Volume 4 - Issue 2
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Editorial - EU Energy Liberalisation: Coming to a Member State Near You!
This paper reviews current regulatory approaches designed to correct market failures and distribute the benefits of liberalization to consumers in recently liberalised network industries. Present evaluations of the liberalisation process show that opening up markets to more competition has not yet resulted in either expected levels of competitiveness or in envisaged consumer benefits. Many consumer related failures were little anticipated; legislation to protect and assist consumers was either late coming or inadequate and often lacked effective enforcement. The paper examines market failures primarily related to the demand side; such as information asymmetries, unfair trade practices, unfair standard contract terms, high search and switching costs, and imperfect decision-making processes. It, however, discusses these imperfections in the broader context of market failures related to incoherent regulation and ineffective competition law enforcement and shows how poor coordination between these regulatory fields leads to suboptimal outcomes. The interplay between general consumer protection and specific consumer issues of sector regulation is discussed and elaborates on specific market deficiencies that draw attention to the intersection between consumer protection and competition law. The discussion incorporates theoretical insights from neoclassical and behavioural economics to consumer problems. The paper focuses on what the liberalization process, so far, has done for consumers by looking at and evaluating both the legislative and policy developments and recent proposals at European level as well as actual implementation and enforcement of these legislations at national level. More specifically, it deals with the energy and the telecommunications markets and their recent developments in the EU. Two case studies provide insight on national regulatory approaches: a case study of the liberalization of the Hungarian telecommunications market and a case study of the liberalization of the Dutch electricity market. The paper proposes a new mode of regulation as well as a new mode of coordination among different layers and fields of regulation and enforcement in order to remedy consumer problems and to achieve competitive markets.
Utilities regulation in the Member States is always subject to the application of EC competition law. However, this undermines the effectiveness of utilities regulation and the European Courts should deploy a more flexible standard than that which has been confirmed by the Court of First Instance in Deutsche Telekom. The grounds for affording greater latitude to regulators are threefold: first the regulator should be free to make decisions on economic grounds that support dynamic over allocative efficiency; second it should also be free to make decisions on non-economic grounds to prioritise other objectives at the expense of competition; and third the present scope of EC competition law is so wide that in several instances the Commission acts in a regulatory manner, stepping over tasks best left to the regulator. No general principle is recommended to demarcate the borderline between competition law and sector regulation but a case-by-case assessment should be carried out to determine whether the application of competition law would cut across the policy choices reached by the utilities regulator, and competition law should not apply when it would harm the regulatory goals.
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.
• ©2003-2011 Angus MacCulloch & Andrew Matthews •