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Competition Lost

U.S. companies' international strategies turn sour, as Europe faces a future with an oligopoly of power companies.
Fortnightly Magazine - February 1 2003


The current calendar year is a "crossroads" in Europe, says CERA's Foster. "This is where the debates play out. If they get it right they can slow the migration of heavy industry to other regions."

However, the E.U. council's mandate for full opening affects only a few countries, most notably France, Foster says, and even for those countries there will be a review process before the final stage of market opening.

"Within those requirements, governments have a lot of leeway on application," he says.

For example, some parliaments will discuss whether to privatize government-owned utility holdings. And that will include debates over how to balance budgets, provide employment, and ensure competition and energy security, he says.

"This is a crucial year for determining how much political will a government has to pursue one path or another," he says.

Still, policies and laws so far have allowed incumbents to keep the home-field advantage.

The European Union recently began proceedings against protectionist laws in Spain and Italy that were designed primarily to keep EDF from acquiring assets in those countries. Italy and Spain reasoned that since France hadn't reciprocated by allowing acquisitions of French assets, EDF shouldn't be allowed to buy Italian and Spanish assets.

The German constitution prohibits interference with private property ownership, thus ruling out forced divestitures. That could protect large incumbent players, especially E.ON and RWE.

Many outsiders are critical that Germany lacks the regulatory authorities to uphold grid access provisions.

Germans argue that their nation was one of the few E.U. states to grant supplier choice to all customers. Yet, large players increasingly dominate that market. In addition to E.ON and RWE, the only competitors that have made significant inroads are EDF, which owns 35 percent of ENBW, and Vattenfall, which has 90 percent control of BEWAG and a majority of the VEAG and LAUBAUG utilities.

France, with its primarily government-owned EDF nuclear utility, isn't a good candidate for divestiture, observers note. Breaking up the huge nuclear utility would be inadvisable from an efficiency and possibly a safety standpoint, they say.

At the same time, suppliers of power customers need to either own generation or have good contracts with power producers to back their obligations to customers, says John Easton, Edison Electric Institute's vice president for international issues.

"If all your generation is in the hands of one provider you are not going to have as effective competition as you would with generation in the hands of many," Easton says.

While prices are depressed in the United Kingdom, the future for industrial and commercial customers is likely to include higher prices.

Foster says big industry is looking to China and other developing regions where power is cheaper. That threat puts pressure on governments to encourage competition as a means of holding down prices.

Still, many experts see little hope for adventurous newcomers.

"I think the opening of the European market will primarily benefit larger European companies, and in particular EDF and the German utilities who are presently doing many of the acquisitions across Europe," says Easton.

U.S. companies would