COMPETITION : DAMNING FINAL REPORT ON SECTOR INQUIRIES.

After a year of false suspense, European Commission DG Competition has at last published its final report on the sector competition inquiries launched in mid-June 2005, in the electricity and gas sectors. Not surprisingly, this very concise report pinpoints the dubious practices of the incumbents without actually naming any of them. It is an open secret, since some have already been the subject of inspections over the last year.

Nonetheless, this report supports the argument of the report on the functioning of the electricity and gas markets (see separate article on page 4) adopted on the same day, 10 January, under the Energy Package. It proposes priority action in four areas: unbundling (separation of the generation and wire business), vertical foreclosure, lack of market integration (including the regulators' inadequate powers on cross-border issues) and transparency of the markets.

However, the DG Competition report does not advocate more strengthening of the Community legislation on competition, especially the amending of the EU intervention thresholds in the event of merger.

At the time of the wide consultation launched by DG Competition, following the publication of its preliminary report in mid-February 2006, the incumbents generally declared their opposition to the introduction of corrective measures, whereas the consumers, traders, new entrants and authorities were in favour of legislative initiatives to improve the functioning of the markets.

PROPOSED ACTION

DG Competition therefore plans to use to the full the powers that the treaties give it, by forcing companies to sell off capacities, production or assets during concentrations. The long-term downstream contracts (gas) and firm supply contracts (electricity), as well as the historic cross-border contracts, will be very closely examined. Regarding conflicts of interest within vertically integrated companies, the Commission has the power to force companies to get rid of their network activities if it manages to prove that the repeated infringements are linked to the structure of the companies.

The Commission will also pay attention to the collusions between incumbents, to avoid competition between each other.

Elsewhere, the report recommends working at the regulatory level by resolving the systemic conflict of interests inherent in the vertical integration of generation and grid operation. The most effective solution would be ownership unbundling (transfer of ownership of the...