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Full Ownership Unbundling of the Dutch Distribution Network Operators: a European Test Case? Hamilcar Knops Laurens de Vries Stockholm, 20 June 2011. European Union. European Union. Primary Law: Treaties Secondary Law: e.g. Directives.

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Full Ownership Unbundling of the Dutch Distribution Network Operators: a European Test Case?Hamilcar KnopsLaurens de VriesStockholm, 20 June 2011

european union
European Union

European Union

Primary Law: TreatiesSecondary Law: e.g. Directives

…which is binding upon Member States (MS); …Directives must be implemented by MS

MS

MS

MS

unbundling the evolution 1
Unbundling: the evolution (1)

Before liberalisation

First package (Dir. 96/92/EC)

Second package (Dir. 2003/54/EC)

Third package

Production

Network

Supply

Production

Production

Network

Network

?

Supply

Supply

Integrated company

-Management unb.-Separate accounts…but one company

Legal unbundling:separate entities,…but one group

unbundling the evolution 2

Prod.

Prod.

Prod.

N.Op.

Netw.Oper.=Owner

Net.Own.

Netw.Oper.

N.Ow.

Sup.

Sup.

Sup.

Indep.TO :(legal unb.)all in one group

Full ownership unbundling(preferred option of EC)…not in one group

Independent SO:- operator separate,- ownerpart ofgroup

Unbundling: the evolution (2)

2nd package (2003/54/EC)

3rd package: Transmission(2009/72/EC) 3 options

Prod.

Netw.

Sup.

Legal unb.

unbundling the evolution 3

Prod.

Netw.

Sup.

Legal unbundling

Unbundling: the evolution (3)

2nd package (2003/54/EC)

3rd package: Distribution(2009/72/EC) unchanged

Prod.

The provisions of the EU Directive are minimum requirements:could a Member State go further?

Netw.

Sup.

Legal unbundling

unbundling the netherlands

Challengedin court

Unbundling: the Netherlands

Old situation (2004):Legal unbundling:all in one group

New situation (from 1/1/2011):Full ownership unbundling(network operator-owner not in group with prod. or supply)

Production

Production

NetworkOperator =Owner

Netw. Op.

Netw. Own.

Supply

Supply

Government-owned

Government-owned

Can be privatised

legal framework

…aiming at the creation of a single market in the EU

Legal Framework

European Union

Primary Law: TreatiesSecondary Law: e.g. Directives

MS

MS

MS

Restrictions to freedoms only allowed- if EU legislation provides for it - or if MS measure is necessary and proportionate to secure a public interest (but may not be an economic interest)

‘Four freedoms’: - free movement of goods - free movement of persons - freedom of establishment- free movement of capital

the dutch case 1
The Dutch Case (1):

Is the requirement of full ownership unbundling for distribution system operators allowed under EU law?

Dutch arguments for full ownership unbundling:- independence of network operator- prevent cross-subsidies from network to other activities- enhance transparency for regulator- improve focus on the network business

How did the courts rule?

District Court: yes, it is a justifiable restriction

Court of Appeal: no, it is not

Supreme Court: case pending

European Court of Justice: not involved yet (preliminary ruling?)

the dutch case 2
The Dutch Case (2):

Is the requirement of full ownership unbundling for distribution system operators allowed under EU law?

Reasoning of the Court of Appeal:

- the measure is a restriction of free movement of capital- the reasons behind it are - either purely economic (functioning of energy market) - or not necessary or proportionate in the case of the non-economic rationales- and therefore the restriction cannot be allowed and hence it is against EU law and must be ruled void

conclusion
Conclusion

● First experiences with fully unbundled DSOs seem positive

● But it remains unclear whether a single EU Member State may impose full ownership unbundling for DSOs, given the EU Treaty (free movement of capital) and the current energy Directives (which require only legal unbundling)

● We have to wait for the court(s): Dutch Supreme Court and, maybe, the European Court of Justice (=highest EU court)

● It may be better if the Directives would be clear about the possibility of full ownership unbundling for DSOs (like TSOs)

● Finally, the doctrine about the exceptions to free movement of capital should be reconsidered