Paris and Berlin defend power giants

Paris and Berlin defend power giants

By Bertrand Benoit in Berlin, George Parker in London and Andrew Bounds in Brussels

Published: January 28 2008 02:43 | Last updated: January 28 2008 02:43

France and Germany will seek to prevent a forced break-up of their power companies when they unveil a joint initiative this week aimed at injecting more competition into their tightly controlled electricity markets.

The proposal, outlined in a draft European Union directive obtained by the Financial Times, comes in response to the European Commission’s efforts to split power production and distribution across the EU.

The Commission thinks insufficient competition inside member states and the absence of a European power market is hindering investment in new plants and networks and maintaining artificially high electricity prices in the region.

Spain, the UK and Italy, which have already unbundled network and production activities, are likely to oppose the Franco-German plan. Under the plan, which is backed by seven other member states, power operators would be allowed to own both generation plants and distribution grids, although their management would be strictly separated.

This operational separation, backed by a strict regulatory regime, would ensure non-discriminatory access by competing producers to the national grids, Paris and Berlin argue.

Under their proposal, a company’s distribution and production businesses would have to own directly all assets necessary for their respective businesses and operate under separate brands and from distinct headquarters. The network businesses would have to appoint a compliance officer responsible for ensuring unrestricted network access for other companies. Any management changes at a vertically integrated distribution business would be subject to a veto by the national energy regulators.

The regulators would act as trustee for the network. Their powers would include forcing a distribution business to invest in their networks using third-party financing.

“This is a step towards more competition,” said Claudia Kemfert, a Berlin-based energy economist and adviser to the Commission, “but neither this nor unbundling will suffice. We need a genuinely European market with an EU regulator.”

A British government spokeswoman said the UK was still awaiting final compromise proposals but said: “It’s fairly clear that the UK will oppose anything which doesn’t provide for full energy liberalisation.”

The Commission has long made it clear it favoured breaking up integrated production and distribution businesses, so-called unbundling. However, after fierce opposition, it presented alternatives in September. One was full separation of networks and production, the other to set up independent system operators, companies that would control access to and investment in the networks, in theory preventing dominant suppliers from keeping out competition.

France’s power market is dominated by state-owned Electricite' de France. The German market is shared by four large operators, RWE, Eon, Vattenfall and EnBW, which control three-quarters of production and distribution capacities.

A spokesman for Andris Piebalgs, the energy commissioner, said the Commission would study the proposal closely. “Our main priority is that customers can choose and have an active role in the market. That will bring prices down. If you do not like your supplier you should be able to change,” he said. Energy ministers meet on February 28 to discuss the plans.