March 29, 2008
The European’s Commission’s Third Package includes a number of important and positive steps towards the further development of the internal market for energy, but the carte blanche given to regulators…
Supported by the findings of the Energy sector Enquiry, the Commission has addressed in the third package some structural issues that are crucial for a well-functioning market. There will undoubtedly be much debate around the proposed solutions to tackle these issues, and the proposed texts may require further amendments, but directionally the Commission seems to be on the right track.
There is, however, one element in the proposals that I am deeply concerned about, as a citizen of an EU Member State and Community. It concerns the combination of making regulators completely independent (which in itself I support) and the extension of their mandate. Oddly enough, there has not yet been a lot of attention for this element of the proposals. I believe this is on the one hand, because the implications have not yet sufficiently been thought through, and on the other hand because it is not easy to argue against more power for regulators as one gets easily classified as defensive.
I can understand perfectly that a regulator needs the powers to be able to fulfill his primary task: the supervision of the implementation of relevant legislation and regulation and the ability to take corrective action in specific cases. The current proposal, however, provides for the regulator to be given carte blanche to the extent that they can, “…decide, in the absence of violations of competition rules, of any appropriate measures necessary and proportionate to promote effective competition and ensure the proper functioning of the market…” (Art. 24c). At the same time, the regulator is made fully independent. This combination clearly goes against the Trias Politica, one of the basic principles of our democracy, by combining such different forms of powers within one single body without any democratic control. The risk clearly is that the regulator will become a state within a state – who doe control the regulator?
But it works like this in the UK, with Ofgem, and there is always the option to go to court if one disagrees? Well, not quite. Firstly, practically, the route to court is a long one for a company. Four or five years down the road the business opportunity, or the business itself(!), may have evaporated as a result of a poor regulatory decision. Secondly, and a more fundamental issue, one has to remember that the legal system in the UK is different from most other Member States. A court in the Netherlands, for example, will likely only be able to perform a marginal check on any such decisions by the regulator, because of the wide mandate which in this proposal will have been given to the regulator by law. So the court will only be able to check if the regulator has followed the right process in coming to a decision, but will not be able to rule on the substance.
Harmonisation of regulatory powers is a good and positive step. It is logical that as a target for a common denominator the Commission has looked at Ofgem, perhaps the strongest and most independent regulator in the EU. However, the proposal for complete independence of the regulator should come with a very clear delineation of what they can, and cannot, be responsible for. By simply transposing the Ofgem mandate to other regulators in the EU, the fact that legal systems and traditions throughout the EU differ, has been ignored. It is important that Member States and stakeholders are aware of the potential implications of this when discussing the Commission’s proposals.
From EU Energy Policy BlogAuthor : EMI