Debates 2004 to 2009

The state of implementation continued to be an essential issue shortly after the Directive was adopted (Figure 44). This time the Commission signaled much stricter supervision of the implementation and insisted on the application of all guidelines, which were agreed upon during the Madrid Forum. Keeping the threat of legal action consistently in the debate, the Commission this time also threatened with a new directive if the market is not liberalized by 2005 (Energy, 2004). The first stage of implementation was however rather discouraging as most of the states were failing to transpose the Directive 2003/55/EC. The industry on its part was getting upset with the increasing regulation. George Verberg, President of Gasunie, underlined at a Eurogas conference that the market functions the best without any regulative intervention and that it is naturally oligopolistic and thus any attempts to break this structure might result in negative externalities (Energy, 2004).

Figure 44 Debate 2004

Consequently, the problems with implementation of the existing regulations have endured into the years 2005 and 2006 (Figure 45). Repeatedly Germany but also alleged pro-liberalization supporters such as Spain, Sweden, Belgium and Greece were postponing transposition and risking being taken to court by the European Commission (Harrison, 2005). Additionally, the Commission still could not deter the “merger” trend settled in the years 2000-2002: so for instance in 2005 there was a deal between France and Italy; EDF increased its control of Edison and in return Enel was allowed to acquire about 3 percent of the French electricity market

(Sylvers, 2005). The only positive development seemed to be a partial integration within regional markets started in 2003 between Bulgaria, Romania and Greece and other Southern East European countries (Boyle, 2005).

This lack of progress was particularly upsetting the UK and the European Commission. The British press even started directly blaming the French and German reluctance to open their markets for creating high gas prices in the UK (Jamieson, 2005). This led to a vivid debate in the House of Commons (Jameson, 2005) and put the issue into British high politics. As a reaction, Gordon Brown promised to the British public and politicians to address this issue during the next meeting of the European finance ministers in Vienna “to call for action that went further than merely the setting of new timetables for greater liberalization” (Duncan, 2006).

Finally, an external event has also shaped the debate to a certain degree. There was an internal gas dispute between Ukraine and Russia (2005/2006) that led to gas shortage in Europe. This consequently started a discussion about the energy security. It was an opportunity for the European Commission and for the UK to closely link this issue to the developments in the internal market. This debate was especially emphasized by Austria, who took over the Presidency over the European Council from the UK in the first half of 2006 (Gill, 2006).

Figure 45 Debates in 2005 and 2006

As a result of the growing non-compliance with the existing regulations that were clearly leaving too much leeway for the member states and the industry, and upon the invitation from the Spring

Energy Council in 2007, the Commission prepared a new proposal by September 2007, that should ensure effective separation of supply and production activities from network operations (Parliament, 2007). Consequently, the cornerstone of the debate that was moving the year 2007 became unbundling (Figure 46). The majority of the member states displayed their discomfort about stricter measures and regulations. There was a group of 9 member states who (upon French incentive) sent a letter to the Commission stating that unbundling “should remain optional and not compulsory” (Gas, 2007). VKU Germany, a group of German municipality utilities, was urging that the Commission should wait and see the results of the second energy package, moreover, arguing that “splitting the grids from generation must not "under any circumstances"

be extended to the distribution level as the remaining businesses of municipal utilities would not be able to survive competition” (Report, 2007).

Figure 46 Debate 2007

Nonetheless, there was also considerable support for compulsory unbundling from the pro-liberalization coalition of other 9 member states including Belgium, Denmark, Finland, Ireland, The Netherlands, Portugal, Spain, Sweden and the UK (Gas, 2007). Most of these countries even exceeded the unbundling requirements set out in the second energy package and thus were interested in the harmonization at the European level. ERGEG, the group of regulators, that was set up as an advisory body by the European Commission in 2003 (and dissolved in 2011 after

ACER was established) and headed by John Mogg from the British regulator Ofgem (Power, 2006), could also exert certain pressure through its report published in July, in which significant breaches to the second energy package were exposed (ERGEG, 2007). Additionally, the European Parliament was staying in the pro-liberalization coalition and arguing for full liberalization. Claude Turmes, spokesman for the Green MEPs on energy issues even accused German and French companies for sabotaging liberalization process and through this impeding the rights of the consumers (Gow & Milner, 2007).

Finally, the disagreement was circumvented in 2008 (Figure 47) by France and Germany introducing the so-called “third way unbundling” and leading to a compromise in the Council (Energy, 2008a). This third option to unbundling, introducing independent system operator as a type of unbundling (ISO) instead of sole ownership unbundling, was heavily opposed by the European Parliament (Energy, 2008b) but later accepted not to prolong the negotiations any further. The European Parliament was in the end forced to trade in “ISO” for giving more powers to the new regulatory agency at the European level (ACER) but also for tightening up rules for the ISO oversight (Iago, 2009). The discourse thus resembles the developments in 1993 when the term of “flexible liberalization” was introduced and accepted even by the actors, who envisioned a much deeper liberalization, in order to reach at least some degree of progress.

Figure 47 Debate 2008

Nonetheless, decisive for the political compromise were also the moves by RWE and EON. In February 2008 first EON announced that it would “voluntarily undertake unbundling” and few months later RWE announced that it will sell its gas network in Western Germany (Energy, 2008d). Additionally, the European Parliament was continuing to keep the discourse at the consumer level and emphasizing that the major point of the regulations is to address the problems of energy poverty (Energy, 2008c).

The compromises reached in 2008 are reflected in a relatively small discourse in the year 2009 (Figure 48). Even though France, Germany and Lithuania were still voicing certain opposition the vivid debate characterizing the year 2009 was closed, paving the way to agree on the amended proposal from 2007. In particularly the European Parliament that was hoping for even stricter regulations than suggested by the European Commission had to finally agree to the conditions of the European Council.

Figure 48 Debate 2009

Tracing the debates for the years 2004 to 2009 has offered additional insights if compared to the observations in the two previous periods. Similar to the period from 1991 to 1998 we could observe that the compromise and therefore policy change was possible by introducing new issues that would be met with less opposition (flexible liberalization and third way unbundling).

Additionally, there was further consolidation within the pro-liberalization coalition with the strong activism from the UK and the European Parliament. Finally, to a certain degree, we could trace issue linkage when different actors tried to combine the creation of the internal market with

the European energy security and environmental goals (in particularly gas as environmentally friendly fossil fuel). Issue linkage as a negotiation strategy can be quite successful for policy change as was shown by Christina Davis in her analysis of negotiations on agricultural trade liberalization (Davis, 2004).