Saturday, October 18, 2008
Posted by D. Daniel Sokol
ABSTRACT: Issuing the final report on its energy sector inquiry, the European Commission pointed to a range of competition concerns across the EU energy sector, including a lack of integration and transparency. In particular, however, the Commission identified the high degree of vertical integration in energy markets as an obstacle to competition. The Commission's suggested remedy is the separation of ownership and/or operation of gas and electricity transmission networks from other energy supply activities; the 'unbundling' of transmission and other activities that control market access. While the Commission strongly favours full ownership unbundling, other possible models are under consideration. Unbundling faces considerable political opposition from a number of Member States. Even if the Commission is successful in its objective of securing unbundling, it will be some time before the necessary legislation takes effect. Meanwhile, however, the Commission has been pursuing a number of investigations into individual energy companies. A key theme of those investigations has been the alleged abuse of transmission network activities in order to restrict competition on energy supply markets. Practices under investigation by the Commission include 'strategic under-investment' in network infrastructure. Remedies under consideration include the divestment of network activities. Any such remedy is likely to take effect ahead of legislative unbundling. Ordering unbundling as a remedy in individual competition cases would be a development for which there is little precedent. This raises the question whether the Commission has demanded concessions which it would not have done in the absence of wider concerns about the energy sector, or whether its work on the sector inquiry has simply provided it with a deeper understanding of the issues. There are also questions about the power of the Commission to order such divestment remedies. This article examines the background and the issues.