TILEC 4th Energy Round Table: How to prevent abuse by electricity firms?

Ten years after the opening of the electricity markets, the results of the liberalization are mixed. Some progress has been achieved, but a healthy internal market for electricity has not developed. Abuse of market power by electricity firms is a growing concern, shared by both national and international regulators. Recently DG-competition launched a sector enquiry into the energy sector and concluded that there are 'serious malfunctions' in the market. Further actions by the European Commission are likely to follow in the beginning of 2007. In anticipation of these events, TILEC organized the 4th Energy Round Table on the consolidation of the electricity sector and the potential (abuse) of market power by dominant firms. Together with experts from the industry, the regulators and anti-trust authorities, two solutions were discussed to address market power in the wholesale market: (1) Merger policy is a very useful tool in the electricity market, but standard merger rules based upon HHI-indices and SSNIP-tests cannot be applied. Economic and legal practice has to create new and sector-specific rules to define relevant markets and to test the anti-competitive effects of a merger. (2) Market Monitoring and automatic mitigation is a solution which is used extensively in the U.S. to curb market power by electricity firms. The European Union has taken a different approach with respect to market power relying more on traditional anti-trust rules (Art. 82). Nevertheless, the European Union would gain a lot from improving the existing monitoring functions. The topic of the workshop forms part of the larger research at TILEC on the organization of energy markets. For more information you may contact Bert Willems.