Transmission Networks in Electricity Competition : Third-Party Access and Unbundling – A Transatlantic Perspective

Non-discriminatory third-party access to transportation infrastructures in electricity - transmission and distribution networks - is essential for open and effective competition in wholesale and retail electricity markets. Competition in wholesale energy markets is possible and desirable as it will lead to lower prices, increase innovation, improve the quality of the service, foster investment in energy infrastructure, and promote renewable energy sources. However, transmission assets are generally considered natural monopolies as they are not economically duplicable. Because of their ‘bottleneck’ nature and their essentiality to transport electricity from generators to end consumers, network owners may use them anticompetitively. For instance, by denying access to other generators to their transmission infrastructure, grant access in discriminatory terms to exclude them (horizontal foreclosure), and/or exert vertical market power vis-à-vis buyers and consumers of electricity (downstream exploitation). To mitigate these competition risks, it is necessary to grant access to transmission networks to all electricity generators on a non-discriminatory basis through open access tariffs authorised and overseen by energy regulators. Nonetheless, third party access (“TPA”) alone is insufficient. TPA must be made effective in order to promote and protect competition in electricity and gas markets. This is done by imposing rules regarding the ‘unbundling’: the functional, control or structural-based separation of the generation and/or supply assets from the physical transmission or distribution networks. In this paper I analyse how the law in the US and the EU has addressed the problems stemming from the control over transmission networks through imposing a requirement for unbundled and non-discriminatory access to electricity transmission networks through regulatory and antitrust rules. Specifically, I compare and discuss the legal measures which have imposed TPA and the different unbundling models. The contribution shows that both regimes have pursued a similar policy concerning TPA and to a large degree unbundling mechanisms. Two differences are significant, however. First, the concomitant application of antitrust law to industries under the scope of sectoral regulation. Second, the preferred unbundling method: resorting either to structural forms requiring the divestiture of a vertically integrated undertaking (“VIU”) that owned transmission and generation assets, or instead allowing companies to remain vertically integrated, separating transmission operations from generation through functional or control-based options