Content

Introduction in:

Cansu D. Burkhalter

Legal and Regulatory Framework of European Energy Markets, page 1 - 6

Competition Law and Sector-Specific Regulations

1. Edition 2020, ISBN print: 978-3-8288-4429-2, ISBN online: 978-3-8288-7440-4, https://doi.org/10.5771/9783828874404-1

Series: Wissenschaftliche Beiträge aus dem Tectum Verlag: Rechtswissenschaften, vol. 127

Tectum, Baden-Baden
Bibliographic information
Introduction The European Union (EU) traces its origins to the European Coal and Steel Community (ECSC), which was founded by the Treaty of Paris, signed on 18 April 1951. The foundation of the ECSC was based on the Schuman Plan (within the framework of the Schuman Declaration), which, in 1950, proposed the formation of a single authority to control the coal as well as the steel production of Germany and France, wherein the participation of other European nations was allowed. The Schuman Declaration led to the establishment of the ECSC. Quite soon after the creation of the ECSC, the European Economic Community (EEC) and the European Atomic Energy Community (Euratom) were established in 1957. While the EEC focused on economic integration, Euratom was concerned with finding alternative energy resources in an effort to prevent the increasing dependency of European countries on Middle East petroleum. Contrary to the Euratom, the EEC Treaty contained neither specific provisions regarding energy policy in general nor any policies for oil, gas and electricity. The founding fathers of the Treaty appear to have believed that the application of its general principles in the energy sector would be sufficient and appropriate to deal with any problems that might arise. Aside from coal, being specific to the ECSC Treaty, and nuclear energy, being specific to the Euratom Treaty, it can be stated that there has never been an explicit legal basis for energy in primary EU law. Until the late 1980s, EU common energy policy was virtually non-existent even though the aforementioned Treaties obviously dealt with energy matters and set up certain instruments with the aim of maintaining minimum standards for the security of oil and gas supplies. The original state of affairs has undergone a transformation with the Lisbon Treaty and the adoption of a new article specific to energy (Article 194 TFEU). For the first time the EU’s constitutive Treaties included energy policy as an area of the EU’s competence. Article 194 TFEU codifies the existing objectives and instruments of European en- 1 ergy policy and subsequently links them in an explicit manner. It further aims at enabling the proper functioning of the energy markets, thereby covering topics with pertinence to the competitive energy markets. Today, the EU’s established energy policy is based on threepillars: competitive markets, sustainability and secure energy supply. The main focus of this thesis pertains to the competitive energy markets. The European energy markets have significantly changed during the past two decades. Europe has been struggling to establish a competitive as well as a fully integrated European internal energy market since the beginning of the 1990s. Until the early 1990s, the European energy markets consisted of national monopolies possessing vertically integrated structures, and they were still nationally segregated. Moreover, the idea that the electricity and gas sectors could be operated by private undertakings under competitive conditions was, at that time, inconceivable. It was generally assumed that there was no other way to provide a reliable and secure supply of electricity and gas to customers under reasonable conditions. However, the EU took a decision to open European energy markets (especially electricity and gas markets) to competition in a gradual manner and subsequently to establish an internal energy market. Through liberalisation, the electricity and gas markets have been transformed from national markets controlled by vertically integrated monopolies to more competitive markets. At present, the competitive segments (production and retail) and the regulated segments (transmission and distribution) are segregated from each other in most Member States. Upon an analysis of the background of liberalisation studies in energy markets since the 1990s, it can be asserted that the EU aims at establishing an internal energy market based on the principle of free competition. The main objectives of liberalisation are to introduce competition, abolish the national measures, enable efficiency in energy markets and increase the security of supply. In order to achieve these goals, the EU has established legislative and regulatory frameworks. The European Commission (in the following “the Commission”) set up a three-step process to establish an internal energy market. In 1990, as first measure, the EU initially adopted three directives – the Introduction 2 so-called pre-liberalisation Directives (Directive 90/377/EEC, Directive 90/547/EEC and Directive 91/296/EEC) – with the aim of integrating the European energy markets.As a second step, the Directive on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons (Directive 94/22/EC) was adopted on 30 May 1994. After these first steps towards the integration of the European energy markets, the Commission enacted the first Electricity Directive (Directive 96/92/EC) in 1996 and the first Gas Directive (Directive 98/30/EC) in 1998, which constituted the cornerstone with regard to the liberalisation of the electricity and gas markets. The main objectives of the aforementioned Directives were to create a competitive environment in terms of the electricity and gas markets so as to achieve the requisite objectives of liberalisation, transparency, free access to energy networks and, lastly, supply security. The Directives aimed at moving from markets consisting of vertically integrated undertakings, mostly with supply monopolies, to markets that were to be segregated between segments where competition was feasible and segments being natural monopolies to which third parties would have access in a fair, reasonable and non-discriminatory manner. When the first Directives proved insufficient in order to reach the aforementioned objectives, new electricity and gas Directives were enacted in 2003 (respectively 2003/54/EC and 2003/55/EC). These Directives were equipped with new provisions in order to realise the objective of establishing an internal energy market functioning in a competitive environment. With respect to the aforementioned scope, enhanced unbundling and thirdparty access regimes were implemented. Not having obtained the desired results from the second Directives, the EU enacted the third Electricity and Gas Directives (respectively 2009/72/EC and 2009/73/EC). In conjunction with these, several other regulations were also introduced. The new Directives contained vital provisions regarding unbundling and third-party access regimes. Unbundling and third-party access are considered to be the most important issues involved in the process of energy market liberalisation. The Commission expended an immense amount of effort to achieve rapid results through this new energy package. In addition to the aforementioned legislative measures, it started to use the full range Introduction 3 of competition tools to pursue cases setting precedents which can significantly improve competition in energy markets. The Commission initiated extensive competition investigations against undertakings within the electricity and gas sectors and, subsequently, enforced strict measures against them. The authority of the Commission, needed to initiate investigations, is derived from its position as the enforcer of competition rules in the TFEU. The Commission, therefore, has implemented general competition law rules in numerous antitrust cases and imposed strict structural remedies. With this, the problem arose with relation to the particular cases that tend to demand the implementation of sector-specific regulations versus general competition law. According to the Commission, the most effective solution is to implement sector-specific regulations as well as competition law collectively and also to impose the structural measures on the basis of the aforementioned co-ordination. This solution is considered to be the most appropriate method for the purpose of overcoming the obstacles that are opposed to establishing the internal energy markets. The European energy markets are controlled by a dual structure consisting of two different regulatory frameworks with two different procedures and their respective supervisory bodies. Competition law is comprised of general legal norms set out in the EU Treaty and can be implemented within any industry. These legal norms can be enforced only when an infringement (ex post) has taken place. Sectorspecific regulations, however, are particular to the sector they encompass and can regulate the sector ex ante prior to the occurrence of an infringement. The present thesis aims at analysing the development of the European energy markets and policies from both the perspective of competition law and sector-specific regulations, thus identifying the problems regarding the introduction of competition into the energy markets. The problem of understanding the relationship between competition law and sector-specific regulations can be observed in various industries undergoing liberalisation, especially the energy industry. Therefore, the present research is expected to provide a useful framework with respect to the role of sector-specific regulations and competition law within the energy markets. Introduction 4 As a result, the present thesis endeavours to seek solutions to the following questions: – What is the evolutionary development process that established the legal framework of European energy markets? – In which manner did the structural and legislative features of European energy markets develop? – What type of role do the competition instruments (competition law and sector-specific regulations) play in the liberalisation process of European energy markets? – What is the nature of the relationship between competition law and sector-specific regulations? Under which circumstances can competition law affect particularly those issues which are the subject matter of the authority of sector-specific regulations in energy markets? By analysing legal norms and case law, the present research will apply doctrinal methodologies concerning the development as well as the formulation of the doctrinal parameters that will define a model of cooperation between competition law and sector-specific regulations. This research will be primarily normative, since its objectives are to put forth the facts in the field under research (European energy sector) and to indicate the manner in which the regulation model could undergo improvement. Moreover, the description and analysis of the current frameworks of competition law and sector-specific regulations will comprise a major part of this study. The results of the analysis will provide the material for the formulation of a new hybrid model. The methodology of the present research endeavour will be based on the examination of core provisions of EU energy law and competition law. In the first part, the definition of energy companies and energy markets is specified inasmuch as they are the main subjects which are affected by EU law and sector-specific regulations. The second part encompasses the EU Energy Acquis. Within the ambit of its chapters, the origin of the energy acquis and a sectoral legal framework are examined in detail. The following two chapters of part three provide an overview of competition law and sector-specific regulations and the relation between them. The fourth part consisting of three chapters encompasses a detailed analysis of the interaction between competition Introduction 5 tools and energy markets. These chapters illustrate how competition law and sector-specific regulations have affected energy markets. Part five presents the conclusions of the study. Introduction 6

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Abstract

Since the beginning of the 1990s, Europe has been struggling to establish a competitive as well as a fully integrated internal energy market. Until the early 1990s, the European energy markets consisted of national monopolies possessing vertically integrated structures. They were also still nationally segregated. Since, the EU has made the decision to open European energy markets to competition and subsequently establish an internal energy market.

The European energy markets are currently controlled by a dual structure consisting of two different regulatory frameworks: competition law and sector-specific regulations. The primary goal of these legal instruments is the establishment of an internal energy market.

This book aims at analysing the development of the European energy markets and policies from the perspective of competition law as well as sector-specific regulations and, hence, identifying the problems regarding the introduction of competition into the energy markets.