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On January 10, 2007, the European Commission published its study on the future of Europe’s energy sector based on a broad inquiry into the gas and electricity markets.

Main findings of the European Commissions's sector inquiry

The report identifies five main problem areas in the electricity and gas markets:

• The wholesale market is too concentrated.  The liberalization movement initiated more than ten years ago in Europe[1] has been insufficiently carried out.  National energy champions remain the essential market players and new entrants are fighting an uphill battle.
• Insufficient unbundling of energy networks leads to a real threat to the security of supply.  Unbundling remains weak because many incumbents in Europe are tied with long-term contracts giving a handful of players major control over essential inputs in markets.
• The lack of European market integration confirms the unwillingness of market players to play the liberalization game.
• A lack of market transparency and of access to essential information prevents new entrants from competing against national champions.
• Price formation in the gas and electricity sector is still unclear, resulting in consumer mistrust.  

Will competition remedies suffice?

The study publicly denounces the malfunctioning of the European energy markets.  A number of incumbents have been singled out as bad pupils.  Also, the Commission does not refrain from listing those European governments who stubbornly defy the EU’s liberalization efforts.  In order to restore competition, Commissioner Kroes has re-emphasized that all competition law tools will be used and enforced against the Member States and market players who interfere with the liberalization process.

The results of the study provide the Commission with valuable data regarding the gas and electricity markets, and the Commission will now be able to fully carry out its mission to eliminate anticompetitive behavior.  The Commission has already begun investigations against the four incumbent electricity generators and suppliers in Germany.[2]  Furthermore, it appears that long-term energy supply contracts will be at the center of the Commission’s attention.  Commissioner Kroes finally indicated that mergers between energy companies will be subject to special scrutiny.

Commissioner Kroes’ determination in applying competition rules to tackle liberalization problems in the energy sector goes hand in hand with the strengthening of the regulatory framework and the enforcement of the energy regulation package by the individual Member States. There is little doubt that Commissioner Kroes will be faced with reluctant Member States and critical incumbents.  However, she appears determined in her fight to bring competition to energy markets in Europe.