Ownership unbundling is the European Commission's ("EC") favoured and the most far-reaching option. It involves separating ownership of regulated network businesses from that of unregulated, commercially run generation and supply activities. This is to foster competitive access to networks and to minimise the potential for cross-subsidies between the different components of the value chain.
It remains to be seen whether the benefits from full ownership unbundling would outweigh the costs. Potential advantages of ownership unbundling include enhanced network efficiency, supported by stronger network independence and improved management focus. Unbundling tends to foster transparency and a better regulatory framework, thereby enhancing the position of new market entrants, but potentially to the detriment of the incumbents' performance. However, the unbundling process will also result in numerous costs, such as those related to IT and call centre separation, legal expenses, taxation and potentially an early termination of cross-border leases.
Fitch notes that given past resistance to full unbundling, the EC has also proposed the introduction of system operators ("SOs") as a second-best option. SOs would operate the networks while the utilities would continue to own the actual network assets and be responsible for their maintenance. This system has a proven track record of non-discriminatory access for generators with no regulatory impediment to new entrants. By starting out with this clear position, the EC might buy itself more bargaining power in future negotiations with member states.
