23 February 2006 Competition Directorate-General Sector Inquiry on the gas and electricity markets Dominik Schnichels, DG COMP

Inquiry under Art. 17 Regulation 1/2003 Launched June questionnaires sent One of the most extensive investigations under EU competition law Issues Paper

Preliminary Report Market concentration Vertical foreclosure Market Integration Transparency Price formation

Preliminary Report - Gas

Introduction

Concentration High levels of concentration at wholesale level Incumbents largely control imports and domestic production Traded markets dominated by incumbents

Vertical foreclosure – infrastructure Gas infrastructure remains mostly owned by incumbents and not sufficiently unbundled Long-term capacity reservations in “transit” pipelines and storage

Transit capacity– East/West axis Maximum utilisation

Prices – indexation

Conclusions Wholesale markets in the EU generally maintain the high level of concentration of the pre-liberalisation period Lack of liquidity and limited access to infrastructure prevent new entrant suppliers from offering their services to the consumer Transit capacity, crucial for market integration, could be used much more efficiently There is a lack of reliable and timely information on the markets, essential for healthy competition

Preliminary Report - Electricity

Introduction Prices increase significantly since 2003 Prices differ significantly between Member States

Concentration Incumbents control generation assets giving them scope to exercise market power by –withdrawing capacity or –increasing prices Scope for influencing prices exists at a number of power exchanges (examples: I, E, DK)

Vertical foreclosure Many market participants complain about inadequate unbundling of network and supply activities TSO level: –Grid connection for new power plants –Interconnectors –Transparency DSO level: –Inappropriate switching procedures –Lack of ‘Chinese walls’ –Discriminatory access tariffs

Market Integration Competition from imports is insufficient to erode market power of incumbents More interconnector capacity is needed Many interconnectors are chronically congested Long term capacity reservations reduce capacity available for new entrants Revenues from auctions not used for interconnector expansions

Transparency The level of transparency varies widely between Member States 83% of market participants are not content with current levels of transparency

Conclusions Markets remain highly concentrated giving incumbent operators scope for exercising market power/influencing prices Competition from cross-border trade does not so far reduce incumbents’ market power Market participants complain about insuf- ficient unbundling of network and supply activities which calls for further reflection There is a general consensus that more transparency is needed urgently

Closing remarks

Context Growth and Jobs strategy (Lisbon) Green Paper on energy announced High Level Group

Way forward for discussion Competition case priorities Review of regulation Unbundling H