Committed to Reform?

Malgorzata Sadowska is Research Fellow at the European University Institute and focuses on the law & economics of energy regulation and EU competition enforcement in the energy sector. She also coordinates the activities of the Energy Law Area at the Florence School of Regulation. Prior to joining EUI in 2013, she was Researcher in EU energy regulation at Tilburg Law & Economics Center, and worked at the European Commission, DG Competition and in leading competition and public law firms in Brussels and Cologne. Malgorzata holds a PhD in Law and Economics (EDLE joint doctoral programme by the Universities of Rotterdam, Bologna and Hamburg, 2013) and Master degrees in Law (University of Gdansk, 2006) and European Studies (University of Hamburg/Europa-Kolleg, 2008).

CON TE N TS Acknowledgements ... v List of Tables and Figures ... xi Chapter 1. Introduction ... 1 1.1. Problem Definition ... 2 1.2. Context ... 4 1.2.1. What Are Commitment Decisions?... 4 1.2.2. Potential Benefits of Commitment Procedure and Incentives to Engage in Negotiations ... 6 1.2.3. Making the Link with Electricity Markets ... 10 1.2.4. What's at Stake? The EU Internal Market for Electricity ... 17 1.2.4.1. Early Legislative Reforms: the 1st and the 2nd Energy Package ... 19 1.2.4.2. The Use of Competition Toolbox: the Energy Sector Inquiry and the Follow-Up Actions ... 21 1.2.4.3. Where Do We Stand Now? Th e 3rd Energy Package ... 24 1.2.4.4. Actions for Non-Compliance ... 25 1.2.4.5. On the Home Straight? ... 26 1.3. Energy Policy and Competition Policy: Definitions ... 27 1.4. Dealing with Gap Cases: Some Comments on the Greek Lignite Case ... 29 1.4.1. The Case ... 30 1.4.2. Discussion ... 33 1.5. Literature Review ... 34 1.5.1. Debate on Commitments ... 36 1.5.1.1. Optimal Use of Commitment Decisions ... 38 1.5.1.2. Suboptimal Use of Commitment Decisions ... 42 1.5.2. Debate on the Use of Commitments for Regulatory Purposes: Instrumentalisation ... 43 1.5.2.1. Suboptimal Outcomes and the Risks of Instrumentalisation ... 44 1.5.2.2. Formlessness of Article 9 and the Opportunities It Creates ... 48 1.5.2.3. Some Final Remarks ... 55 1.5.3. Research Justification ... 57 Committed to Reform? 1.6. Research Question and Methodology ... 59 1.6.1. Why Electricity Markets? ... 60 1.6.2. Why the E.ON and SvK Cases? ... 61 1.7. Chapter Overview ... 63 1.7.1. Chapter 2 ... 64 1.7.2. Chapter 3 ... 66 1.7.3. Chapter 4 ... 70 1.7.4. Chapter 5 ... 74 Chapter 2. Energy Liberalisation: Excessive Pricing Actions Dusted Off ? ... 79 2.1. Chapter Summary ... 79 2.2. Introduction ... 79 2.3. The Paradox ... 81 2.4. Invalidating the Criticism ... 82 2.4.1. Intervention might be Superfluous or Even Harmful... 82 2.4.2. Assessment Problems ... 84 2.4.2.1. Sector Inquiry Opens the Case - ... 84 2.4.2.2. - And a Commitment Decision Closes It - ... 87 2.4.3. Price Regulation ... 89 2.4.3.1. - With a Structural Solution... 89 2.5. Conclusions ... 90 Chapter 3. Energy Liberalisation in an Antitrust Straitjacket: A Plant Too Far? ... 93 3.1. Chapter Summary ... 93 3.2. Introduction ... 93 3.3. Far-Fetched Concerns ... 96 3.3.1. Dominance ... 98 3.3.2. Abuse ... 100 3.4. Far-Reaching Remedies ... 103 3.4.1. Step 1: Alternative Behavioural Commitments? ... 107 3.4.2. Step 2: Appropriate and Necessary Structural Commitments? . . 108 3.4.3. Commitments and Exploitative Concerns ... 111 3.4.4. Commitments and Exclusionary Concerns ... 115 3.5. Conclusions ... 116 3.6. Annex 1 ... 117 3.7. Annex 2 ... 122 3.7.1. Spain ... 122 3.7.2. Denmark ... 123 3.7.3. Germany... 125 3.7.4. The UK ... 126 Contents 3.7.5. Italy ... 128 3.7.6. Belgium ... 129 3.7.7. Discussion ... 130 Chapter 4. Market Integration and Economic Effi ciency in Confl ict? Commitments in the Swedish Interconnectors Case ... 135 4.1. Chapter Summary ... 135 4.2. Introduction ... 136 4.3. Model ... 138 4.3.1. Set-Up ... 138 4.3.2. First-Best ... 140 4.3.3. Scenarios ... 143 4.4. Results ... 146 4.4.1. Counter-Trading with Full Congestion Shift ing (Alleged Abuse) ... 146 4.4.2. Counter-Trading without Congestion Shift ing (Interim Remedy as Implemented) ... 151 4.4.3. Counter-Trading with Partial Congestion Shift ing (Optimal Interim Remedy) ... 154 4.4.4. Market Splitting (Final Remedy) ... 157 4.4.5. Comparison of Four Scenarios ... 160 4.5. Conclusions ... 163 Chapter 5. Power Markets Shaped by Antitrust ... 169 5.1. Chapter Summary ... 169 5.2. Introduction ... 169 5.3. The Case and Its Context ... 171 5.4. Internal Market Objective Reached with Competition Policy... 174 5.4.1. Political Climate and Legal Concerns Likely Delayed the Case . . 175 5.4.1.1. Political Climate ... 175 5.4.1.2. Legal Concerns ... 177 5.4.2. Commitment Procedure Simplifies the Case ... 179 5.4.3. Promotion of Market Integration as a Key Objective in the SvK Case ... 180 5.4.4. Neglecting Objective Justification ... 183 5.4.4.1. Objective Justification and Commitment Procedure ... 183 5.4.4.2. Objective Justification Based on Efficiencies ... 186 5.4.4.3. Objective Justification Based on Public Interest ... 187 5.4.5. Proportionality of the Final Remedy ... 189 5.5. SVK's Commitments in the Light of the Nordic Debate ... 191 Committed to Reform? 5.6. European Rules on Congestion Management ... 197 5.6.1. Existing EU Rules on Congestion Shifting ... 198 5.6.2. Existing EU Rules on Congestion Shifting: What Do Th ey Mean for the TSOs? ... 200 5.6.3. The New CACM Network Code and Its Impact on Congestion Shifting ... 203 5.6.4. Limits of the EU Regulation ... 207 5.7. Conclusions ... 209 Chapter 6. Conclusions ... 213 6.1. Energy Policy Dimension ... 213 6.1.1. Regulatory Objectives Pursued by the Commission... 213 6.1.2. Overcoming the Limits of Sector-Specific Regulation ... 214 6.1.3. Overcoming Political Opposition ... 216 6.1.4. The Commission's Bigger Toolbox for Regulatory Purposes... 217 6.2. Competition Policy Dimension ... 218 6.2.1. Suboptimal Case Selection and Prioritisation (1a) ... 219 6.2.2. Suboptimal Antitrust Response (1b) ... 221 6.2.3. Pro-Article 9 Bias (2) ... 222 6.2.4. The Commission's Smaller Toolbox for Regulatory Purposes ... 222 6.3. Addressing the Research Question ... 223 6.4. Scope for Further Research ... 224 Chapter 7. Summary ... 227 References ... 231