WRITTEN QUESTION E-2398/98

by Heidi Hautala (V) to the Commission

(27 July 1998)

Subject: Electricity market

The EU Member States are gradually opening up their electricity markets to competition. The introduction of competition affects the production and sale of electricity. However, the network activities of transferring and distributing electricity remains a monopoly.

Both in Sweden and in Finland, following the opening of the market, there has been a perceptible urge on the part of major state-owned producers to become integrated into distribution networks by acquiring distribution companies.

In Finland it has been decided that the concentration of ownership of distribution networks must be monitored by the competition authorities. In Sweden, producers have been able to acquire distribution companies without restriction, but there too a debate has begun on the effects of "vertical integration" on the electricity market.

The structure of the electricity market and the spread of vertical concentration may have significant effects on the activities of the market. These effects will be felt in particular by small end-users whose negotiating position is weak.

Vertical integration removes the competitive stage which used to exist on the wholesale market, since distribution companies owned by the producers are no longer competing for electricity. Integration also lessens new wholesalers' chances of entering the market. Widespread integration may mean markets being concentrated in the hands of a few operators, thus narrowing electricity users' choices. Integration also leads to competing operations being linked up to monopolies, with the risk of their also being subsidised by monopolies operations.

What is the Commission's opinion of the effects of vertical concentration on the electricity market, and what measures does it propose to take to investigate these effects and counteract the possible harm caused by integration?

Answer given by Mr Van Miert on behalf of the Commission

(2 October 1998)

The question raised by the Honourable Member relates to the Commission's policy and practice in relation to mergers and acquisitions leading to a vertical integration of the production and distribution levels in the field of electricity.

The question relates, in particular, to the current situation in Finland and Sweden. However, the Commission's policy in this important field will no doubt be applied all over the Community.

The electricity markets are currently undergoing a process of liberalisation. In appropriate cases it will be for the Commission to ascertain that the possibilities for increased competition, which are created through the liberalisation of the markets, are not hampered by private initiatives by the large electricity producers.

However, in the field of concentrations, the competence is shared between the Commission and the Member States, so that the Commission looks at the very large transactions with an impact on cross-border trade. Concentrations with a more local scope are to be assessed by the authorities of the Member States.

The legal instrument for the Commission's assessment of concentrations is the Merger Regulation (Council Regulation (EEC) 4064/89(1)). Under this Regulation the Commission must ascertain that concentrations will not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or any substantial part of it.

In a recent case involving the Finnish electricity markets (Case M.931 Neste/IVO) the Commission found competition concerns at the level of fuels used in electricity production. The transaction was approved following a commitment by the parties to divest their control over Gasum OY, a company active in the field of natural gas.

Although this case did not concern an electricity producers vertical integration down-stream towards the distribution level, but rather up-stream towards the level of fuels, it may be seen as an indication of the Commission's commitment to use the Merger Regulation to ascertain that the electricity markets are not foreclosed through private initiatives.

Finally, Directive 96/92/EC of 19 December 1996 concerning common rules for the internal market in electricity(2) contains provisions on unbundling and transparency of accounts, including a requirement for integrated electricity undertakings to keep separate accounts for their generation, transmission and distribution activities. The aim of these provisions is to avoid discrimination, predatory prices and other distortions of competition.

(1) OJ L 395, 30.12.1989.

(2) OJ L 27, 30.1.1997.