EC raids regional energy firms

Raids carried out in late September by the European Commission (EC) at the offices of Russian energy giant Gazprom - as well as at the headquarters of many of the company's customers, including those in the Czech Republic - has highlighted a new urgency to create a competitive, open and secure energy market in Europe.

European Union leaders have been working for some time on plans to better unify energy supply and policy among member states and are looking at how to fill gaps in energy supply widened by the retreat from nuclear energy by several member states like Germany, bringing out the residual geopolitical fears from the 2009 gas crisis.

"It's all about the [European Commission] building up this energy portfolio and ability to regulate the energy market," said Michael LaBelle, research project manager for research center 3CSEP at Central European University in Hungary. "It's half and half. It's about competition rules to make sure there is a liquid gas market, but also there is the supply security concern. ... The EU has to be seen as flexing muscle on energy security."

The European Commission (EC) is currently in the process of taking 18 EU members to task through legal proceedings for failing to implement the 2009 third energy market opening package, a set of initiatives aimed at creating an internal energy market that EU energy leaders say will allow greater competition between energy companies and better security of energy supply.

"If electricity markets can be more integrated at a regional level, there can be more competition, but national governments have to want that to happen," LaBelle said. "Consumers need the right to choose. It forces companies to be more active. What needs to happen is the market needs to be more liquid and larger to match the size of the energy companies."

The package of measures would create a free flow of gas and electricity throughout the EU via the implementation of technology like smart grids and would allow a more unified and efficient approach to green energy, but also calls for increasing competition with constraints like banning companies from simultaneously selling gas and owning a pipeline.

On national levels, leaders are following in the spirit of the EU package, and have made efforts to investigate competition and its effect on energy security as consumer energy prices continue to climb. In the United Kingdom, Energy Secretary Chris Huhne announced the country's energy regulator would be given greater power after the country's "Big 6" dominating energy companies all increased consumer prices by double digits. All six companies are being investigated by the Competition Commission, which some have welcomed, like EDF Energy, whose chief executive, Vincent de Rivaz, said the investigation would help dispel "suspicion of the industry as a whole."

In the Czech Republic, new head of the Energy Regulatory Authority (ERÚ) Alena Vitásková, is trying to push through changes to laws so that power transport and distribution companies cannot award contracts to firms in the same group or sector without competition procedures and pass on higher prices from noncompetitive contracts to customers.

"The method of contracting for energy companies has an impact on the level of regulated prices for transport and distribution of electricity and gas," said ERÚ spokeswoman Jarmila Lehnerová. "The awarding of these contracts without competition to subsidiary companies within a single energy group may increase the total costs for these companies and thus the prices of regulated distribution and transmission."

The EU's worries about opening up the gas market were more dramatically displayed in their dawn raids on the offices of Central and East European subsidiaries of energy giants, namely Gazprom, as well as E.ON and RWE, to collect information about breaches of EU competition rules by those companies or others.

The surprise raids took place in around 20 different locations, with a focus on Gazprom, including Gazprom's subsidiary company Vemex s.r.o in the Czech Republic as part of an investigation that "focuses on the upstream supply level, where, unilaterally or through agreements, competition may be hampered or delayed," the EC said in a statement. "The Commission suspects exclusionary behavior, such as market partitioning, obstacles to network access, barriers to supply diversification, as well as possible exploitative behavior, such as excessive pricing."

News of the raids was received badly in Russia, where politicians allegedly see the EU third energy market opening package as the EC's "major weapon" against Gazprom's efforts to launch the new South Stream gas line, according to Russian news site The Voice of Russia. EU Energy Commissioner Günther Oetinger has criticized South Stream as an effort by Russia to handicap the EU's Nabucco pipeline, which is meant to bring Caspian gas to the EU, bypassing Russia.

How the EU crackdown will end up shaping energy companies has less to do with how the companies will look than with how they act, LaBelle said.

"The future will look similar to what it is today, but what can happen is greater competition at national levels for consumers," LaBelle said. "At the end of the day, they can divide it among different countries and companies, and it becomes a huge trail, and there's only so much governance possible."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com