EU says Europeans get bad deal from gas and electricity suppliers

Jan 11, 2007 01:00 AM

Slitting up large energy companies would be "by far the most effective means" to ensure customer choice and encourage investment, EU Competition Commissioner Neelie Kroes said -- but stopped short of calling for action, saying a final decision rests with EU leaders.
Customers are losing out because their gas and electricity suppliers are "inefficient and expensive," the European Commission said, identifying serious problems caused by the stranglehold large companies have on the supply chain.

European energy companies invested less than a fifth of the windfall profits they made from high demand back into the electricity grid to solve "serious" supply problems, Kroes said. Out of EUR 1.3 bn ($ 1.69 bn) in congestion revenues generated from 2001 to 2005, only EUR 250 mm ($ 325 mm) was invested back into increased capacity, she said.
"That is a worry," said Kroes.

Regulators said economic evidence from a 16-month investigation showed that it was essential to resolve the "systemic conflictof interest" that prevents companies from investing in the network and opening it up to rivals -- a move that would increase choice and lower prices. But her report did not specifically call for action and did not build on her earlier call to split up large companies like E.ON or Electricite de France so that businesses that generate and supply electricity would not also control the network.
Now, EU leaders will need to back her report or call for action on specific points when they hold a summit in March.

Her proposal angered many companies and governments -- including Russia's Gazprom, which claimed such rules would jeopardize its investment plans. But the Commission said it believed solving this problem would trigger investments in the network that are needed avoid problems like blackouts and supply shortages and help create a single European market instead of 27 separate national markets.
It also found there may be collusion between large companies to share markets, saying this was one of the most serious threats to competition. It is currently investigating possible cartels between German gas and electricity companies, raiding E.ON Ruhrgas and electricity supplier RWE last May.
"Underinvestment is rife, especially in networks, and customers are suffering as a result," Kroes said. "This report will make uncomfortable reading for many energy companies."

The results of the investigation offer damning evidence of the problems Europe faces as companies overcharge, underinvest and squeeze out rivals. Companies' stranglehold on the supply chain worsens antitrust problems because these big companies have more access to essential business information than their rivals, allowing them to engage in "strategic behaviour," the Commission said.
It highlighted problems with other companies' inability to gain access to infrastructure such as distribution networks and storage facilities. This is one factor keeping Europe's energy market fragmented along national lines, it said.

Regulators said they were worried by the small number of large companies controlling the energy market.
"Careful scrutiny of future mergers is essential to ensure the situation does not get worse," the Commission said, promising that any proposed combinations would risk being ordered to sell off some assets and change natural gas contracts or being asked to release gas supplies to rivals.

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