|
MEMO/05/203
Brussels, 13th June 2005
Energy sector competition inquiry –
frequently asked questions
(see also IP/05/716)
What is a sector inquiry? Why not just open a case if there is a
competition problem?
The Commission uses sector inquiries when it wants to improve its knowledge
about a particular sector and in view of better identifying obstacles to
competition. Essentially, the Commission opens a sector inquiry if it has
concerns that competition may not be working as it should be, but the reason for
that is not clear.
Sector inquiries are first of all an information gathering exercise that
provides the Commission with in-depth knowledge about markets and is therefore
‘upstream’ of proceedings in specific cases.
Why has the energy sector been selected for such an inquiry?
The energy sector has recently been characterised by significant price
increases. Moreover, the Commission has received information from the market
indicating that often customers do not receive genuinely competitive offers
– both with regard to price and other commercial conditions – from
the different suppliers in the market. These signs, combined with the small
number of new entrants as well as with the limited market integration and high
market concentration point to the possibility that competition may be restricted
or distorted at the EU level. These indications require in-depth investigation
considering the importance of the energy sector for the European economy - gas
and electricity provide crucial inputs for European industry. For EU industries
to compete on increasingly globalised markets, they must benefit from
competitive energy prices or risk becoming uncompetitive.
What are the steps of the sector inquiry and how long is it expected to
take?
The energy sector inquiry (more specifically, one inquiry into the gas
sector, and one into the electricity industry) will start with requests for
information in the form of questionnaires. The responses of the participants
will be evaluated and the main results of the inquiry will be published in 2006.
To the extent that the Commission finds clear indications of competition law
breaches, individual cases against behaviour of certain undertakings on the
market may be initiated during or after the inquiry.
Which companies in the industry will be required to provide information?
The inquiry includes questions to a large number of participants in the
energy industry, notably gas producers, electricity generators, gas importers,
electricity and gas wholesalers, transmission system operators and customers,
gas storage system operators, gas and electricity retailers and industrial
customers.
Under what legal instrument is the Commission making this inquiry?
Article 17 of Regulation 1/2003 provides that the Commission can undertake a
sector inquiry when the trend of trade, price developments or other
circumstances suggest that competition in a given sector might be distorted. The
investigative powers available under this inquiry will be those pursuant to
Articles 18, 19, 20 and 22 of Regulation 1/2003 that include, among other
things, the authority to request by decision information from undertakings, to
request information from governments and national competition authorities, to
take oral statements from natural or legal persons that consent to do so and to
undertake inspections in the framework of the inquiry.
Why are the gas and electricity inquiries separate? What issues does each
of the inquiries cover?
The focus of the two inquiries differs somewhat because the sectors are at
different stages of development (electricity wholesale markets are more
developed) and they have a different supply side structure: gas is mostly
imported whereas electricity can be generated anywhere in the EU. However, there
are links between these sectors, in particular the increasingly important role
of gas as fuel for electricity generation. The gas inquiry will address all of
the key issues regarding the functioning of the gas market including access to
large-volume gas supply, access to flexibility resources (like storage), access
to networks and access to customer markets. In general, the focus is on supply
markets and issues that have pan-European dimensions. The most important matters
now include the improvement of liquidity in the gas wholesale markets as well as
transparency.
The electricity inquiry will focus on price formation in the electricity
wholesale markets, which also involves looking at electricity generation and
supply, barriers to entry (including long-term agreements), inter-connectors and
how companies use them, as well as relations between network operators and their
affiliates. As with the gas inquiry, the general focus is on supply markets
(rather than transport) and issues that have pan-European implications.
What is the geographical scope of the inquiry? Which Member States will be
covered?
The decision to open the inquiry covers all 25 Member States. The Commission
will require information from market players in most Member States, although
smaller and more isolated energy markets will not be investigated specifically.
In addition, competition conditions in countries which are important for
cross-border supply or transport (energy highways) are more crucial issues in
the European perspective.
The Commission is launching this inquiry with an open mind. If it finds that
in a particular country, there is not much scope for further inquiries, it will
take this into account. Companies active in Member States where the first round
of questions suggests a malfunctioning market can, however, expect further
rounds of questions. In setting priorities, the Commission will take into
account where EU competition policy legal instruments can make the largest
impact on stimulating the emergence of more competition on the European market.
Can the inquiry cover non-European companies?
Companies whose activities affect trade in Europe are covered by EU
competition law. The Commission can ask these companies for information,
although not enforce orders to provide information outside the EEA territory.
The Commission can, of course, require information from their trading partners
and all companies that are established in Europe. If later on the Commission
finds competition restrictions leading to a formal infringement decision, it can
also impose fines on companies even if they are located outside the European
Union.
Is the Commission working with national regulators in the inquiry?
The Commission is working closely with national competition authorities
within the conditions applying to the exchange of information between
authorities. Regulation 1/2003 explicitly foresees such a framework for such an
exchange between the Commission and national competition authorities. The
Commission has consulted both national energy regulators and national
competition authorities in preparing the inquiry. For instance, the inquiry
questionnaire contains fewer questions on storage since the European
Regulators’ Group for Electricity and Gas (ERGEG) is carrying out its own
investigation into compliance with the new voluntary rules on storage access.
The regulators are doing an effective and important job in improving competition
in the energy markets. However, competition law and regulation serve
complementary functions. Although the sector inquiry is not focused on
regulatory issues, it might be that some information relating to the regulatory
framework also emerges from the inquiry. In such a case, the Commission might
consider it appropriate, for example, to suggest appropriate regulatory
remedies.
Are the Commission’s competition and energy departments working
together on the inquiry?
The sector inquiry is undertaken by the Commission’s Competition
Directorate General as the service responsible for competition policy. This
inquiry is undertaken in parallel with an information-gathering exercise carried
out by the Commission’s Transport and Energy Directorate General in
preparation for the Commission’s report to the European Parliament and
Council under the Electricity and Gas Directives 2003/55/EC (Article 28 and 31
respectively) on the progress in creating the Internal Market for energy.
Whereas the sector inquiry focuses on the market functioning and the way
companies behave on that market, the report of DG Transport and Energy will
focus on the regulatory issues. The two projects therefore complement each
other. In order to optimise existing and potential synergies, the two services
are working closely together.
Is it possible that the findings of the inquiry will lead to more
legislation affecting the energy industry?
The purpose of the inquiry is to give effect to the EC Treaty’s rules
on restrictive business practices and abuse of monopoly power. If respondents
highlight regulatory problems, such indications might in principle be addressed
directly by using the competition powers entrusted to the Commission under
Article 86 of the EC Treaty. The Commission’s findings might also lead to
reflections about further legislation. However, the purpose is not a systematic
investigation of the functioning of the regulatory framework. The Commission is
separately gathering information from national energy regulators on this aspect
and preparing a report to the Parliament and the Council on the implementation
of the EU Directives on liberalisation of electricity and gas markets.
Why does this inquiry take place now before we can see the full effect of
the most recent EU legislation?
The market opened for large customers in 2000 in the gas sector and in 1999
in the electricity sector. A large number of Member States have also opened up
their markets more rapidly than the requirements of the most recent EU
legislation on energy liberalisation. After 5-6 years of implementation, it is
time to take stock of the developments in competition, notably for those
customers who have now been eligible for many years. Market developments, such
as the recent rise in energy prices, emphasise the importance of improving the
situation for energy customers in markets already opened to competition.
Do you think unbundling is working?
In a number of Member States, Transport System Operator (TSO) unbundling as
required by the Directives has not yet been implemented. Moreover, for
distribution companies the deadline is 2007. So there is certainly still some
basic implementation to be accomplished. The Commission will ensure that this is
being done in a timely fashion and initiate infringement procedures where
appropriate. Nevertheless, the Commission continues to hear complaints about
discriminatory treatment by supposedly unbundled companies, and these will be
looked at in the inquiry. The outcome of the sector inquiry on the unbundling
issue cannot be determined in advance.
Do the inquiries examine any state aid issues?
The sector inquiry first and foremost seeks to establish whether competition
works, and if required, to apply the EU’s competition rules to improve the
competitive situation. The information will, however, also be analysed with a
view to any possible implications on EU state aid policy in the sector. This is
to better orient the Commission’s state aid policy. It is not an objective
of the inquiry to gather information to start individual state aid cases.
Does the inquiry cover renewable energy?
The sector inquiry covers electricity from renewable energy sources as this
electricity is, like any other form of electricity generation, part of the
electricity supply. The current existence of a large variety of support schemes
for renewable energy may also have implications for the functioning of the
electricity market. Furthermore, wind generated electricity is also increasingly
important for an understanding of the transmission capacity that is made
available to the market.
|
