Deregulating with no regulator: Is the German electricity transmission regime institutionally correct?

Abstract

From 1998 to 2005, the German transmission grid has been put under a self-regulated arrangement. It seems hard to believe that transmission lines can be opened to “third-party access” only with a “negotiated access regime” and no regulator supervision. It seems contradictory with the notion of “ex post contractual hazards” promoted by V. Goldberg and O. Williamson. If a weak institutional arrangement is implemented, one might assume that it has to be harmful to network and market access. If it is not to be inefficient, why and how could it work? When looking at rules and prices for accessing the transmission network and the corresponding wholesale markets in Germany, the “club” arrangement for transmission opening does not appear so harmful. Accordingly, we have to reconsider the ex ante and ex post institutional mechanism of such a “club” arrangement. Ex ante, we first reconsider skills and strengths of industrial consumers and German Business associations in defining and assessing rules of transmission access. We underline that incomplete vertical and horizontal integration of German electricity companies impeded extensive cartel collusion. Ex post, we first look at a strong Competition Authority backing. Then we discover that ex ante and ex post dimensions are much more mixed and reinforced in an open “cumulative pro-competition process” framed by the Competition Authority.