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

CERGE-EI Working Paper No. 328

26 Pages Posted: 30 Mar 2008  

Silvester Van Koten

University of Economics, Prague - Department of Institutional Economics

Andreas Ortmann

UNSW Australia Business School, School of Economics

Date Written: May 1, 2007

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.

Keywords: electricity markets, regulation, vertical integration, corruption

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

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: https://ssrn.com/abstract=1114346 or http://dx.doi.org/10.2139/ssrn.1114346

Silvester Van Koten (Contact Author)

University of Economics, Prague - Department of Institutional Economics ( email )

Prague
Czech Republic

Andreas Ortmann

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

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