State regulation of retail energy prices: an anachronism in the liberalized EU energy market

Abstract

The internal market for electricity and gas, which European Union (EU) Member States were to have completed by 2014, is intended to deliver real choice for all consumers and achieve competitive prices. Today’s reality is often the opposite: despite the advanced liberalization of the energy sector, and formal market opening in line with the EU energy acquis, several Member States continue to regulate retail energy prices. In the short term, price regulation is not necessarily bad for customers. Retail prices are regulated below ‘real’ costs so that customers benefit from artificially low prices. However, in the long term, price regulation dissuades customers from seeking better deals, and acts as a barrier preventing energy suppliers from entering the market. From a legal point of view, regulated energy prices also give rise to concerns. This article will show that State interference runs counter to the liberalization objective of the EU rules on the internal energy market and may, in particular cases, also involve State aid within the meaning of Article 107(1) TFEU. It will be shown that these EU rules proceed from price-setting on a free market and competitive basis, while State intervention is allowed only in exceptional and specifically justified circumstances. Other EU legal provisions address competition in the sector too, such as collusion, abuse of dominance and merger control: our focus here is to show that other instruments under the broad umbrella of competition law are also crucial in developing and protecting the competitive process. The European Commission is therefore right in insisting on phase-out timetables for regulated energy prices and continuing to promote market-based price formation.