In many EU countries, the infrastructures for supplying electricity and gas (electricity networks, gas pipelines, and storage facilities) are still properties of the so-called vertically integrated undertakings (VIU) responsible for the extraction or generation, supply, and transmission and distribution of the energy. While competition can be promoted in the generation/production and supply side of the vertical integration, transmission and distribution segments remain natural monopolies that hinder market mechanisms. Vertical integration simply raises the possibility for incumbents to favor their own divisions and to block new entrants. As a result, non-discriminatory and equal access to the electricity and gas transmission and distribution networks, also LNG and storage facilities, is crucial to foster competition in politically delicate structures of the electricity and gas markets.
Effective competition in the energy market requires that the system operators or the owners of networks must allow any electricity or gas supplier equal access to these networks. Transmission and distribution system operators, thus are obliged to offer their services to all users on a non-discriminatory basis. They must offer the same service to different users under identical contractual conditions (nature, duration, etc.). Effective and non-discriminatory access by third parties to the networks (in gas sector, also to storage and LNG terminals) is an essential condition for the existence of a genuine and competitive internal energy market in the European Union. With regard to competitive internal energy market, the EU needs to foster not only legal developments, but it also have to support the construction of storage and network infrastructure in the Member States. Additional infrastructure, also interconnectors must be built to strengthen the existing networks and ensure the development of cross-border trade. At present the existing national legal frameworks do not allow independent, transparent, and efficient regulation of cross-border issues relating to gas and electricity network access. Currently the EU is unable to guarantee any EU company the right to sell electricity or/and gas in any Member State on equal terms and without discrimination. Further, in its Communication Note on prospects for the internal gas and electricity market (2007), the European Commission acknowledged that the preferential access granted to cross-border interconnectors demonstrates the shortcomings of the current regulations. Additionally, the functional and legal unbundling of network operators remains a significant problem. Insofar as they remain vertically integrated, they directly block equal access to the networks for all independent suppliers, especially in distribution, where legal separation was not required until 1 July 2007. Unless ownership is separated, the current unbundling rules will not remove the incentive for a company’s cross-subsidization of itself or for discriminating against those competitors seeking third party access (by creating unnecessary technical barriers, maintaining artificially small balancing zones, or not making unused capacities available). As a result, ownership unbundling where transmission or distribution companies would own the infrastructural assets and no significant stakes in supply and generation seems to be the best available solution for ending discriminatory practices with regard to non-discriminatory third party access, at the same time increasing competition on the market. In the present globalized business environment, ownership unbundling might not entail a pure separation of transmission or distribution assets. Instead, ownership unbundling might involve more sophisticated arrangements. For example, such unbundling might permit a company to have a certain non-controlling share (a minority interest of perhaps up to 10% of shares) in both a transmission or distribution system operator and in a supply or generation company. Such a minority shareholder would not have blocking rights in either company, it could not appoint members of their boards, and it could not have any of its own people serve as a member of the boards of either company. In other words, the precise way in which unbundling occurs can be quite varied. The key is to prevent conflicts of interest and enable non-discriminatory access of all suppliers to the energy infrastructure.
In fact lack of equal and transparent third party access to networks creates an enormous entry barrier for new players and severely hampers the development of a competitive energy market. To ensure an independent energy infrastructure service thus became the important policy issue in the internal energy market project of the European Union, challenging in the same way dominant for years structure of vertical integration.
