On 6 May 2008, the European Parliament’s Committee on Industry, Research and Energy (the “Committee”) voted to reject the alternative option for an “Independent System Operator” (“ISO”) proposed in the European Commission’s Third Energy Package for liberalising the European electricity and gas market as an alternative to the Commission’s ownership unbundling proposal. The Committee also voted to reject a “third way” proposed by a group of eight dissenting European member states, including France and Germany.
The Committee is therefore backing full ownership unbundling of supply and production from network operators in transmission across Europe.
The Committee’s vote is not binding on the European Parliament, but it may be indicative of the mood within the European Institutions as the Parliament prepares for a formal vote on the Third Package during the plenary votes in June. However, the closeness of the vote indicates that an alternative approach may yet be the way forward, with a form of “Fourth Way” with more conditions on retaining ownership with a Transmission System Operator being the solution. This would be consistent with the UK’s view on a compromise way forward.
Background
On 19 September 2007, the Commission published its Third Package with the aim of moving Europe closer towards a single European electricity and gas market.
The Third Package follows on the back of the Commission’s first two IME Directives which had required accounting and information unbundling, and subsequently, legal and functional unbundling. In basic terms, unbundling is the separation of the operation of a network from the business of providing power to it. The Commission believes that issues remain in respect of enduring lack of competition and high prices, threat to security of supply, lack of investment and infrastructure incentives, information leakage and Europe’s ability to meet its environmental objectives.
The Third Package
The Third Package constitutes the Commission’s proposals to rectify these outstanding issues.
The Commission’s principal proposal is the further unbundling of supply and production from network operators in transmission with the option of having an Independent System Operator as an alternative to full unbundling.
Other proposals within the Third Package include the creation of a European Agency for the Co-operation of Energy Regulators and proposals to enhance the harmonisation of national Regulators, increase co-operation between the Transmission System Operators, move towards a European retail market and ensure security of supply.
The Third Way
The reception to the Third Package has been mixed. Although there has been some support, at least eight member states (comprising France, Germany, Austria, Bulgaria, Greece, Luxembourg, Latvia and the Slovak Republic) have rejected the proposals seeing the Commission’s unbundling proposals as potentially unconstitutional in respect of their proprietary rights.
The ISO option was originally envisaged by the Commission as an alternative to seek buy in from those member states who were opposed to full unbundling. However, it soon became apparent that this was not sufficient and the eight member states submitted in January 2008 a “Third Way” indicating their opposition and including an alternative proposal which would allow member states to choose between ownership unbundling, the ISO option and “legal unbundling” (whereby a vertically integrated company could retain its network assets but ensure an effective separation of interests through appropriate rules).
Implications of the Committee’s vote
The Committee’s rejection of both the ISO proposal and the so called alternative “Third Way” are indicative of the high level of disagreement that remains within Europe in relation to the Third Package proposals. At present, the Energy Council aims to achieve political agreement on the liberalisation package by 6 June with the Parliaments plenary votes on the package scheduled between 11 and 19 June 2008.
Whether a “Fourth Way” can be reached in that timescale remains to be seen. Also, debate on this part of the proposals has tended to mask the fact that there are many other elements which are being taken forward, such as the Agency approach, which could have a big effect on Europe’s utilities.
Social Media cookies collect information about you sharing information from our website via social media tools, or analytics to understand your browsing between social media tools or our Social Media campaigns and our own websites. We do this to optimise the mix of channels to provide you with our content. Details concerning the tools in use are in our Privacy Notice.