Give them an inch

Politicians. EU ministers saw last month’s Barcelona agreement on energy liberalization as a “significant step” – they are probably the only 15 people who did. France, again, did the bare minimum; predictably refusing to agree to a timetable for full market liberalization. Germany, however, this time around conceded to appoint a regulator.

That third week in March was a ‘big’ week for EU energy policy. EU ministers at least agreed to open all non-household electricity and gas markets by 2004. In addition, the European Parliament heard some key first reading amendments to the draft legislation proposed by the Commission last year:

  • Parliament approved the Commission’s proposal to open commercial electricity markets by 2003, commercial gas markets by 2004 and all, including households, by 2005.
  • On unbundling, Parliament stopped short of requiring that power companies sell off their distribution grids. It said member states will “in principle” separate ownership, but allowed for exceptions. Countries which do not force a sell-off would have to explain to the Commission how they had ensured the equivalent level of fair access to electricity grids for competing firms.
  • The Commission also proposed that each member state must appoint an independent regulator – something which Germany had objected to in the past. Many argued that the absence of a regulator which sets grid access tariffs, kept the German market closed to foreign participation.

The legislation is subject to a second reading later in the year and then possible ‘conciliation’ negotiations with ministers to finalise the directive which member states will then have to adopt.

Meanwhile in Barcelona, France’s refusal to accept a timetable to give households a choice of supplier was partly based on fear of public backlash. Both Jacques Chirac, French president and Lionel Jospin, prime minister are currently facing national elections.

Knowing this, combined with France’s continuing stubbornness towards liberalization, I suppose we should be thankful for small mercies. As Jose Maria Aznar, prime minister of Spain, the EU presidency holder put it: “You have to distinguish between what you would like and what is possible.” It is also worth noting that opening the gas and electricity markets for business customers represents more than 60 per cent of the total market.

The summit also highlighted issues which are perhaps more important than France’s posturing. Speaking just after the summit Claude Turmes, the Green Luxembourg MEP said he could live with the compromise and that “competition and environmental issues were more important”. There were a few issues raised by Turmes which need careful attention.

If monopolies are allowed to continue in the household sector, regulators must prevent them from overcharging home users to subsidise cheaper prices for industry. Turmes also said that the EC should take a tougher stance on mergers. He spoke out against the EC’s approach of approving mergers as long as the companies improved interconnection capacity from neighbouring countries. “Improving cross-border flows was no substitute to blocking market dominance.” Certainly it seems counter-productive that attempts to introduce more competition are leading us to a market with fewer competitors.

Turmes is also determined get rid of what he calls the biggest market distortion – funds set aside for decommissioning nuclear plants. At the moment, utilities operating nuclear plants collect this money at the time of generation and keep it on their balance sheets, free to use as they please. Many of the big utilities have been accused of using these funds to pay for acquisitions. Mr Turmes said it would also stop EDF from financing acquisitions from a g60 billion fund for decommissioning. EDF maintains it has kept wholly adequate reserves for nuclear decommissioning and has not raided the fund to pay for its purchases. True or not, EU moves to stop this may be coming a bit late in the day.

In the overall scheme of things, ironing out such issues seems like a small challenge compared to the bigger task the EU has of essentially forcing 15 different cultures to think and act unilaterally. My advice to the EU is to keep making the proposals and remember, with the French it is not a case of ‘give them an inch and they will take a yard’ but more like ‘give them a yard and they will take an inch.’ Or should we say a centimetre.

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