Subject: RE: Eu Liberalisation: Procedure and Substance of an Art 86(3) Directive
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Wed, 4 Jul 2001 08:29:00 -0700 (PDT)

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