Executive Summary - Ernst & Young

Ernst & Young’s New Study onEU Energy Market RestructuringErnst and Young is about to release a new report on the impact of unbundling on European utilities. It examines the implications for differentmarkets and the strategic options which companies now face. Below is a summary of the report’s contents and conclusions. For a copy of thefull report please get in touch with Helmut Edelmann on helmut.edelmann@de.ey.com or call your usual Ernst & Young contact.Unbundling Study 2007: Executive SummaryIntroductionEuropean countries may acknowledge the value of cooperation,but they tend to resist conformity. The utilities sector is a perfectexample of this tension: there’s a massive diversity from country tocountry in terms of openness, competition, regulation, and ownershipacross the industry. The challenge on the European Union’s (EU)hands is creating a level playing field for competition in the faceof such diversity. If they cannot find a way to do this, the stated aimof the European Commission (EC) “…to open up Europe’s gasand electricity markets to competition and to create a singleEuropean energy market,” 1 could very well be in jeopardy.There are clearly two camps with clearly opposing views, one oneither side of the EU’s new proposals to deliver a single Europeanenergy market. Those in favor – which tend to be the countries aroundthe edge of Europe – have largely fulfilled ownership unbundling andmany, with the exception of the UK, have an industry which is stilldriven by state-owned utilities.The other camp – the ‘opponents’ if you like – encompassesthe countries in the middle of the European continent, where themarkets tend to be dominated by vertically integrated transmissioncompanies, in many cases privately-owned. The countries in favor –and their utilities – are likely to be seen as the winners at the endof this process.Depending on who you talk to, the proposed unbundling reformsmay or may not solve the problems of conflict of interest.Opinion among EU Member States remains divided, with Franceand Germany strongly resistant, whilst Spain, Sweden, and theUK are in favor. What is clear is that unbundling would certainlyhave serious consequences for the ownership, structure, andmanagement of the present vertically integrated utilities (VIUs),and for the utilities sector as a whole.1Sector Inquiry 10 January 20072W ILL OWNERSHIP U NBUNDLING D ELIVER?