Message-ID: <17090117.1075851972098.JavaMail.evans@thyme> Date: Wed, 4 Jul 2001 08:29:00 -0700 (PDT) From: brendan.devlin@enron.com To: peter.styles@enron.com Subject: RE: Eu Liberalisation: Procedure and Substance of an Art 86(3) Directive Cc: paul.hennemeyer@enron.com, richard.shapiro@enron.com, paul.dawson@enron.com, doug.wood@enron.com, nailia.dindarova@enron.com, bruno.gaillard@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: paul.hennemeyer@enron.com, richard.shapiro@enron.com, paul.dawson@enron.com, doug.wood@enron.com, nailia.dindarova@enron.com, bruno.gaillard@enron.com X-From: Brendan Devlin X-To: Peter Styles X-cc: Paul Hennemeyer, Richard Shapiro, Paul Dawson, Doug Wood, Nailia Dindarova, Bruno Gaillard X-bcc: X-Folder: \Richard_Shapiro_Nov2001\Notes Folders\All documents X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf Paul is right and so am I. Legal unbundling is exactly what you say it is; but that still entails a change of ownership, perhaps not ultimate ownership, but at least structure (as you put it, a 'separate corporate entity'). If one looks at the jurisprudence in the Transparency Directive Case, a requirement to make accounts transparent and unbundled was OK, but by implication a requirement to legally unbundle was not. In passing, the Transparency Directive Case is the thing to mention if anyone ever argues that nuclear power is not subject to State Aid rules. In that case, the French argued that introducing transparency into EdF accounts would contravene the Euratom treaty as EdF was a nuclear producer. The Commission wanted transparency in order to enforce the state aid rules under the EC rules. France lost. The Court said that any entity that was supplying into a commercial market was subject to the EC rules. You often still see the myth that nuclear power is outside the state aid rules. Peter Styles@ECT 07/04/2001 11:55 AM To: Paul Hennemeyer/Enron@EUEnronXGate @ ENRON cc: Brendan Devlin/EU/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Paul Dawson/Enron@EUEnronXGate@ENRON, Doug Wood/Enron@EUEnronXGate@ENRON, Nailia Dindarova/LON/ECT@ECT, Bruno Gaillard/Enron@EUEnronXGate Subject: RE: Eu Liberalisation: Procedure and Substance of an Art 86(3) Directive Brendan: Paul is right that we (and DG TREN more importantly!) use the term "legal unbundling" to denote placing of transmission function in a separate corporate entity with "Chinese walls" built around it (viz. accompanying requirements to achieve that in draft acceleration directive.) We use the term "ownership unbundling" to denote alienation of shares in a transmission company to separate (though possibly overlapping) shareholders, thereby achieving a differentiation of control as between it and the supply and generation/ production/ importation functions. A forced change of ownership is claimed by the German cos. to be contrary to the German federal constitution and by EdF and GdF to require amendments to the French nationalisation legislation passed just after World War II. I will leave you to answer Paul's questions 2 and 3. From: Paul Hennemeyer/Enron@EUEnronXGate on 03/07/2001 09:51 To: Brendan Devlin/EU/Enron@Enron, Richard Shapiro/NA/Enron@Enron, Peter Styles/LON/ECT@ECT, Paul Dawson/Enron@EUEnronXGate, Doug Wood/Enron@EUEnronXGate cc: Nailia Dindarova/LON/ECT@ECT Subject: RE: Eu Liberalisation: Procedure and Substance of an Art 86(3) Directive Devlin Thanks for the note. Very useful. A few questions for clarification: 1. Can the Directive do nothing about legal unbundling? As I understand it this involves no change in ownership but just a requirement that the owners of Company X spin off their network operations into a different company - which they would still own. 2. It seems that your statement that "only States can be addressed" opens up the possibility that States could, following an 86-based Directive, undertake a range of actions - including forcing a more level playing field by requiring more unbundling and regulated TPA. Is this correct? 3.What specific actions might be undertaken by the Commission as part of 86-based Directive? Thanks, Paul -----Original Message----- From: Devlin, Brendan Sent: 02 July 2001 17:55 To: Shapiro, Richard; Styles, Peter; Hennemeyer, Paul; Dawson, Paul; Wood, Doug Cc: Dindarova, Nailia Subject: Eu Liberalisation: Procedure and Substance of an Art 86(3) Directive This e-mail is for background information so that we can have a clear view on the prospects and content of an eventual Art 86(3) Directive. The current European Commission's Directive is based on Art. 95 of the Amsterdam Treaty; this is an harmonisation Directive, which means that it can address any issue likely to impede cross-border flows of goods and services, and can have positive effects (such as requirements to set up a regulator). An Art 86(3) Directive, on the other hand, can only address concerns within the context of Art 86: Art 86 stipulates that member States of the EU shall not favour government owned entities or other entities, to whom public service obligations (PSO) have been assigned, unless such favour is necesary for that entity to carry out it's P.S.O.. Art 86(3) Directives are prohibitive and preventative, rather than prescriptive. In short, Art. 86 means that the competition rules apply to EdF, and if the member state won't enforce a level field, the Commission will. In procedural terms, Art. 86(3) Directives do not have to be passed by the Council (member states) nor by the Parliament, though in practice the Commission does not act unilaterally and seeks tacit cover. Thus, in the Telecomms sector, when the member States found it too hard politically to liberalise, they engineered an impasse in Council and invited sotto voce the Commission to force them to do it. In effect, the Stockholm Council's Conclusions are a similar coded request (the reference to competition rules would include Art. 86). Once before the College of the Commission, an Art 86(3) directive has to be agreed by simple a majority vote of all Commissioners (even if they are absent, so you need 11 positive votes). It cannot be blocked by a single Commissioner. Even if France/Germany combine, there would be 16 positive votes and four against. What can an Art 86(3) Directive do? -- Enforce accounts and management unbundling (not legal unbundling as that entails change of ownership). -- Abolish any exclusive rights that have an anti-competitive effect (such as exclusive use of infrastructure, rights to import/export, interconnector rights?). -- Broadly speaking, force liberalisation in a utilities sector. What an Art 86(3) Directive cannot do? -- Force any legal person to do anything (companies, individuals etc). Only States can be addressed. -- Address positive regulatory issues (set tariffs, create regulators, capacity upgrades, etc). In Summary: An Art 86(3) directive would be different from the directive already on the table; it would be more focussed and less general and would provide remedies for identified anti-competitive activities. Action: We should be in a position to place before the Commission an array of anti-competitive actions that can be remedied by an Art. 86(3) Directive, especially with regard to exclusive rights.. Brendan Devlin