The document discusses the rise and demise of the dogma of full ownership unbundling of distribution system operators in the Netherlands. Key events included EU directives requiring legal and managerial separation, proposals for full de-merger by 2007, and a Senate motion preventing mandatory unbundling unless grid independence was endangered. As a result, ownership unbundling did not occur, but new rules on grid management and oversight were implemented instead. Issues around financing grids and potential international alliances remained unclear.
2. Theriseanddemise
Theriseanddemiseofadogma
ofadogma
The Stage: EU
The Stage: EUrequirements
requirements The Plans: full ownership
The Plans: full ownership
unbundling
unbundling The Process: the Senate
The Process: the Senate
as lawmaker
as lawmaker The Product: the current
The Product: the current
situation in the
situation in theNetherlands
Netherlands
3. The Stage: EU DirectiveThe Stage: EU Directive ‘‘0303
““Legally separate entitiesLegally separate entities””
““Effective powers in respect of assets in caseEffective powers in respect of assets in case
they are owned by vertically integratedthey are owned by vertically integrated
companiescompanies””
““Independent management structuresIndependent management structures””
““Ownership questions not dealt with; noOwnership questions not dealt with; no
duty to separate ownership of assetsduty to separate ownership of assets””
““Compliance programCompliance program””
4. EU Sector enquiry report 10EU Sector enquiry report 10
January 2007January 2007
Findings:Findings:
Market concentration, whole sale marketsMarket concentration, whole sale markets
Vertical foreclosure, unbundling gridsVertical foreclosure, unbundling grids
Insufficient cross-border capacityInsufficient cross-border capacity
Lack of transparency market informationLack of transparency market information
Price formation not effective and transparentPrice formation not effective and transparent
Competition downstream markets limitedCompetition downstream markets limited
Balancing markets favour incumbentsBalancing markets favour incumbents
Potential for LNG yet to be realisedPotential for LNG yet to be realised
5. EU Commission EnergyEU Commission Energy
Package 2007Package 2007
Communication:Communication: ““An energy package for EuropeAn energy package for Europe””
Renewable Energy Roadmap & progress reports onRenewable Energy Roadmap & progress reports on
renewable electricity and bio fuels & communication:renewable electricity and bio fuels & communication:
““sustainable power generation fossil fuelssustainable power generation fossil fuels””
Prospect report internal market gas and electricityProspect report internal market gas and electricity
Priority interconnection planPriority interconnection plan
Nuclear energy illustrative programmeNuclear energy illustrative programme
Proposal future European Strategic Energy TechnologyProposal future European Strategic Energy Technology
planplan
6. Implementation of Directive inImplementation of Directive in
the Netherlandsthe Netherlands
Gas and ElectGas and Electricity Acts already went beyondricity Acts already went beyond
EU requirements, e.g.:EU requirements, e.g.:
Details separation producer/supplier/traderDetails separation producer/supplier/trader
Requirements on composition of supervisoryRequirements on composition of supervisory
board/ full management boardboard/ full management board andand majoritymajority
supervisory board nosupervisory board no ““connectionconnection”” to production,to production,
purchasing, supplypurchasing, supply
Mandatory list of supervisory board decisionsMandatory list of supervisory board decisions
shareholders no influence on duties grid managershareholders no influence on duties grid manager
group companies: code against discriminationgroup companies: code against discrimination
7. The Plans: even furtherThe Plans: even further
requirementsrequirements
March 2004,March 2004, ““Privatisation letterPrivatisation letter””
Complete de-merger of distribution grids perComplete de-merger of distribution grids per
1 January 20071 January 2007
Reasons for de-merger:Reasons for de-merger:
improper competitive advantagesimproper competitive advantages
financing advantage compared to new entrantsfinancing advantage compared to new entrants
influence independent decision makinginfluence independent decision making
Remedy: full ownership unbundling of gridRemedy: full ownership unbundling of grid
managersmanagers ““at shareholders levelat shareholders level””
8. …… and further requirementsand further requirements
Grid manager must have economic ownershipGrid manager must have economic ownership
of grid, its group must have legal ownershipof grid, its group must have legal ownership
Elaborate rElaborate rules preventingules preventing security rights tosecurity rights to
support commercial activities and financialsupport commercial activities and financial
soundness of grid managers:soundness of grid managers:
recapitalisation possibilitiesrecapitalisation possibilities
role of private equity /institutional investorsrole of private equity /institutional investors
(Most) existing group structures no longer(Most) existing group structures no longer
allowedallowed
9. CoCommon vertically integratedmmon vertically integrated
structurestructure
Governmental shareholders
Holding company
Grid manager Production
Purchasing and supply
10. The dogma: full ownershiThe dogma: full ownershipp
unbundledunbundled structurestructure
Governmental shareholders
Holding companyGrid manager
ProductionPurchasing and supply
11. …… aand some more idea’s andnd some more idea’s and
conceptsconcepts
Privatisation of production and supplyPrivatisation of production and supply
allowedallowed
Privatisation of minority interest in gridPrivatisation of minority interest in grid
managers under consideration, but nomanagers under consideration, but no
involvement parties engaged in supply orinvolvement parties engaged in supply or
production (exceptionproduction (exception ““present circlepresent circle””))
Completely independent (Completely independent (““fatfat””, but not, but not
““purepure””) grid manager, with ownership grid) grid manager, with ownership grid
and employees for strategic tasks and SLAand employees for strategic tasks and SLA’’ss
subject to EU public procurement rulessubject to EU public procurement rules
RegulatRegulator (DTe)or (DTe) advice on outsourcingadvice on outsourcing
12. The Process: Parliament andThe Process: Parliament and
SenateSenate Draft Bill on de-merger/ unbundling: approved byDraft Bill on de-merger/ unbundling: approved by
Parliament 27 April 2006,Parliament 27 April 2006, in Senate 14 Novemberin Senate 14 November
20062006
Issues abundant:Issues abundant:
Violation EU law/ appropriatenessViolation EU law/ appropriateness
Legal or economic ownership transferLegal or economic ownership transfer
Cross border leasesCross border leases
Tax issues, particularly tax groupsTax issues, particularly tax groups
Lobbying activities incumbents (legal action /Lobbying activities incumbents (legal action /
compromise?) and local governmentscompromise?) and local governments
13. Motion Doek and SylvesterMotion Doek and Sylvester
- Objective: mandatory de-merger /Objective: mandatory de-merger /
ownership unbundling will not enter intoownership unbundling will not enter into
force “force “unlessunless””
- Conditions:Conditions:
- EU Directive, orEU Directive, or
- Independent grid management endangered,Independent grid management endangered,
through:through:
- Foreign activities / Cross border alliancesForeign activities / Cross border alliances
- ““Balanced” market relations distortedBalanced” market relations distorted
- Non-transparent non-discriminatory relationsNon-transparent non-discriminatory relations
distorteddistorted
- No equal access to gridNo equal access to grid
- Motion adopted on 21 November 2006Motion adopted on 21 November 2006
14. Motion Doek and SylvesterMotion Doek and Sylvester- Effect: the Senate takes over the legislativeEffect: the Senate takes over the legislative
functionfunction
- The wording of the MotionThe wording of the Motion “the public and“the public and
independent grid management shall beindependent grid management shall be
endangered”endangered” is not very clearis not very clear
- If conditions are triggered, the MEA willIf conditions are triggered, the MEA will
consult the Parliament and produce aconsult the Parliament and produce a “KB”“KB”
to have the unbundling legislation enterto have the unbundling legislation enter
into forceinto force
- The conditions are, and will remain,The conditions are, and will remain,
unclearunclear
15. The Product: ImplementationThe Product: Implementation
scheme new lawscheme new law
No ownership unbundling distribution gridsNo ownership unbundling distribution grids
Immediately in force: new rules prohibitingImmediately in force: new rules prohibiting
transfer ownership in distribution gridstransfer ownership in distribution grids
As per 1 January 2008, new rules on:As per 1 January 2008, new rules on:
transfer management 110 kV grids to TSO,transfer management 110 kV grids to TSO,
““fatfat”” grid managers, andgrid managers, and
financial supervision grid managersfinancial supervision grid managers
Unclear: (minority) privatisation of gridUnclear: (minority) privatisation of grid
managersmanagers
16. Envisaged developments andEnvisaged developments and
issuesissues Financing, leveraging and the role of theFinancing, leveraging and the role of the
RegulatorRegulator
Prohibition/ limitation of security rights in the gridProhibition/ limitation of security rights in the grid
in respect of non-transmission related mattersin respect of non-transmission related matters
VoluntaryVoluntary de-merger and privatisation ofde-merger and privatisation of supply,supply,
trading and production companies; internationaltrading and production companies; international
alliances ?alliances ?
Partial privatisation networks ? “Partial privatisation networks ? “Circle ofCircle of
ShareholdersShareholders””: further subordinate legislation: further subordinate legislation
National champion NUON/Essent: NMa’s viewsNational champion NUON/Essent: NMa’s views
17. NMaNMa “vision” document“vision” document
Cross border alliances of Dutch incumbentsCross border alliances of Dutch incumbents
should be financially transparent, withoutshould be financially transparent, without
material adverse effect on Dutch independentmaterial adverse effect on Dutch independent
grid managementgrid management
NMaNMa ““vision documentvision document”” on:on:
National championNational champion
Cross border TSO/ vertically integrated groupsCross border TSO/ vertically integrated groups
So international alliances favoured ?So international alliances favoured ?
18. The “Dutch Experience”The “Dutch Experience” NRE, RWE, Intergas, Cogas, Rendo, Oxxio,NRE, RWE, Intergas, Cogas, Rendo, Oxxio,
WestlandWestland
Grid operators have stable revenueGrid operators have stable revenue
Private equity parties are interested inPrivate equity parties are interested in
those takeoversthose takeovers
Interested private equity houses:Interested private equity houses:
MacquarieMacquarie NRE, RWENRE, RWE
CVCCVC
KKRKKR
Babcock & BrownBabcock & Brown
Strategic Industry PlayersStrategic Industry Players