HEARING OF COMPETITION AUTHORITY CHAIRMAN CATRICALÀ BEFORE THE 10TH COMMITTEE OF THE CHAMBER OF DEPUTIES
PRESS RELEASE
Press release
Hearing of Competition Authority Chairman Catricalà before the 10th Committee of the Chamber of Deputies
The hearing before the 10th Committee of the Chamber of Deputies gave Chairman Catricalà the opportunity to raise a number of issues that still remain in the electric power industry, in terms of boosting competition.
The existence of these problems was, he said, evident from the price trends following the start-up of the electricity exchange, which have experienced unprecedented spikes: 75-80 euro/MWhr in January 2005 was a figure that "spoke for itself".
This demonstrated, firstly, the structural limitations inherited from the past and which still remained in Italy and, secondly, the possibility of the former national monopoly-holder to exploit its market strength.
As far as the structural problems were concerned, he said that these related to the high concentration of the offering (it was sufficient to recall that the main national operator was Enel, as far as the net operating efficient power stock was concerned, with a market share in excess of 55%), the skewed position of the operators in terms of facility type (Enel being the sole operator with a wide range of every kind of asset, particularly the strategically important facilities for the purposes of price-setting), their skewed siting in different geographic areas (once again, Enel alone had facilities in several areas of the country), as well as administrative/bureaucratic barriers to the renewal of the national generation facilities.
This was compounded by the serious limitations on the transmission network (for national and cross-border transmission) that create inter-zonal congestion and weakened competition in macro-regional areas, thereby facilitating the transfer of market strength - particularly from central and southern Italy towards the north - by the former monopoly holder, Enel, who alone had the power to set prices and condition imports-exports between different zones.
In the light of this analysis, the Chairman concluded by saying that it was necessary to proceed promptly to give priority to taking action on the national transmission network in order to minimise the existing risks of interzonal congestion. It was, he said, necessary to upgrade the interconnection lines with foreign countries, consistently with the developments of the national transmission network, and to encourage the establishment of "direct lines". On the subject of the network, the Chairman also pointed out that the reunification of network ownership and management should be warmly welcomed, in order to attract investment. But to be efficiently used in a manner that did not hamper competition, obviously required the exclusion of any risk of control by operators working upstream or downstream of the transmission phase.
Lastly, he emphasised that it was essential to encourage the establishment of new production poles in the market zones in which the zonal demand was not being met. In other words, it was necessary to rebalance the comparative weight of competitors against the dominant operator in each zone.
This latter point also offered an opportunity to consider possible changes in the structure of the control of a number of electricity companies working on the domestic market. This was a reference to the Edison company and the possible role of EdF.
During the hearing, the Chairman said that any consideration of this issue should be based on the fact that the decree law freezing the voting rights of EdF could be considered to be an infringement of the principles of opening up the market to the Community as required by the Treaty.
As for the role of foreign operators, the hearing provided an opportunity to bring out the fact that Italy's energy sources policy decisions inevitably exposed the country to a much higher cost for these inputs than in the neighbouring countries. The latter countries had in the past exploited, and in the present continued to exploit, their advantage in terms of production cost differentials, profiting considerably from exporting to Italy.
These industrial policy measures should therefore be used to step up the domestic production capacity and transport lines so that the liquidity of the supply could be increased and consequently to trigger more competition between the operators (not only domestic but also the foreign/exporting companies).
The hearing ended with the consideration that for an Authority with the statutory duty to protect competition, the central issue was that changes in the control of Edison should be such that they did not heighten the already high level of concentration in the electric power sector and did not interfere with the market structure by tipping it in a direction that might facilitate the unilateral or joint exercise of market strength.
Edison, regardless of the shareholders controlling it, should step up its role as an operator that was independent of the dominant operators in Italy, and in the rest of Europe it should be capable of driving competition, raising the degree of supply liquidity on the electricity exchange.
Rome, 18 March 2005