WRITTEN QUESTION E-0633/01

by Ioannis Souladakis (PSE) to the Commission

(6 March 2001)

Subject: Deregulation of electricity

The recent electricity crisis in the State of California has highlighted the problems caused by the deregulation of electricity in this State. There are many reasons for this crisis, such as overcharging for wholesale prices, the disastrous financial situation of the distribution companies and the failure of the State authorities to intervene in time. This crisis has also had a variety of consequences which are equally serious: the risk of a sudden increase in electricity prices, inflationary pressure, a fall in the shares of companies involved in electricity, the risk of a reduction in the growth rate of the State, etc.

Given that the EU has been moving towards a similar deregulation of electricity for years, will the Commission say:

1. What studies has it carried out with a view to ensuring a sufficient quantity of electricity without running the risk of excessive increases in electricity prices?

2. Has it examined safeguards to ensure that the electricity market does not operate solely through the spot market, but also through long-term contracts?

3. Has it established rules governing the intervention of Member States in the event of electricity shortages, so that intervention takes place at prices which cover the costs of the production companies without passing costs on to consumers?

4. Has it provided for specific phases of the deregulation of the market in electricity and periods of time for reviewing deregulation so as to correct any distortions which might result in disruptions of energy supplies and, consequently, cost increases?

Answer given by Mrs de Palacio on behalf of the Commission

(10 May 2001)

1. Security of supply is a key objective of European energy policy, as highlighted in the Commission's recent Green Paper Towards a European strategy for the security of energy supply(1).

On the basis of an analysis of the events in California, the Commission has reached the conclusion - shared by nearly all analysts - that the problems in California result from the specific structure of the market and the regulatory framework in California. This structure is mainly characterized by insufficient generation capacity, barriers to new entrants and fluctuating, high prices, facilitated by the existence of an obligatory pool and the exclusion of the possibility of long-term contracts.

These elements do not exist in the Community. In particular, in the Community sufficient reserve capacity is available, which can be estimated to amount to around 30 % of peak electricity demand (including reserve capacity necessary to maintain the security of the system and over-capacity).

2. Unlike in California, in the Community medium- and long-term supply contracts between suppliers and consumers are not prohibited but form the basic commercial arrangement in the electricity market. Used in parallel to short-term transactions in the spot market, these contracts provide the necessary stability in terms of price developments.

3. The growing integration of the European electricity market will increase security of supply through the opening up of markets and the extension of interconnection capacities, allowing more cross-border trade, in particular in the event of electricity shortages in a Member State.

In addition, Directive 96/92/EC of the Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity(2) contains provisions, which allow Member States to take specific measures to react to acute shortages and prevent future problems regarding primary energy sources for generation. In the event of a sudden crisis in the energy market, Article 23 of this Directive provides the possibility for Member States to take - temporarily - safeguard measures. Such measures may include intervention in the market in order to ensure reasonable prices for end-consumers and cost-recovery by producers, provided such measures are proportionate with the objectives pursued and non-discriminatory in effect. Furthermore, if a Member State determines that installed capacity on the basis of a given primary source is excessively high, or is increasing so rapidly as to constitute a threat to overall security of electricity supply, it may, pursuant to Article 5 (1) (f), specify the nature of the primary sources of energy for all new capacity.

4. In its proposal for a revision of the electricity directive(3), the Commission proposes a gradual approach towards full market opening. By 2003 all non-domestic customers shall be free to choose their supplier and by 2005 all consumers shall have this right.

In order to ensure appropriate vigilance with regard to security of supply while market opening is progressing, new measures aimed to ensure the availability of sufficient generation capacity are suggested. Under these new measures Member States would be obliged to continuously monitor the balance between demand and supply and to publish annually a report outlining their findings, indicating any measures envisaged to ensure supply security. The Commission, on the basis of the national reports and its own monitoring work, would publish a report covering the Community as a whole. When necessary, Member States would launch tenders for the construction of new electricity generating capacity.

As regards security of supply in terms of primary energy sources for generation, the safeguard provisions of the electricity directive described above in the reply to question 3 remain applicable.

(1) COM(2000) 769 final.

(2) OJ L 27, 30.1.1997.

(3) COM(2001) 125.