ECONOMY

Energy giants in the dock

BRUSSELS – Europe’s energy companies are selling their customers short because they dominate a concentrated and uncompetitive market, a European Commission report found yesterday, saying firms could face penalties. A separate report from the Commission’s energy department into the energy markets criticized several member states for dragging their feet over implementing EU laws which would foster a healthier competitive environment. The Commission slammed companies for having the ability to influence the prices of the gas and electricity they provide and leaving customers with little choice of suppliers as they control the generation, distribution and sale of energy. The sector inquiry, which began when rising prices caught the EU executive body’s attention, will continue and eventually identify punishments. «Such remedies may include action against operators under the EC Treaty’s ban on restrictive business practices and abuse of dominant market positions,» the report said. The Commission may also propose to change the provision that Brussels looks at merger cases only if the companies concerned have less than two-thirds of their EU turnover within a single member state, confirming an earlier Reuters report. Earlier, the EU ruled it would not oversee the takeover of Endesa by fellow Spanish utility Gas Natural because of the two-thirds rule. Analysts expected Brussels to have been more sympathetic toward Endesa’s objections to the deal. Utility giants Europe’s energy markets are still dominated by utility giants, many of which are former state-owned monopolies that were privatized in the past two decades of liberalization and deregulation. The report identifies five problems in the markets, including in the areas of market concentration and integration, transparency, price formation and the shutting out of new companies due to the market’s structure. It said companies still had dominance over gas imports and the generation of electricity, while vertical integration, in which a firm is both the generator and the retailer of energy, effectively blocked new entrants to the market. Cross-border trade is hindered by companies that have long-term contracts stipulating preferential treatment and by some countries that have not yet built up the capacity for trading the value of 10 percent of their internal consumption of electricity. Several member states are either before the European Court of Justice or will be soon for not implementing EU directives to open markets, which includes the 10 percent trading capacity stipulation. ‘Stand firm’ Commissioner Neelie Kroes has said that if the energy sector review turned up problems that break EU rules, she would pursue them immediately. But one national energy regulator, while welcoming the report, warned the Commission that cracking down on utility majors will not be an easy task. «The Commission is likely to face heavy resistance from major continental players. I urge them to stand firm,» the chairman of Britain’s Ofgem, Sir John Mogg, said in a statement. The Commission, at the same time, is reviewing a number of proposed mergers by large European utilities. It is looking into German energy company E.ON AG’s proposed purchase of Hungarian gas and oil group MOL, and a deal involving DONG, Elsam, Energi E2 of Denmark and Vattenfall of Sweden. It is also reviewing a proposal by Gazprom of Russia to purchase Sibneft and plans by Royal Dutch Shell Plc and ERG Power & Gas to build a liquefied natural gas import terminal in Sicily.