The recent initiative of the European Commission regarding the unbundling of the vertically integrated electricity sector throughout Europe, together with the controversy and resistance surrounding it, make the issue of ownership unbundling of particular interest.
This article discusses the prior attempts to liberalize electricity markets in California and the United Kingdom and the effects of ownership unbundling on consumer welfare, environmental protection, and energy security. Drawing from both the failure of liberalization in California and the relative success in the United Kingdom, this article concludes that, although necessary, ownership unbundling of vertically integrated electricity markets is not sufficient to foster competitive markets. Regulatory oversight, such as present in the United Kingdom and proposed in the third energy package, is also necessary. Ownership unbundling may also facilitate positive outcomes in the areas of consumer welfare, development of renewable energy, and energy security.
The article further examines the current proposal put forth by the European Commission in its third energy package. We conclude that the Independent Systems Operator (ISO) compromise, providing for two functionally different regimes, undermines the objectives of a unifi ed European electricity market and the benefits it would provide.World Competition