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The Unbundling Regime for Electricity Utilities in the EU: A Case of Legislative and Regulatory Capture?


Silvester Van Koten


Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Andreas Ortmann


University of New South Wales - Australian School of Business

May 1, 2007

CERGE-EI Working Paper No. 328

Abstract:     
Theory and empirics suggest that by curbing competition, incumbent electricity companies which used to be and here are referred to as Vertically Integrated Utilities (VIUs), can increase their profitability through combined ownership of generation and transmission and/or distribution networks. Because curbing competition is generally believed to be welfare-reducing, EU law requires unbundling (separation) of the VIU networks. However, the EU allows its member states the choice between incomplete (legal) and complete (ownership) unbundling. There is tantalizing anecdotal evidence that VIUs have tried to influence this choice through questionable means of persuasion. Such means of persuasion should be more readily available in countries with a more corrupted political culture. This paper shows that among the old EU member states (EU-15), countries which are perceived as more corrupt are indeed more likely to apply weaker forms of unbundling. Somewhat surprisingly, we do not obtain a similar finding for the new EU member states that acceded in 2004 (NMS-10). We provide a conjecture for this observation.

Number of Pages in PDF File: 26

Keywords: electricity markets, regulation, vertical integration, corruption

JEL Classification: K49, L43, L51, L94, L98

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Date posted: March 30, 2008  

Suggested Citation

Van Koten, Silvester and Ortmann, Andreas, The Unbundling Regime for Electricity Utilities in the EU: A Case of Legislative and Regulatory Capture? (May 1, 2007). CERGE-EI Working Paper No. 328. Available at SSRN: http://ssrn.com/abstract=1114346 or http://dx.doi.org/10.2139/ssrn.1114346

Contact Information

Silvester Van Koten (Contact Author)
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )
Politickych veznu 7
Prague 1, 111 21
Czech Republic
HOME PAGE: http://www.cerge-ei.cz
Andreas Ortmann
University of New South Wales - Australian School of Business ( email )
High Street
Sydney, NSW 2052
Australia

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