RECEPTION OF EU DIRECTIVE PERTAINING TO THE INTERNAL ENERGY MARKET AND THE ITALIAN ELECTRICITY INDUSTRY REFORM
PRESS RELEASE
The Ministry of Industry required the Italian Competition Authority to submit an advisory opinion concerning the "Guidelines for the reception of EU Directive pertaining to the internal market of electricity and the Italian electricity industry reform".
The Authority appreciated the Ministry's initiative and appraised positively the conclusions drawn by the Consultative Commission in the above mentioned document. In fact the Guidelines designed by the Commission seemed to be in line with the suggestions made by the Authority for the liberalization of the electricity industry on previous occasions (See The Enel Privatization, Series of Advisory Opinions no. 4, suppl. to the Bulletin no. 25-26/1994; Structural Reorganization of the Electricity Industry, Bulletin no. 30/95).
However, the Authority considered it opportune to highlights certain virtual constraints of the Guidelines on a full liberalization and, therefore. suggested possible integrations to make the measures set forth in the document more effective.
The liberalization of the electricity industry and the Single Buyer.
Concerning the organization of the network access, the EU Directive provided that the Member States could choose between the negotiated Third Party Access and the Single Buyer. The Ministry's Guidelines proposed a mixed system, where the Third Party Access was negotiated between generators and consumers, while the Single Buyer intermediated the electricity transmission from generators to tied consumers, through the distribution firms.
According to the Guidelines, the Single Buyer, whose duties would largely correspond to those of a central dispatcher for the transmission of electricity to all small and medium-sized electricity consumers (the so-called "tied"consumers), would ensure, on the one hand, that the available production capacity was always adequate to meet tied consumers' demand and, on the other hand, the selling tariff was the only one all over the national territory, in compliance with the laws in force. However, it was to be noted that the Single Buyer was not necessary to satisfy tied consumers' demand, nor to maintain the single tariff.
Firstly, as well as what was provided for the Single Buyer, each distribution firm could sign medium and long-term contracts with a number of generators in order to meet tied consumers' demand.
Secondly, efficacious indications for demand and distribution of generation capacity could be given to the market by the company running the transmission and distribution network. Such a company was identified by the Guidelines as a single firm across the entire national territory, publicly owned and independent of operators working in the electricity market.
With regard to the single tariff, appreciable differences in the electricity supply costs between the various areas of the country were recorded in the distribution stage more than in the generation one.
The Single Buyer therefore not only was a bureaucratic burden, but also a distortion of competition. Indeed, in the framework of restructuring and rationalizing the distribution stage in a series of territorial distributing companies, the Single Buyer would actually become a wholesale purchasing central dealing with the most part of potential buyers. Such a situation would have as its effect substantial distortion of competition and prevention of efficiency on the part of the single distributing companies.
The ENEL privatization
The Authority agreed with the Ministry's Guidelines with regard to the need to avoid that the ENEL privatization was a simple passing of ownership which retained the monopoly regime in the sector. In this view, the Authority appreciated the Ministry's proposal of establishing conditions to introduce competition effectively among electricity producers, through the separate privatization of a number of generation companies created by merging ENEL generating plants, whose dimensions were as such as to exhaust economies of scale and ensure adequate capacity of research and development, in order to guarantee their competitiveness at a global level.
Producers working in the market required power plants sufficiently uniform in terms of energy sources and used technologies. Further, in relation to the geographic position of the production plants allocated to companies, it would be appropriate to avoid too large territorial concentrations. In other words, it would be opportune that plants were distributed as "leopard spots" over the national territory, so as to prevent restrictive market segmentations.
Moreover, the Authority also agreed with the proposal of subdividing the distribution stage currently controlled by ENEL into a number of distinct firms, in the perspective of restructuring and rationalizing the distribution system, on the basis of the principle of comparative competition. In fact the distribution stage did not lend itself to create competition, given that distribution firms worked in an exclusive regime within their respective consumer areas.
However, the presence of a number of distinct companies working in different areas of the national territory could allow for the convergence of the distributive conditions at those applied by the more efficient territorial operator, through an appropriate organization of the wholesale energy market and a suitable incentive system. In this view, on the one hand, it was to be noted that efficacy and benefits of comparative competition were going to be weakened both by the Single Buyer regime and, mainly, the adjustment mechanism among distributors, which was aimed at maintaining the single tariff. Indeed, the obligation on distributors to buy the electricity for the tied consumers at the Single Buyer eliminated their business independence and prevent them from achieving costs minimization by supplying with the most competitive electricity producers. On the other hand, incentives for distributors to obtain the maximum efficiency, with respect to the management of the network and the supply of electricity with consumers, were not clear-cut. In virtue of adjustment mechanisms, in fact, all returns induced by likely efficiency improvements concerning the average cost of distribution - on the basis of which the single tariff would be probably calculated - were shared with the other distribution companies working in the territory.
In order to avoid that the most part of consumers could not enjoy benefits of comparative competition, it was important to provide, even if within the framework of adjustment mechanisms necessary to secure the single tariff, incentive systems allowing distributors to own at least a part of profits induced by the costs minimization. Furthermore, a regulation characterized by a major flexibility could permit the progressive overcoming of the single tariff, as the technological progress, the improvement of network infrastructures and the market competitive evolution will make such a type of consumer protection unnecessary.