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EU: Compromise in sight on energy liberalization

A compromise deal on how to force more competition onto EU gas and electricity markets is taking shape in Brussels after the European Commission presented a modified text aimed at soothing French and German opposition to “ownership unbundling”.

The draft proposal word , obtained by EurActiv, was unveiled by EU presidency holder Slovenia at a meeting of diplomats (COREPER) on 14 May. Although unofficial, EU sources said the revised text would go a long way towards accommodating France and Germany, which have threatened to derail the Commission’s initial proposal by forming a blocking minority with six other member states in the Council. “Not everybody is happy with every suggestion of course,” commented an official at the EU Council of Ministers who attended the meeting. But she added that “in general, each delegation said they were ready to work on this basis”.  The objective, the official said, is now to agree on a “general approach” at the next meeting of EU energy ministers on 6 June which would be formalized at a later stage. “The intention is to find a compromise.” “No delegation has contested the objective to find an agreement at the Energy Council in June,” confirmed a senior diplomat.

 
AN “INDIPENDENT” TRANSMISSION SYSTEM OPERATOR (TSO)

The revised text would allow former state monopolies such as EdF or GdF in France and E.ON or RWE in Germany to retain ownership of their gas and electricity grids. However, they would have to leave their management to an independent Transmission System Operator (TSO) with “effective decision-making rights” over day-to day activities such as network operation and maintenance …under close supervision. But in a key concession to France and Germany, the TSO itself would now be subject to close scrutiny by a Supervisory Body “in charge of taking decisions which may have a significant impact on the value of the assets” of the mother company. Such decisions, the text adds, include in particular “the approval of the annual financial plan, the level of indebtedness of the transmission system operator and the amount of dividends distributed to shareholders.”

Crucially, the Supervisory Body would be composed of members appointed in part by the vertically-integrated firm which owns the network. Other members would be appointed by "third party stakeholders" and employee representatives of the TSO but the proportions of each are unspecified at this stage and still up for discussion.

Under a previous compromise circulated by the Commisison in late April, members of the Supervisory Body would have been nominated chiefly by an independent Trustee with no prior involvement in the mother company for at least five years prior to his appointment (EurActiv 05/05/08). But this paragraph has now been scrapped, to the satisfaction of France and Germany. Indeed, such drastic supervision would have restrained companies’ decision-making capacities to such an extent that it would have risked hitting their stock market valuation, according to one diplomat.

 
A REVIEW CLAUSE AFTER FIVE YEARS

A review clause has also been added to the text, requesting the Commission to come forward with a “detailed report” on the application of the directive, five years after it comes into force. The report would outline "the extent to which the unbundling requirements [of the directive] have been successful in ensuring full and effective independence of transmission system operators". However, the draft text leaves the number of years between brackets, meaning it is still up for discussion.

Positions:

The revised text now appears more acceptable to the group of eight countries opposed to “ownership unbundling”, according to a senior diplomat, who was speaking on condition of anonymity. He said the group’s position rested on three red lines:
* That there is no “deconsolidation” of companies’ decision-making structures, including on the nomination of supervisory board members and the conditions applicable to raising capital on financial markets.
* That the agreed options are workable in practice.
* That there is no discrimination in how the Commission assesses how successful countries have been in fulfilling the directive’s aims, taking no pre-emptive stance for or against those that have opted for full ownership unbundling in its review.

“The Franco-German position on this, despite what has been said, has not moved one millimeter,” the diplomat commented. Speaking to EurActiv, the Commission’s energy spokesperson Ferran Tarradellas confirmed that the paper had been drafted with the Slovenian Presidency in a joint effort. However, he declined to comment on the details of the revised draft, saying it could change “any hour”. Tarradellas nevertheless confirmed that important concessions had been made to the group of eight. “It is true that the Trustee has now disappeared. It is mainly the French who were asking for that.”

It now remains to be seen what stance the European Parliament will take when it votes on the Commission’s proposals in the coming weeks.  In a vote earlier in May, the Parliament’s Industry, Research and Energy (ITRE) Committee gave an indication of the Assembly’s leaning when it gave its backing to full ownership unbundling, potentially setting the Parliament on a collision course with the Council (EurActiv 07/05/08). But the vote only concerned the proposal for electricity and there are suggestions that the countries supporting full ownership unbundling will now try to negotiate a differentiated approach where the Franco-German alternative would only apply to gas. But this is likely to open a Pandora’s Box in the Council: “What is clear is that, in COREPER, the Presidency and a majority of member states” said they were in favor of treating gas and electricity markets in the same way, according to a Council source.

Meanwhile, some MEPs are predicting that the spirit of compromise will end up prevailing, with a compromise agreement likely to be struck in heated last-minute negotiations. “Now, everyone is taking strong positions and trying to put pressure on the other side, but at the end there is a European logic that normally would work,” said Alejo Vidal-Quadras (EPP-ED, Spain), one of the leading MEPs on the dossier. Speaking to EurActiv in an interview, Vidal-Quadras however suggested that the Franco-German alliance were only delaying the inevitable. “My impression, and that of many colleagues of mine, is that those, who resist ownership unbundling are becoming more aware that they are defending a lost cause.” (EurAktiv)