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The Unbundling Regime for Electricity Utilities in the EU: A Case of Legislative and Regulatory Capture?

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  • Silvester van Koten
  • Andreas Ortmann

Abstract

Theory and empirics suggest that by curbing competition, incumbent electricity companies which used to be and here are referred to as Vertically Integrated Utilities (VIUs), can increase their profitability through combined ownership of generation and transmission and/or distribution networks. Because curbing competition is generally believed to be welfare-reducing, EU law requires unbundling (separation) of the VIU networks. However, the EU allows its member states the choice between incomplete (legal) and complete (ownership) unbundling. There is tantalizing anecdotal evidence that VIUs have tried to influence this choice through questionable means of persuasion. Such means of persuasion should be more readily available in countries with a more corrupted political culture. This paper shows that among the old EU member states (EU-15), countries which are perceived as more corrupt are indeed more likely to apply weaker forms of unbundling. Somewhat surprisingly, we do not obtain a similar finding for the new EU member states that acceded in 2004 (NMS-10). We provide a conjecture for this observation.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp328.

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Date of creation: May 2007
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Handle: RePEc:cer:papers:wp328

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Keywords: Electricity markets; regulation; vertical integration; corruption.;

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References

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Citations

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Cited by:
  1. Pollitt, Michael, 2008. "The arguments for and against ownership unbundling of energy transmission networks," Energy Policy, Elsevier, vol. 36(2), pages 704-713, February.
  2. Bolle, Friedel & Breitmoser, Yves, 2006. "On the Allocative Efficiency of Ownership Unbundling," Discussion Papers 255, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  3. van Koten, Silvester & Ortmann, Andreas, 2013. "Structural versus behavioral remedies in the deregulation of electricity markets: An experimental investigation motivated by policy concerns," European Economic Review, Elsevier, vol. 64(C), pages 256-265.
  4. van Koten, Silvester, 2012. "Merchant interconnector projects by generators in the EU: Profitability and allocation of capacity," Energy Policy, Elsevier, vol. 41(C), pages 748-758.
  5. Antonio Estache & Liam Wren-Lewis, 2010. "What Anti-Corruption Policy Can Learn from Theories of Sector Regulation," Working Papers ECARES ECARES 2010-033, ULB -- Universite Libre de Bruxelles.
  6. Lopes Ferreira, H. & Costescu, A. & L'Abbate, A. & Minnebo, P. & Fulli, G., 2011. "Distributed generation and distribution market diversity in Europe," Energy Policy, Elsevier, vol. 39(9), pages 5561-5571, September.
  7. Testa, Federico & Stagnaro, Carlo, 2011. "Reti di trasporto nazionale e concorrenza nei mercati del gas: il caso Eni-Snam Rete Gas
    [Networks and competition in natural gas markets: the case of Eni-Snam Rete Gas]
    ," MPRA Paper 48698, University Library of Munich, Germany.
  8. Silvester Koten, 2013. "Legal unbundling and auctions in vertically integrated (utilities) markets," European Journal of Law and Economics, Springer, vol. 36(3), pages 543-573, December.
  9. Vagliasindi, Maria, 2012. "Power market structure and performance," Policy Research Working Paper Series 6123, The World Bank.

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