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European Voice
Are European Energy Markets Working? The Third
Package
Walter Boltz Chairman, E-Control Vice Chairman,
CEER/ERGEG
7 February 2008
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The General Setting

• Energy prices have increased dramatically 8.8
  in Eurozone in 2007
• Gross profits of major gas and electricity
  companies have equally increased by 8
• Energy companies profitability exeeds profits in
  most other industrial sectors
• TSOs have a high share in companies profits
• Energy users dissatisfaction is growing

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Development of Gross Profits forSelected
European Utility Companies
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Economic Reasons for Bundling High Profits for
TSOs
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The Third Package
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The Third Package

• Roles and responsibilities set out in the third
  package presume independent TSOs
• Unbundling provisions seek to establish fully
  independent TSOs in terms of financial interest,
  decision making, information dissemination
• TSOs are to co-operate and to develop market
  rules in self-regulation ? NRAs and ACER only
  step in in case of failure
• If full independence of the TSO on day-to-day
  issues is not guaranteed then drafts of market
  rules are likely to continue to favor incumbents
• In this case the package will have to be
  redrafted allocating less responsibility to TSOs
  and ENTSO
• A cooperation of a number of TSOs, belonging to
  integrated companies would be a cartel

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The 3rd Way A Dead End

• The 3rd way does not solve the fundamental
  conflict of interests between TSO and vertically
  integrated company
• It adds details to the 2nd package. Most of the
  provisions should have been in place already by
  now if Member States had implemented the existing
  directives properly
• There is no separation of financial interest. The
  integrated utility still will maximize overall
  profit
• There are many weaknesses of the model such as no
  sanctions in case of infringement, unclear
  supervisory rights of the regulator, still
  possibility that the supervisory board will do
  more than merely approve the budget
• There is a question of compatibility with
  corporate governance rules in the EU and the US
  as effective unbundling tries to do something
  which contradicts obligatory control of the
  equity owners over the companies management
• BUT the 3rd way is a good model for enforcing the
  current unbundling provisions from the 2nd
  package

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ACER Better Co-operation of Regulators

• Better co-operation by harmonization of powers of
  national regulators and improved independence
• Obligation of cross-border co-operation and
  exchange of information
• Institutionalization of co-operation through an
  agency
• Full use of expertise and decision making powers
  in relation to technical issues
• Harmonization of decision making

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ENTSO Mandatory Co-operation of TSOs

• Only broadly defined structure of co-operation
• TSOs have to draft harmonized market rules by
  self-regulation
• ERGEG critical to non-binding standards and
  self-regulation? ERGEG Proposal
• Most of the industry (Eurelectric, Eurogas,
  Effet, etc.) also wants legally binding rules
  from the start and a stronger role of regulators
• The EP broadly supports these positions, the
  Council is split on the issue of a strong and
  independent ACER as some member states continue
  to put their hope on National Champions

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Process of Binding Guidelines
ERGEGs Proposal
3rd package
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Transparency

• Lack of Transparency was identified as one of the
  major problems of most European energy markets
• Many market participants think that full
  transparency could reduce wholesale prices up to
  10
• Although there are some improvements included in
  the 3rd package, more concrete measures are
  needed
• PXs, Hubs and other trading facilities are not
  sufficiently covered
• A strong push towards full transparency in all
  areas of the energy markets is needed urgently
• The 3rd package would provide the legal basis

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Improving Regulation of LNG and Storage

• Storage facilities are essential to supply
  European customers
• Most storage is owned by gas incumbents and is
  currently fully booked
• The potential for discrimination in storage is
  big
• The third package makes existing voluntary GGP
  for storage system operators mandatory
• LNG could be a big contributor to liquidity and
  competition on the gas market
• Additional rules for LNG and storage are
  necessary

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The Challenge in Times of Economic Slowdown

• Cost of abatement of climate change will increase
  the cost for all European citizens dramatically
• The challenge is to improve efficiency in the
  energy system so as to reduce the burden as much
  as possible
• The Third Package systematically contributes to
  that end
• national champions left on their own to
  dominate national markets - will not decrease
  prices but increase profits

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Information

• Contact Person Mr. Walter Boltz
  Tel [phone] Fax 01
  24724-900 walter.boltz_at_e-control.at
• WWW www.ergeg.org
• www.e-control.at

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Thank You !