European Competition Commission Scrutinises Energy Sector

by Ulrika Lomas, for LawAndTax-News.com, Brussels

17 February 2006

The European Commission announced on Thursday that it will pursue investigations under EC Treaty antitrust rules into specific cases of closing off gas and electricity markets by means of long-term downstream contracts and of restricting access to gas and electricity transport infrastructure and storage capacity.

The Commission will also consider competition and regulatory remedies to a number of other serious malfunctions in the energy sector that have been confirmed in the preliminary report just published on the findings of the energy sector inquiry, which was launched in June 2005. Interested parties can comment on the preliminary report during a two month consultation period.

Competition Commissioner Neelie Kroes announced that: “We will act decisively to remedy the serious malfunctions identified on the energy market in order to uphold the interests of European consumers and industry and to help Europe become more competitive.”

The report confirmed the five main areas of electricity and gas market malfunctioning highlighted in the initial findings published on 15th November 2005. These were that:

• Wholesale markets generally maintain the high level of concentration of the pre-liberalisation period, creating scope for incumbent operators to raise prices.
• Consumers are denied choice due to the difficulties for new suppliers to enter the markets. Insufficient separation of infrastructure and supply functions prevents new entrants from reaching the final consumer.
• There is no significant cross-border competition. New entrants in gas are unable to secure transit capacity on key routes and integration in electricity is hampered by insufficient inter-connector capacity and long-term capacity reservations.
• New entrants cannot get the information they need to compete effectively. This lack of transparency benefits incumbents and undermines new entrants.
• Prices are often not determined on the basis of effective competitionand many electricity users distrust the way prices are set and this requires careful attention.

The Commission explained on Thursday that it will pursue investigations into possible violations of EC Treaty rules on restrictive business practices and abuses of dominant positions in the following areas:

(1) closing-off electricity and gas markets by long-term downstream contracts

(2) restricted access to capacity on gas pipelines, gas storage and on gas and electricity interconnectors between Member States.

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