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EU Energy reform = give Britain access to the continent's cheap spare capacity

by Jerome a Paris Wed Apr 5th, 2006 at 09:33:18 AM EST

The EU Commission is launching another assault against countries that do not respecte the "letter or the spirit" of the energy directives, and has sent warning letters to 17 countries, including, yes, Britain. As there is little detail on the individual grievances, it's hard to know who's blamed for what, but what's blamed on France and Spain has certainly been leaked, as it's all over the newspapers.

The UK would undoubtedly like to see its model forced upon other EU states. But it is far from clear that this would solve Britain’s own problem. London has been quick to blame soaring UK gas prices on “continental cartels” gaming the market, but slow to acknowledge the role played by inadequate UK planning and investment.

The above is from the editorial of the FT. Look closer, and they acknoweldge all the points I have made earlier, but fail to make the "right" (because contrary to dominant ideology) conclusions.


  • there is an increasing energy dependency crisis in Europe. Well, sort of. It's a crisis in the UK, whose oil & gas is running out and which seems not to have planned for it. It could yet turn into a crisis in Germany, as the country abandons nuclear, cannot go back to coal (too polluting) and thus has to switch to gas-fired plants, with gas coming essentially from Russia;

  • there are price differences between countries. Only - the lowest prices are in the non-deregulated markets of continental Europe, not in the liberalised markets, and the more expensive markets (read: the UK) want access to cheaper electricity;

  • there are interconnection issues. Some of it is technical (lack of capacity), and some of it is obviously more complex, as the existing capacity, such as the gas Interconnector between the UK and the continent is not used. Both are blamed, with little element of proof, on the lack of liberalisation of the continental markets.

    Ironically, energy security can increase with scale. For deregulation could enable a multinational market such as the EU – if its national grids and pipelines were properly linked to each other (which they are not) – to manage with less spare capacity. In a single market countries could depend more on each other’s spare capacity.

    The issue, as outlined by the FT editorial makes sense - except that what they are really advocating is that those markets that have invested to have spare capacity (read: the continental market) bail out those that have not (the UK, Italy) - which, strangely enough, are the most liberalised ones... So we are talking about the liberalised markets freeriding on the reserves of the others. Now THAT's markets in action.

    As to the commercial fact that continental companies choose not to take advantage of the higher prices in the UK, it means either of two things: (i) they are stupid, selfish and ugly and would rather lose money than sell gas they have to the Brits, (ii) they are doing it on purpose (to spite the Brits?) as suggested by the FT which writes that "Gaz de France failed to supply volumes into the Interconnector, or (iii) they have existing obligations to their clients and are fulfilling those rather than cancelling them to make a quick buck. I wonder which it is... But it underlines the use of having a national company which gives priority to national/existing clients, maybe, and validates the point that security of supply is best ensured by your own measures and not by the "markets". If the gas isn't there (or committed elsewhere), no price will provide it.

    And who will build the interconnectors? Who will ride roughshod over the local and environmental obstacles? Who will pay for the infrastructure if the indispensable-to-finance-them long term contracts are a big no-no?

  • The EU then raises the issue of "unbundling", i.e. the legal separation of transport networks from the production companies. It is said discreetly that the EU will push for unbundling directives - because the fact is that such unbundling is NOT in the existing directives, or at least not to the extent desired by the liberalisers (but it's presumably in the "spirit" of these directives, right?).

To sum it up, these articles and procedures are full of innuendo, grand sounding principles, and hot air.

Energy supply is both cheaper and more reliable in "protectionist" markets than in liberalised markets, or, to use better terminology, in secure markets than in chaotic markets. And there is no reason today for the secure markets to pay for the fecklessness of their neighbors.

Maybe Blair and Barros should read La Cigale et la Fourmi

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I saw this article and thought I'd leave it to you ... I did like the "failed" to supply bit.
by Colman (colman at eurotrib.com) on Wed Apr 5th, 2006 at 09:56:37 AM EST
I loved this bit too:


France was told that electricity and gas companies had to make further efforts to divide these operations. Paris was also told that low, regulated power prices made it hard for new companies to get a foothold in the electricity market.

So, EDF's prices are so cheap that others cannot compete! So EDF should increase prices so that others can compete, so that market efficiencies can then bring prices down??!!

Do they realize how stupid they sound? Why is the answer to that question is "no"??

(And of course, they cannot even blame France for subsidising EDF, as it doesn't. EDF actually had a BIGGER operating profit than Total in 2005, despite the low prices.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 5th, 2006 at 10:15:08 AM EST
[ Parent ]
Are you writing an op-ed about this? Or an LTE? Or the LTE as the executive summary of the op-ed?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 10:16:44 AM EST
[ Parent ]
I'll try to send an LTE to the FT tonight or tomorrow morning, if I ever find the time. I was travelling again this afternoon. Long and tiring.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 5th, 2006 at 02:54:35 PM EST
[ Parent ]
Dear Sir

In your front page article yesterday on the European Commission action in the energy sector ("Energy at heart of EU bid to open markets") you write the following: 'Paris was also told that low, regulated power prices made it hard for new companies to get a foothold in the electricity market." At the same time, you lament that protectionism from various countries, notably France, prevents the competition that would make possible lower prices in the energy sector.

If I understand you correctly: EDF is selling its electricity so cheaply that others cannot compete with it, so the French regulator (or, presumably, the European regulator you call for) should force it to increase its prices to make the market more competitive, in order for prices to eventually go down? What's wrong with low prices to start with?

It would be appropriate for your journalists to remember that markets do not guarantee lower prices, they only promise more transparent prices, thus theoretically allowing for a better allocation of resources by producers and consumers.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 5th, 2006 at 03:40:48 PM EST
[ Parent ]
It's very good, though it might be clearer at one point if you said, for example:

"...should force it to increase its prices to allow other companies to enter the market, so that competition can bring prices down? ..."

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Apr 5th, 2006 at 04:02:12 PM EST
[ Parent ]
Jerome writes:
The best way to have lower prices in a highly capital-intensive industry like energy production is to benefit from lower financing costs via sovereign priced debt - something that sadly European rules no longer allow. Instead, we have chosen to let the private sector invest in the comparatively cheaper to finance gas-fired or coal-fired plants
So, what exactly are the European rules on public financing?

I think this ties in with the discussion in the last of Agnes' running series of diaries on Public-Private Partnerships, where we discovered much to my horror that PPP is an elaborate creative accounting scheme which only makes things more expensive for the government in the long run, but allows the costs to be accounted as operating and not financing, to get around European rules.

Is, as it increasingly seems the more I learn about it, the EU's monetary and financial policy completely wrong-headed, and what can be done to fix it?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 06:03:44 PM EST
[ Parent ]
I read the same argument in Le Monde this morning and it got me rolling on the floor. The irony is absolutely brilliant!

And the most funny thing is I'm sure that Kommissar Andris Piebalgs is making it in all seriousness. Gosh, that guy could be a Soviet-era communist. Exact same mindset. Just a different Little Red Book.
by Francois in Paris on Wed Apr 5th, 2006 at 10:29:07 AM EST
[ Parent ]
Holy crap ! WTF? The article has changed ! Now, it's:
Le commissaire chargé de l'énergie, Andris Piebalgs, va en particulier demander des explications à Paris dans le secteur du gaz au moment où l'opérateur public Gaz de France fusionne avec Suez : il met en cause, comme dans l'électricité, la régulation des prix et la séparation insuffisante des activités de génération, et de distribution.
Much more neutral.

The money shot can still be found here.
La France est accusée de pratiquer des prix contrôlés, assez bas, qui empêchent tout concurrent d'entrer sur le marché.
by Francois in Paris on Wed Apr 5th, 2006 at 11:06:30 AM EST
[ Parent ]
I was actually feeling a bit depressed this morning that the EU had apparently picked up the free markets reins and was trying to whip the non-cooperative horses into action (their way). What the hell is going on? Why all of a sudden all this "reform" talk, when it isn't reform at all, but destructive.

Thank you Jerome for taking them on, and showing them another view.

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

by whataboutbob on Wed Apr 5th, 2006 at 10:10:31 AM EST
It's not "all of the sudden".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 10:15:31 AM EST
[ Parent ]
That's the commission we have: very ideologically free-market with most of them appointed by right-wing governments.

That's why Migeru contends that the current paralysation of the EU is a good thing: anything those so-and-sos pass would be worse than nothing.

by Colman (colman at eurotrib.com) on Wed Apr 5th, 2006 at 10:17:17 AM EST
[ Parent ]
You saw what the European Parliament did to the Services Directive, too. And the paralysis is at the level of the council. Ironically, they are both right-wing and nationalist, so they appoint economic neoliberals to the commission, and then they get all protectionist at the level of the council. That's the way to push an agenda, oh yes.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 10:23:50 AM EST
[ Parent ]
Me too !
Same as Migeru !
(and it rhymes!)

Paralysis is good when it affects this kind of bozos.
by Francois in Paris on Wed Apr 5th, 2006 at 10:34:09 AM EST
[ Parent ]
It rhymes? Where are yo putting the strees on miGEru?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 10:39:05 AM EST
[ Parent ]
Me too, I'm all for gridlock!

And it rhymes?

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Apr 5th, 2006 at 03:24:58 PM EST
[ Parent ]
Why aren't Spain or the Netherlands complaining, and only the UK (and apparently Italy?)? They have even higher prices.

The problem is the expectations: The UK has depleted the North Sea gas fields and prices have gone through the roof overnight. The other countries didn't have any expectations of low prices.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 10:18:40 AM EST
The energy policy is here not even discussed. Not in public. Not in the press. Not in the politics. Silly, silly, silly. The focus is rather on the Candy of the Day.

Today it's all about Rita Verdonk throwing herself into the fray as candidate to become VVD party-leader. VVD has steadily drifted towards the neocons across the years (although we call it neoliberals in Dutch). Whatever the outcome, it's all wrong for me. It's either Verdonk, a Thatcherite conservative with a populist strategy, or the other big candidate Mark Rutte (now secretary of Education) who is a full-blood neocon as they come and responsible for the smear-campaign against the PvdA in the local election, past March.

I don't mind. Internal strife within the VVD one year before national elections is a potential boon for other parties. Old VVD members already cautioned so.

Mmmph. Went off-topic, I see. Oh well.

by Nomad on Wed Apr 5th, 2006 at 01:34:33 PM EST
[ Parent ]
I've hear that some of the electricity utilities started pushing for a big national merger last month. Not sure where that went, though...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 5th, 2006 at 03:29:42 PM EST
[ Parent ]
Couldn't find much, the big outcry on the web is still on the unbundling of the networks and the suppliers. It wouldn't surprise me if you'd be familiar with EnergieNed (www.energiened.nl) although their website holds little English documents. There's a scathing pdf from 2 years back on this, here.

The Cabinet's decision shouldn't be that far away though and the last briefings suggest it gets through with little effort.

I've been wondering though... What if a company like EDF needs to liberalise, and it does practically in current form. I then get the impression the EU would create an energy monster (if you will) with an equity inflow large enough to take over rapid take-overs of other electricity suppliers... (Hence I suspect Brussels wouldn't stop just after liberalisation, they would want to fragment a state company as well.) Misguided thought?

by Nomad on Wed Apr 5th, 2006 at 06:42:48 PM EST
[ Parent ]
I suspect they'd want to do it for purely ideological reasons, and they'd of course be capable of inventing some cock-eyed rationale for it...
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Apr 6th, 2006 at 01:45:36 AM EST
[ Parent ]
So we are talking about the liberalised markets freeriding on the reserves of the others. Now THAT's markets in action.

Well, that's the very definition of "free markets", no? Socialize losses, privatize profits...
by Francois in Paris on Wed Apr 5th, 2006 at 10:32:21 AM EST
The first sentence of their article (form the normally good jouranlistic half, not from the op-ed section):


With countries from France to Poland in open revolt against rules establishing a common European economic market, Brussels regulators launched a broad legal attack yesterday on nations they say are endangering the European Union's future by ignoring its laws.

Journalism...

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Apr 5th, 2006 at 03:31:50 PM EST
Geez, this is as bad as the bad journalism on the Iran threat.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Apr 5th, 2006 at 04:07:01 PM EST
[ Parent ]
Hi Jerome, what do you think of this one on Chavez move to increase official oil reserves by providing long term contracts?
by Laurent GUERBY on Wed Apr 5th, 2006 at 05:28:38 PM EST
Hi Laurent - check the Countdown to $100 oil (25) diary - most of the thread below is about the Chavez announcement.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Apr 5th, 2006 at 06:05:39 PM EST
[ Parent ]


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