EU: Member States must do more to open markets

Energy: Member States must do more to open markets; competition inquiry identifies serious malfunctions

Member States must implement more effectively the market opening measures required under the EU’s gas and electricity Directives. This is the main conclusion of the report on the functioning of the Internal Market in electricity and gas adopted by the European Commission today. Many of the report’s main conclusions are confirmed and complemented by the initial findings of the competition sector inquiry presented to the Commission today. Responses from the energy industry and customers as part of the energy sector competition inquiry launched in June 2005 confirm that European energy markets are not yet functioning on a competitive basis and that there are a number of serious malfunctions.

Energy Commissioner Andris Piebalgs insisted “Member States need to quickly and fully implement the gas and electricity Directives not only in letter but also in spirit. The Commission will continue to put pressure on Member States to implement measures that are key to achieving a higher level of growth and competitiveness in Europe. If this does not happen, stronger action will be needed”.

Competition Commissioner Neelie Kroes said: “Energy is vital to the competitiveness of the EU economy and yet we have found evidence of serious malfunctions. I am determined to use competition law to protect European industry and consumers.”

The report on the functioning of the Internal Market in electricity and gas confirms that cross-border competition is not yet sufficiently developed to provide customers with a real alternative from the nationally-established suppliers. Key indicators in this respect are the absence of price convergence across the EU and the low level of cross-border trade.

The most important cause of this is the failure of Member States to implement the second electricity Directives on time or with sufficient determination. A large number of Member States were up to a year late in implementing the Directives, others still have not done so, and many have taken a rather “minimalist” approach in implementing the Directives. This approach needs to be re-considered. The Commission opened infringement procedures against Member States for failure to implement the Directives and, in June 2005, took six Member States to the European Court of Justice.

Furthermore, inadequate use of existing infrastructure and - in the case of electricity - insufficient interconnection between many Member States prevents real competition from developing, despite the political commitment of the European Council made in 2002 to achieve an import capacity of at least 10% of internal consumption. In addition, the gas market continues to suffer from a lack of liquidity of both gas and transport capacity.

Given that in many Member States the legislation implementing the Directives was only recently adopted, the report does not draw definitive conclusions on the need for additional measures at EU level. The Commission will carry-out detailed country-by-country reviews of the effectiveness in practice of legislative and regulatory measures in connection with market opening, including specific additional national measures. This will lead to a report by the end of 2006 and, if necessary, proposals to redress any remaining requirements.

For further details of the report on the functioning of the Internal Market in electricity and gas see MEMO/05/427. The full report is available on the Europa web site:

http://europa.eu.int/comm/energy/electricity/report_2005/index_en.htm

The preliminary findings of the energy sector competition inquiry confirm and complement the results of the Commission’s report on the functioning of the European energy market. In particular, five areas of market malfunctioning have been identified at this stage by responses to the sector inquiry:

• gas and electricity markets in many Member States continue to be concentrated, creating scope for incumbent operators to influence prices

• many wholesale markets are not liquid either because of long term contracts (gas) or because companies are active both in production and in the retail market limiting the development of wholesale markets (electricity). There is also an inadequate level of unbundling of network and supply activities.

• barriers to the cross border supply of gas and electricity prevent the development of integrated EU energy markets.

• a lack of transparency on the markets that benefits incumbents and undermines the position of new entrants. Lack of transparency also aggravates the mistrust.

• there is little trust by industry and consumers in the specific price formation mechanisms on energy wholesale markets and prices have increased significantly.

The Commission will continue its competition energy sector inquiry and identify adequate remedies that may include action under the EC Treaty’s rules on restrictive business practices, monopolies and state aids and a possible revision of EU merger rules.

For more details of the energy sector competition inquiry, see MEMO/05/425.

A summary of the issues identified so far by the energy sector competition inquiry is available on the Europa website:

http://europa.eu.int/comm/competition/antitrust/others/sector_inquiries/energy/

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