Ownership Unbundling in EU & Legal Problems

Abstract

In this paper we will examine the issue of ownership unbundling and forced divestiture remedies imposed in a series of recent competition law cases of the energy market - examined in other papers - in relation to the possible existence of a series of legal obstacles. These energy market decisions belong to a group of antitrust cases in which a structural divestiture remedy has been imposed under the provisions of Article 9 of Regulation 1/2003. This divestiture refers to transmission networks and to generation capacity and is meant to lead to severe structural changes, which are compatible with the findings of 2007 Sector Inquiry and its Proposals for the Third Energy Package and are assumed to accelerate the progress of the establishment of the internal energy market. By favouring such remedies in these cases, Commission affirmed its position as the latter was expressed in relation to the Third Energy Package. Commission suggested ownership unbundling as the most important remedy, in order to resolve problems in the energy sector, related to vertically integrated big firms. Commission proposed full ownership unbundling, meaning the complete separation of ownership of generation assets from ownership of transmission assets and the separation of all network functions from the other activities of the energy supply undertaking, as the best possible solution, which would also lead to the dissolution of big “national champions.” Therefore, ownership unbundling and divestiture of assets as an antitrust remedy share a common basis, meaning that they lead to the transfer of corporate assets to a third party. For this reason, we will examine the issue of the legality of these remedies, in the same way as we would examine the legal enforceability of ownership unbundling. However, we should note that there are two major differences between the two cases. First, regarding the antitrust decisions, this transfer was imposed as a result of the application of general competition rules in specific cases where Commission assumed that the undertakings were involved in anticompetitive behaviour and applied its powers deriving directly from the EC Treaty, in order to restore competition; on the other hand in the Third Energy Package, unbundling constitutes a measure of the sector specific regulation, intended for a general and not prespecified group of undertakings. Second, in the Third Energy Package, ownership unbundling is established as the basic and default solution for transmission, however a number of alternatives exist; on the other hand, in the antitrust cases, divestiture was imposed as an obligatory remedy. These differences will be taken into consideration in our further analysis.Literature suggests that there may be a series of legal objections against ownership unbundling: a) art. 345 TFEU (former art. 295 EC), b) the issue of EU’s competences, c) the issue of ownership and other fundamental rights under the ECHR an EU Law and d) the issue of compatibility with the freedom of capital movement and the freedom of establishment.