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Neelie Kroes

Abstract

This Article is structured as follows: first, it summarizes the European approach to developing integrated and well-functioning electricity and gas markets, giving an overview of the opening of energy markets through Community legislation and the development of the current unbundling regime. It puts the European approach in perspective, outlining experiences with unbundling in the United States. Secondly, the malfunctioning of European energy markets is analyzed, presenting the findings of the Sector Inquiry. It then explains how the problems identified can be addressed using instruments at the Commission's disposal, namely competition law enforcement and legislation. In this context, the main elements of a new package of legislative proposals, which was put forward by the Commission on September 19, 2007, are discussed. The particular focus of this Article is on effective unbundling, where the advantages and (alleged) drawbacks of ownership unbundling are presented as well as a model of an Independent System Operator (‘ISO‘). It should be noted that this Article focuses on effective unbundling of Transmission System Operators (“TSOs”). Even though problems caused by insufficient unbundling have been found to exist in other segments, such as distribution networks or gas storage markets, they are not discussed in this Article. The Article concludes that ownership unbundling of transmission networks is the simplest, most effective and most stable solution to improve competition in European energy markets and that in order to be equally effective an ISO must be “deep” in the sense that the system operator must be in full control not only of network operations but also of investments, and must be accompanied by detailed regulation and close regulatory oversight. A “shallow” ISO, which only has the power to operate the network, is not effective given the substantial grid investments needed to establish a true internal energy market in the EU. This conclusion is in line with the legislative proposals of the Commission, which aim to create integrated and competitive energy markets in the EU.

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