Magazine article Management Today

Decisions That Will Help Crack the Energy Iceberg

Magazine article Management Today

Decisions That Will Help Crack the Energy Iceberg

Article excerpt

The protectionist giants are feeling the effects of new EC restrictions. Peter Wilshier

Despite the blinkered beliefs of Britain's Eurosceptics, Brussels is not always concerned only with the obscure nooks and crannies of economic life. Indeed, even while the Maastricht debate has been distracting everyone's attention, Commission officials have embarked on what is likely to prove one of their most significant and bitterly contested battles, and one where this not always very United Kingdom of ours has the greatest possible interest in seeing them succeed. After many years of high-level procrastination they have moved at last to inject some real competition into the stubbornly protected markets for electricity and gas.

This is certainly no arcane affair affecting just a few specialised widget-makers in Nether Calabria. Electricity sales in the Community are running at [pounds] 110 billion a year, with gas not far behind at [pounds] 83 billion, and their costs in some way enter into every form of human activity. Large industrial users, in particular, are convinced they are far too high, and kept that way (usually with wholehearted state connivance) by a set of cosy institutional barriers designed to minimise any freedom in choice of suppliers. With a bit of luck, though, these are set to come under progressively more intensive attack.

Thanks to privatisation, the UK has already gone quite a long way down this road (though the continual trench warfare that goes on between British Gas, the power generators and distributors and their respective regulators is an indicator of just how tough and sustained opposition is likely to be). But elsewhere on the Continent the process has scarcely begun. TO the vast, mainly state-owned monopolies that control the non-oil elements of the energy sector, competition remains something that happens to other people.

A year ago, however, the EC energy commission, headed by Portugal's Antonio Cardoso e Cunha, proposed far-reaching legislation which may belatedly force them to shake up their ideas. Its key effects, if accepted, would be to encourage the entry of significant and powerful new producers and provide them with mandatory access to existing pipelines and electricity grids. So far this has been resisted and pooh-poohed by the 24 established utility groups (which are, of course, among Europe's most powerfully entrenched industrial institutions) and greeted with lukewarm enthusiasm by most of the governments concerned. Now though, Sir Leon Brittan, the EC's most pugnacious trustbuster, has indicated that he has both the powers and the determination to make something happen. His hand is likely to be further strengthened this year, as European energy ministers come under increasing pressure from both recession-strapped manufacturers and domestic consumers to 'do whatever they can' bout reducing energy charges.

Recently two small but potential explosive decisions have shown that it is possible to start cracking the energy iceberg. Two of the haughtiest and most intransigent monopolists, Electricite de France (EDF) and Germany's Ruhrgas, have each been forced to accept a precedent-setting defeat.

In the French case, the actual issue was almost laughably specialised and obscure. Societe Hydroelectrique de Grangevielle is a small, private company operating high in the French Alps, almost on the line of the Italian frontier. The only sensible customer for the power it produces is the local Italian distributor, whose territory starts just two kilometres away. …

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