Brussels set itself on a collision course with some of Europe's biggest energy companies yesterday by demanding the break-up of their vertically integrated monopolies.
In a hard-hitting report, the European Commission said the ownership of supply, generation and distribution networks under one roof was undermining security of supply, stifling investment and raising the price of gas and electricity.
The Commission also said it had found evidence of collusion between existing energy companies to freeze out competitors and pledged that antitrust enforcement action would be a priority.
But last night a number of the companies singled out for criticism by the Commission rejected its findings, making it clear that Brussels will have a fight on its hands if it seeks to unbundle their various activities.
E.ON, the giant German utility that controls much of the country's gas and electricity markets, said it would amount to "expropriation" of shareholders' assets while Electricité de France said the Commission's proposals were unnecessary.
Unveiling the energy market review, Neelie Kroes, the EU Competition Commissioner, said: "This report will make uncomfortable reading for many energy companies. Underinvestment is rife, especially in networks, and customers are suffering as a result."
She said many energy markets were too highly concentrated and characterised by a high degree of vertical integration, giving incumbent suppliers too much leeway to exercise market power and impose high prices. "When incumbents control the network, they also control the supply market. It is therefore no surprise that incumbents view their networks as strategic assets that allow them to exclude competition through discrimination."
The Commission has already raided the offices of E.ON, Gaz de France and another big German utility, RWE, in search of anti-competitive behaviour and it has also placed the Italian energy monopoly ENI firmly in its sights.
The Commission's blueprint for unbundling energy markets on the Continent is likely to be modelled on the UK example, where ownership of the electricity and gas transmission networks were separated from the big incumbent energy supply companies more than a decade ago.
UK ministers, regulators and energy companies welcomed the Commission's report and urged it to stand its ground. Alistair Darling, the Trade and Industry Secretary said: "The UK has long argued for Europe's energy markets to be opened up to the sort of fair competition that we take for granted here in the UK."
Sam Laidlaw, chief executive of British Gas's parent company Centrica, described the proposals as "a very major and welcome step forward" adding: "A critical element must be effective separation of Europe's gas and power networks from the supply businesses who currently operate them, policed by tough regulation."
But an E.ON spokesman attacked the proposals saying they were unnecessary because a new regulatory body set up in Germany last month was sufficient to police the industry. "A separation of networks from supply would be expropriation of our shareholders' assets. Such a radical step would not lead to more competition but would pose a risk to security of supply."
EdF said: "We agree there needs to be better co-ordination between regulators and better rules on transparency but we do not believe that necessitates ownership unbundling. The management separation of these businesses which is already in place makes that unnecessary."Reuse content