustified determination when the real threat for Europe is its growing dependence on energy imports. In reality, both concerns are justified.
The outcome of the Commission's most recent investigation of the gas and electricity markets revealed that improvements have been made since the previous investigation, but confirm all the same that serious malfunctioning exists - vertical integration, lack of transparency, a crisis of confidence among users about price fixing mechanisms, etc. (see newsletter No. 9133). In particular, former monopolies still dominate the market and new suppliers face huge problems in reaching end consumers because the big giants still control the networks. Cross-border competition is insignificant because new entrants do not get the necessary transit capacity for gas, there are insufficient electricity interconnections and big users are often tied to long-term contracts signed before liberalisation. In parallel to the results of the investigation, Competition Commissioner Neelie Kroes announced plans to open separate investigations into the behaviour of certain operators, and Energy Commissioner Andris Piebalgs has not ruled out opening investigations into Member States failing to fully incorporate EU liberalisation directives into their domestic law. Kroes explicitly mentioned the start of an intensive anti-trust battle, targetting behaviour often seen by companies as perfectly normal, like long-term contracts that control the market; vertical integration (from production to supply) preventing the arrival of new competitors; examining the justification of deciding the gas price in line with oil prices; and the same companies producing and distributing energy. Kroes plans to take action before the summer.
The real burden of electricity prices. These moves have not found universal favour, and it not only the big production companies that are unhappy, but also (in France at least) trade unions that want to preserve workers' privileges. Kroes' policy has been described as a totally ideological vision by people who think the Russian gas crisis should have put the debate into a more concentrated political form, focussing above on all the EU's energy dependency. Their ideas have won wide support, but take an over-partial view in my opinion. Electricity prices generally depend on competition and the functioning of the market and determine the competitiveness of the economy. In several areas of manufacturing, electricity prices are decisive. Some prophets of competitiveness as priority number one neglect this. Energy competition is not only measured in term of monopolies and mergers, but also in terms of distribution networks, diversification of supply, cogeneration of electricity and heat, electricity price stability even in times of high demand, and alternative production. National competition authorities are aware of this. In Germany, they have forced E.ON to end long-term contracts and replace them with two year contracts covering 80% of customers' requirements, or four year contracts covering 50% of customers' requirements. In France, four days after Neelie Kroes' press conference, the energy regulation committee published a press release explaining that at the start of the year, it had introduced a new price system and an auction system for electricity interconnection with neighbouring countries (allowing new operators on the market) and that it was actively preparing for full liberalisation of the market on 1 July 2007. It invited regulators in other Member States to make similar moves. The Dutch market regulator has freed up interconnection with France and Belgium, allowing the arrival of new suppliers. The problem of the Zeebrugge gas hub (the pipeline from the UK to continental Europe) will be raised if Suez merges with Gaz de France, because the merged company would both own the network and be its client. Industrial customers and various authorities say they favour separating electricity and gas production from the distribution network management.
This support for a free and competitive market is part of a more general transformation of the energy system. I will provide an overview of this early next week.
(F.R)