To enter a market, and provide real competition, new players need access to energy supplies, to the network and to customers. This is not happening, and the sector inquiry has highlighted three major structural problems which are causing this:
* many energy markets are too highly concentrated and not liquid enough
* there is insufficient unbundling of network and supply activities and
* there is an absence of cross-border integration and cross-border competition.
* "This state of affairs is undermining our shared objective of ensuring secure, affordable and sustainable energy supplies", Commissioner Kroes told the Ministers.
Commissioner Kroes informed the Council that the Commission is already following up the inquiry’s findings through a number of carefully selected competition cases. In particular, the Commission has already conducted a number of inspections in companies where these particular issues warrant investigation. In May 2006 the Commission undertook inspections in Germany, Italy, France, Belgium and Austria related mainly to suspicions of foreclosure of wholesale markets and infrastructure by companies that can be qualified as “incumbents”, as well as to collusion between those incumbents in the form of market sharing The suspected infringements relate to practices on the wholesale market and the balancing market (i.e. the market for ensuring balance between power generated and consumed).
"But the case-based approach of competition policy cannot open markets across all twenty-seven Member States," Commissioner Kroes underlined. "We therefore need to complement the enforcement through an improved legal framework, with a particular focus on addressing the insufficient level of network unbundling."
The energy sector competition inquiry, and our ongoing case investigations, have presented the Commission with hard facts showing that ineffective unbundling of vertically integrated energy companies is causing serious problems. In the current system, vertically integrated network operators have little incentive to provide third parties with non-discriminatory access, develop networks without taking into account the interests of supply affiliates, and respect the information barriers required.
Commissioner Kroes emphasised that full ownership unbundling would be the optimal solution to address these problems because:
* Without ownership links to any supply company, a network operator would have no incentive to discriminate between market participants. Instead, investment decisions to develop networks would be taken in the overall interest of the market. This would create a level playing field, with customers paying more cost-reflective prices on average.
* It would also generate benefits for network operators themselves. Clearer economic signals would allow investments in the network infrastructure when it is beneficial for the network business. Cross-border activities would be facilitated and allow network operators to cooperate or even merge.
* Full ownership unbundling would also make life simpler for everyone by removing the need for expensive “Chinese Walls”, and reducing the burden of regulatory oversight for network operators and regulators alike.
Commissioner Kroes explained to the Council that other options such as reinforced legal unbundling or Independent System Operator (ISO) model would not do enough to address the problems of conflicts of interest, intrinsic incentives to distort third party access and distorted investment incentives. "What is more", Commissioner Kroes concluded, "options that essentially amount to keeping the status quo will deliver neither competitive markets nor security of supply".
