Power Engineering - EU regulator balks on energy breakup

January 10 2007 - Splitting up large energy companies would be "by far the most effective means to ensure choice," the European Union's (EU) top regulator said Wednesday - but she stopped short of calling for action.

EU competition commissioner Neelie Kroes said a final decision rests with EU leaders in March. Kroes said economic evidence from a 16-month investigation by regulators showed that "serious" problems in the energy sector were a result of companies' stranglehold over the supply chain.

Companies are not investing windfall profits into much-needed improvements to the network, she said. But her report did not specifically call for action and did not build on her earlier call for companies that control energy supply, generation and infrastructure to be unbundled.

European Commission president Jose Manuel Barroso focused on integration issues and said the two sectors necessitated the unbundling of energy production from distribution in order to boost competition.

Current bundling of network and supply interests has "negative repercussions on market functioning", the commission said.

It added that customers are tied to suppliers through long-term downstream contracts and that the balance of the markets favours incumbents.

The commission also stated that it would enforce competition rules and step up its antitrust action after discovering that there is possible collusion between incumbent operators to share markets.

The EU executive said it has already conducted a number of inspections at unnamed companies where these issues warrant investigation. It added that it has also received "a number of very interesting complaints".

On markets, France and Germany are singled out for criticism. On France, the commission cites the market stranglehold of French utilities Electricite de France and Gaz de France as signifying "for years to come a very big break on the introduction of effective competition".

"If nothing is done, there is a very big risk of failure of market liberalisation in France to the detriment of consumers, both companies and individuals," the commission said.

On Germany, the main problem in the electricity and gas markets is "the high degree of vertical and horizontal integration dominated by a few large companies."

The commission calls on Berlin to reinforce current unbundling measures in both markets.

The German electricity market is dominated by RWE AG, E.On AG, Vattenfall Europe AG and EnBW Energie Baden, while five large operators -- E.On-Ruhrgas, RWE, VNG, Wingas and BEB -- dominate the gas sector.

Kroes added: "This report will make uncomfortable reading for many energy companies. Underinvestment is rife, especially in networks, and customers are suffering as a result."

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