Full marks for full competition

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Dominique Ristori
Director of General Affairs, Directorate General Energy and Transport, European Commission

On 13 March 2001 the European Commission adopted a package of proposals intended to complete Europe’s internal gas and electricity markets. The package forms a well-balanced set of proposals, both on further market opening and the creation of a level playing field, as well as on the issues of the improvement of public service and security of supply. The main aims of the proposals are to increase the European Union’s (EU) competitiveness and to spread the benefits of competition across all industries and consumers.

I believe it is fair to say that the EU has made enormous progress in restructuring its electricity and gas markets. The most satisfying result so far is the drop in electricity prices we are witnessing in almost all Member States, and for all groups of consumers. On average, industrial consumers have seen a drop in prices of 25 per cent since 1995. And domestic consumers have also benefited from lower prices in most Member States. In Finland and Sweden for example, households have seen their electricity bills dropping by 15 per cent in the last two years.

This is of course encouraging. The Commission is convinced that further market opening and the right accompanying measures will bring more improvements. In order for the EU’s citizens to reap the full benefits of liberalization, we need to move to a situation in which all consumers have the right to choose their supplier. The Commission therefore proposes full opening of the market to all consumers by 2005, with all non-domestic consumers being open to competition in 2003 for electricity and 2004 for gas.

Access to the networks is crucial in developing an effective and competitive market. Therefore, the Commission proposes published and regulated access tariffs to become the norm. The regulation of tariffs will take place in all countries through a specific and independent energy regulator. Furthermore, we must ensure that the companies responsible for the operation of the transmission and distribution networks are fully independent from generation and sales.

These measures will create a level playing field for all Member States, but even with all these measures in place, the market will still remain fragmented. We are in the process of creating a European single market, not fifteen liberalized markets. All companies must have free access and be able to develop markets across the EU as easily as they can within their own Member State. Obviously, the availability of infrastructure connecting the different Member States is important in achieving this aim. The Commission is currently reviewing the situation regarding infrastructure capacity, and will shortly put forward a European plan seeking to eliminate existing bottlenecks.

On top of this, the development of the internal market requires a set of trading rules. These concern mainly tariffs for cross border transactions and the allocation and management of interconnector capacity. These issues will to a large extent determine the success of the restructuring process. The Commission therefore proposes a regulation that contains rules on cross border transmission tariffs and on allocation of interconnector capacity, so that these issues are henceforth decided upon at European level. I am not aware of anywhere else in the world where such an ambitious approach is being taken.

The change brought about by the internal market should address not only the economic needs of our society by lowering prices through competition and therefore improving our competitiveness on the global market place; the liberalization process should equally meet our social and environmental objectives.

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On the basis of the Directives, the Member States can impose public service obligations for environmental reasons, and can dictate priority dispatch for electricity from renewables. The Commission is aiming to complement these measures with a Directive on electricity from renewables, which is near adoption. Shortly, a proposal for a Directive on energy saving in buildings and an Action Plan on energy efficiency will be tabled. Further actions, for instance on greenhouse gas emissions trading and emission standards, are at different stages of development.

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The improvement of environmental standards is key in EU energy policy and evidence to date proves that environmental standards can continue to be improved in open markets.

Experience shows that public service standards have improved in open markets as a result of responsible regulation. However, the Commission feels it important that these service levels keep improving, especially since we are proposing a full opening of the market. Therefore, additional guarantees will be introduced, including a universal service obligation in electricity, an obligation to protect vulnerable customers and to protect consumers’ rights, and an obligation to maintain the network.

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This last measure will also serve to enhance security of supply. The Commission furthermore wants a reporting obligation on the Member States and the Commission to monitor the demand and supply balance, together with an obligation to take appropriate action if this balance should be disrupted, for instance through the launching of tenders for additional capacity.

With these measures in place, the European Union will create the most advanced, competitive but also secure electricity and gas market, creating benefits for our industry and consumers in terms of prices as well as quality of services.

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