Vicky A. Bailey, a member of the Federal Energy Regulatory Commission, has left the FERC to serve as president of Cinergy Corp.'s PSI Energy Inc. unit in Indiana. Bailey served on the Indiana...
U.S. companies' international strategies turn sour, as Europe faces a future with an oligopoly of power companies.
While the European Union is pushing to give all industrial and commercial customers electric choice by 2004, giant incumbent European utilities are increasingly dominating power markets across Europe and the United Kingdom.
U.S. companies have exited the United Kingdom and Europe in droves. Had the E.U. energy ministers' decision come a few years earlier, U.S. companies might have been in a much better position to take advantage of the opening.
But the decision has been a long time coming. After all, the European Union directed that its 15 member nations open their transmission systems to competitors back in 1996.
Today an oligopoly is developing in which as few as five or six major power utilities-including France's state-owned EDF nuclear giant, Italy's largely state-owned Enel, and Germany's privately owned utilities E.ON and RWE-could dominate European and U.K. power markets in a few years, experts say. Other contenders include Belgium-based Electrabel; Spain-based Endesa and Iberdrola; Sweden's state-owned Vattenfall; and France-based SUEZ.
None of the top utilities is based in the United Kingdom, but some have made significant inroads there. E.ON, for example, has acquired British utility Powergen, a move E.ON has described as an important step in implementing its international expansion strategy.
The future for competition on the Continent isn't at all promising. Unlike the United Kingdom, which broke its state-owned electric system into generation, supply, and distribution packages and sold them to competitors, European nations have not required massive divestitures that would break up the vast holdings of incumbent utilities. Most of the European nations have incumbent utilities that dominate their markets. Would-be competitors face the daunting challenge of competing against the incumbents' entrenched networks of generation and transmission facilities.
Matthew Jarman, director of European utilities for global investment bank Lazard, says the dynamics vary from nation to nation, but that, other than in the United Kingdom, the breakup of major utilities has not occurred. While some attempts have been made to limit the growth of incumbents in Germany, Italy, and Spain, Jarman wonders how far new competitors can go in these markets.
"It is going to be tough for new players entering overseas markets because they are going to be up against a strong incumbent, and the question is, what are regulators or governments going to do to weaken the position of that incumbent?" Jarman says.
Far from "liberalizing" the European market, the effect of a classic oligopoly is to establish a structure of rigid prices. Each firm knows its price and share of the total market will affect the price and output decisions of the other members of the oligopoly. Tacit or collusive agreements develop because of this marked degree of interdependence.
As a result, to the extent that there is competition, companies focus primarily on areas outside of price. The companies may offer variations in service or less productive responses such as "packaging" and advertising. However, the main thrust of competition, namely to lower power prices through competitive gains in efficiency, is lost.