Toespraak Eurocommissaris Kroes over de hervormingen van de energiemarkt (en)

SPEECH/08/106

Neelie Kroes

European Commissioner for Competition Policy

Structural Reforms to the Energy Market

European Affairs Platform

Brussels, 27 February 2008

Dear friends,

I am very pleased to be invited by the European Affairs Platform to this lunch event today. We are all very concerned about energy market reform, and completing the single European market for electricity and gas is one of my top priorities.

There have been important steps taken over the last ten years, but it is common knowledge that these markets are still not working as they should. This is why, in 2005, I launched an inquiry under competition rules, to find out exactly where the source of the problem lies. We found three major structural reasons:

National energy markets are too concentrated and lack liquidity;

There is an absence of cross-border competition; and

There is insufficient unbundling of network and supply activities.

All this means that European consumers - businesses and households - are not getting the secure, affordable and sustainable energy supplies they rightly expect.

Each of these three points is fundamental. Further reforms are not simply about prices. If we don't have a planet to live on, or we don't have reliable supplies of energy - then we do not have a debate about competitive prices and a single market, because the energy is not there in the first place!

So, as we each consider our own role in this debate - we should be aware of just how much is at stake. Meaningful competition will speed investments in the new technologies and energy efficiencies that will be crucial to bringing down carbon emissions. It will generate new business opportunities and it will improve diversity of supply - in terms of both geography and energy type. And all of this will help maintain Europe's voice of leadership on climate change and other global strategic questions.

But why is there little meaningful competition in many Member States? And how do we change that? In recently-liberalised energy markets like those here in Europe, new players need access to energy supplies, to networks and to customers. In most cases this either isn't happening, or is limited. This is largely explained by the absence of cross-border competition and insufficient unbundling of network and supply companies.

I am convinced that our response to this problem must be decisive. Keeping the status quo or making only a timid step forward are not real options.

There are two main avenues that the Commission is pursuing to shape this debate: enforcement of competition rules and new legislation.

We are pressing ahead with a number of carefully selected competition cases. At the same time we have made robust proposals for a third liberalisation package, which should deliver comprehensive structural reforms in our energy markets.

Ownership unbundling and the Third Package

A crucial structural element that we need to resolve once and for all is the constant conflict of interest that the current system of "legal unbundling" allows.

The vertically integrated company knows that it should develop the networks and facilitate third party access, but it also knows that this would be bad for its supply business. So it does not invest in interconnection capacity and in network capacity at the levels that it could. And in turn it undermines competition and threatens security of supply.

With these realities in mind, the Commission has called for steps beyond "legal unbundling" - what we have termed "Ownership Unbundling". Ownership unbundling leads to effective separation, once and for all, of the electricity and gas networks from the commercial activities elsewhere in the energy value chain.

While we say in strong terms that Ownership Unbundling is our preference, the Commission has also put forward an exception allowing undertakings that are currently vertically integrated to choose to create an independent system operator (ISO). If properly implemented, the ISO can bring equivalent effects as Ownership Unbundling.

The EU Heads of State, at the March European Council, shared our assessment and made a strong call for "effective unbundling." They want to ensure:

Fair network access

Connection of new production capacity

Independent investment decisions and

Cross border co-operation.

The European Parliament has provided even stronger support for our call for effective unbundling.

So why is there not yet an agreement on this, you wonder?

The Third Option

While the Commission's call for ownership unbundling is supported by many Member States and many members of the European Parliament, recently some Member States have called for a third option. They argue that their alternative proposal, achieves the same goal of effective separation of supply and network activities.

Let me be frank with you. If there are ways to achieve the very important goals we try to reach, I will be pragmatic and happily take them on board. And I am sure this goes for all my colleagues in the College as well.

But there is one thing we should be clear about: the litmus test against which any amendments to the third package are assessed should be the objectives as set by the European Council of March 2007. Namely, that there is effective separation of supply and production activities from network operations so as to guarantee equal and open access to transport infrastructures and independence of decisions on investment in infrastructure.

The Third Option - while being a welcome and legitimate contribution to the debate - does in its present form not seem to meet the goals that we all seek to achieve.

In particular, it does not appear to ensure the structural independence of decision making of the TSO, and would not sufficiently remove the conflict of interest within the vertically integrated company.

As a consequence, in its proposed form, it would not create the incentive for the TSO to invest in a non-discriminatory manner. It would also fall short of promoting the proper functioning of the market and a fair and efficient operation of the grid.

Given this, I can only conclude that the Third Option as it has been presented falls short of the conclusions of the European Council of March 2007.

The Commission will continue to insist on TSOs which are truly independent as regards investment decisions and management of the grid. This requires in particular that there is no actual or potential conflict of interest within the vertically integrated company. The management must be independently appointed, and its career path fully de-linked from the vertically integrated company.

Moreover, the vertically integrated company should not be able to veto decisions of the TSO on much-needed investments in interconnecting infrastructure, or their implementation. In case the TSO would not have the sole decision making power on investments, there should be a clear possibility to allow third party financing of investments.

Conclusion

Ladies and gentlemen, today I tried to cover the main issue of the current debate which is the need for structural change leading to effective separation of supply and production activities from network operations.

I have tried to show that without this structural change it will be harder achieve our environmental and security goals, and our private and business lives will be more expensive. We will be adding unnecessary burdens to our load when there is already much to do to ensure Europe is competitive over the long term.

Now is not the time to be a silent observer - I urge you to remain committed to participate in the debate over the coming months. Your combined voice will help us take the decisive step forward that is needed.

Whatever the instrument we choose, it must be a decisive step forward. Join with me in this effort, and let us hope that we can report progress next time we meet.

Thank you.