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There were, however, some special characteristics of the energy sectors in EU countries that complicated the further transformation. They represented historical experiences and perceptions of market failures as well as political objectives:. There were real reasons why the energy sector had been organised with clear elements of state control and hierarchy. Important energy resources were concentrated in a few countries outside the EU and this had led to concern for supply and price stability. Also, there was a strong tendency in European countries to view the energy sector as more than just an economic sector.
Another reason was that state interests were heavily biased by the fact that energy policy in every sector was dominated by monopolistic companies often state owned and regulatory authorities which could articulate clear and strong interests within established national paradigms.
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The preceding decade of turbulence in the oil market has reinforced this. Estrada et al provided an authoritative overview over the West-European gas market by the late s. For such, and other, reasons it would take some time before EU's internal market philosophy could be transformed into an operational policy paradigm on the EU level. However, it was never the Commission's intention to make a permanent exception.
That would violate the general pattern of economic reform, and besides the Commission's general argument that increased EU-wide competition would improve global competitiveness was assumed to hold also for energy. When energy was introduced a few years later it was thought that it would be possible to achieve success despite strong national resistance, precisely because of the momentum of the wider integration process. The introduction of a new policy frame, as a directive proposal on the liberalisation of EU natural gas markets, challenged key elements the existing system.
The transmission companies, linking major sellers and buyers had an especially strong position. They would use their monopoly to serve as an intermediary; buying from a few producers and selling to national monopolies, with high profits. As a consequence there was no gas-to-gas competition. Natural gas was priced according to competing energy, most often oil. The benefit of the system was that long-term contracts made it possible to secure the financing of gas field and transportation development, and thereby security of supplies. The so-called gas directive proposal was part of a package.
Other directives concerned price transparency for electricity and gas contracts and transit rights for electricity and gas. The so-called gas directive proposal aimed at liberalising the gas market by attacking the present structure. The proposal covered four major areas:. One major issue concerned market opening; i.
The latter had so far been the exclusive right of the pipeline owners; the proposal introduced the concept of regulated third party access with a EU-level regulatory authority. This became the major source of controversy.
The second major issue concerned the impact of liberalisation on long term contrasts take-or pay which traditionally had been a key instrument to secure investments and long term supplies. The third issue was whether it was possible to impose special obligations equal price, supply security, environmental protection etc. The Commission proposal reflected a strategy for deregulation and liberalisation. However, with the exception of the UK, no EU member countries had any clear recognition of the crucial role to be played by regulatory authorities in the implementation and policing of competition and liberalisation Stern xxii.
The introduction of the directive proposal led to strong confrontation and polarisation, where a clear majority 11 of 12 members rejected the Commission initiative, and so did the industry. The Commission's attempt to involve the industry through committees, to achieve dialogue and find common ground, broke down. Why was the initiative not dropped? Part of the answer was that the existing national industrial models in the majority of member countries did not have the proper form in the new international and EU context where market models were on the offensive.
The degree of resonance and conflict between the emerging model and pre-existing national paradigms varied. Most countries were only, or primarily, consumers and heavily dependent on import. For this reason the Commission initiatives found it politically feasible to start its reform effort with an up stream focus production and transmission.
The expectation was that consumer prices would be lower in a more deregulated market. This would also lead to expansion of local market, pushing out other types of energy that were seen as harmful to the environment coal, nuclear. A major concern for most consumer countries was related to security of supplies, traditionally dealt with through diversification of supply countries and long term contracts. British gas production was primarily for domestic consumption.
The UK was the first to privatise its state monopoly. The country initiated the EU reform, but knew that it would take time, and in the meantime the national market could be protected and developed. In the wider picture the active British stand in this area could balance some of the blame for its scepticism towards EU integration in other areas. The Netherlands, the other major EU producer and exporter, had a production and sales monopoly based on a partnership between the government and private international companies.
It has played a key role in developing the European gas industry as major exporter and there was initially no interest in reforms. The gas directive was motivated by a wish to increase gas-to-gas competition and lower prices. It would also make it difficult to keep up traditional statist structures strong regulation, direct ownership and state companies and national state-dominated sales monopoly.
This was a particular challenge for Norway as the major Western country supplying the EU with natural gas. As an EEA member, Norway would be affected by the new directive. The European gas industry was strongly against the reform initiatives. The national gas industries, serving national markets, were not experiencing problems in terms of technical efficiency or earnings. The only industrial interests that supported the Commission were large industrial customers like the chemical industry that hoped for lower prices.
The first years after the introduction of the Commission directive proposal was characterised by strong opposition, periodic stale mate and uncertainty about the feasibility of the project. The opposition in the natural gas sector was to a certain extent legitimised by the general scepticism towards further EU integration which characterised this period, symbolised by reactions to the Maastricht treaty.
The discussion on the natural gas directive was kept alive, mainly due to the Commission. However, the legitimacy of Commission actions rested not only on formal mandates and earlier state commitments which was weighed against the costs of accepting new sector arrangements. The legitimacy of the alternative model as an appropriate form for organising any economic activity was an important factor, and this was expressed in member states' lacking ability to come up with legitimate reasons for preserving the existing sector arrangements.
Although opposition to parts of the proposal was still strong, it gradually became clear that natural gas issues had to be addressed in terms of new concepts and perspectives. By the mid s, the fate of the natural gas reform, seemed quite uncertain. In the original Commission proposal was formally rejected. Over the next years the EU Commission worked on an alternative, some would say watered out, version of the original directive. Key concepts and formulations were altered, but the general perspective and normative orientation remained the same. The observed development contradicts an intergovernmentalist model of explanation, as pointed out by several students of EU energy, and more specifically natural gas, policy Matlary , Eldevik Member states are not the privileged actors; changes involve not only interests, but also perspectives and models and such changes cannot realistically be seen as independent domestic processes.
The EU is not just a neutral arena for given interests Eldevik During this stage the nature of the process changed in several ways.
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A key element in the construction of the new paradigm had been to develop implication of market theory, emphasising market functionality, with political concerns related to security of supply, public service obligation. Increasingly this had made it possible to rethink a number of issues.
Another key element was that the legitimacy of existing national paradigms had been undermined along the way. This was not primarily due to failure of performance, but the direct impact of market ideology in individual countries, sometimes pushed by privatisation schemes to finance public deficits. Increasingly we find that arguments and the nature of confrontations change. This happened partly in political negotiations, partly through long drawn expert driven arguments. Along the way we find a more active role of court decisions, and also new strategic initiatives from parts of the industry.
This trend reflected that the new frame had been legitimated. It became clear that alternative member state and industry views could not be sustained over time. The implementation of the electricity directive served as a model, both in term of providing legitimacy and in clarifying the strategic implications of a new perspective. The new general EU dynamics, related to the Amsterdam treaty and the introduction of the Euro reinforced such processes.
Increasingly the question was not if a new directive was to be passed, but when and with what provisions. Gradually arguments reflected calculations of future effectiveness. Stern ix , a major authority on the EU gas market, was one of the first to argue that the debate on the liberalisation of the natural gas sector had far too much stress on the European Commission initiatives and too little on the actions of powerful market players. This book does not, however, challenge the role of the Commission as the promoter of an alternative new frame for European natural gas policy.
The argument is, rather, that the content of major provisions, like third party access, most likely will materialise as a result actions taken by major players. The alternative would be more clear-cut EU regulations to be imposed by a powerful EU level regulatory authority. In later work Stern also describes how market strategies as well as a more active court system has been instrumental in bringing about changes. His analysis provides a good account of how a contested new frame is specified in political process that runs parallel to processes in the court and market system.
Changes have taken place with respect to ambitions and formulations affecting all four controversial areas mentioned above:. The concept of EU level regulated third party access to pipelines was inspired by a so-called common carrier concept in the US, but this was effectively blocked. A key controversy over the whole decade was how to secure so-called voluntary or negotiated third party access to pipelines that controlled the flow of natural gas. Related to this was the question of how much of the traded volume should be covered by such arrangements.
Another key controversy concerned the problems of securing long term investment, and thereby supplies, in a system which undermined traditional long-term contracts. Gradually a new concept of security developed, emphasising the mutual interdependence between exporters and importers and the reduced operational risk in an integrated European system. The controversy over the nature and level of public obligations to be met by companies has been resolved, partly through the use of the court system.
The controversy over unbundling of commercial functions has led to a general accept for the principle, in line with competition law. For Britain it was important to achieve explicit rules for third party access and a high degree of market opening as soon as possible. The proposed 28 per cent minimum that became the result was considered too low. Also, they would like to see regulated access, where companies' access to pipelines was regulated through a tariff. Most countries had reservations about even the modified liberalisation directive.
For some time the Netherlands was working against reform. However, as it turned out it was possible for the Dutch interests to reposition themselves under a new regime, to see advantages that might outweigh costs. After resisting the new regime for several years, the Dutch were among the first to change their strategy Also, Spain is characterised by a pronounced change in attitude to the new directive.
In both countries governments decided to move towards opening up market more quickly than dictated by the directive. Other countries remained reluctant throughout the whole process. In France, part of the defence for the national model was pursued through the court systems. The objective was to limit the role of competition to preserve the public service obligation. In Germany the dominant position of Ruhrgas prevented rapid political changes. However, as will be discussed below, important changes were introduced through the market. Norway, as one of three major exporters to the EU Russia, Algeria has waged a considerable lobby campaign against the new natural gas directive.
Under the old regime the three major exporters were involved in a strategic game with a few European buyers. In Norway natural gas was produced by several companies and has to be regulated through one central negotiating authority GFU. The present challenge is to find a way to preserve a legitimate form of regulation. Part of the change in national positions was motivated by threats from the EU Commission to apply competition policy. The Commission threatened both France and other countries with court cases for violating competition law.
In the context of growing support for the emerging new paradigm, and with reorientations going on in other countries, this created incentives for reform under domestic control. In other countries changes were motivated by new company initiatives. The announcement by the German gas company Wintershall to build new pipelines in to further the consumer interests of the parent company BASF and in in partner ship with the Russian Gazprom introduced competition for the dominant Ruhrgas. The natural gas directive was passed in It can be considered both a success and failure for attempts to achieve liberalisation.
On the one hand, it has opened up for an alternative to the pre-existing monopolised system. On the other hand, the direct and immediate requirements of the directive are limited. The directive requires that a minimum of 28 per cent of traded volume is open for competition when the directive is implemented fall This number is going to be increased over time, but even in member countries can refuse small customer the choice of supplier as long as 43 per cent is covered by liberalised system. Systems for regulating third party to pipelines were to be developed on the national level.
In addition, companies may apply for exception from the third party access article if serious economic and financial problems should arise as a consequence. The directive contains very few supernational regulations, and the member countries have achieved considerable freedom to regulate national markets in the future. Two of the most important battles, determination of tariff methodologies and regulatory provisions for enforcing competition and third party access at the EU level, were defeated already before the first attempts of finding an agreement in In the words of Stern xviii :.
Increasingly national regulatory efforts and new market strategies become important in providing the content and pace of market liberalisation. However, the emerging EU level policy paradigm would not seem possible without the persistent role of the Commission in pushing for an alternative frame. The legitimacy of this frame is a precondition for the dynamics to be observed over the last years.
In this process there is ample room for the interests and strategies of member states, industry interests and courts.
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However, the legitimacy of an alternative normative frame is preceding and facilitating such strategies, rather than emerge from them. To summarise, the energy policy initiatives were introduced at a time when the collective discipline and commitment to the internal market were at the highest, around The most controversial issue was the directive aiming at the deregulation of the natural gas market. Conflicts led to delays, and for a long time it seemed uncertain if the initiative could succeed. It was kept alive by the Commission, and more and more it became clear that changes were taking place both at the EU and at the national level which paved the way for a new directive by , after about 10 years of continuous struggle.
The next stage was the implementation of the directive, with special emphasis on subsidiarity. The EU gas directive was passed in June , and it entered into force in August the same year. Member states were committed to bring into force the laws, regulations and administrative provisions necessary to comply with the directive no later than two year after this. Compared to the original draft, the outcome was rather modest, but crucial in changing the basic rules of the game.
On the other hand, the directive did not go very far in specifying how liberalisation should be achieved in practice. The limitations of the gas directive, as a cohersive and specific EU level policy paradigm, reflect the opposition of member states over a decade.
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The modifications and limitation of the directive cannot be explained without the active role of the member states. However, the new general model reflected in the directive cannot be derived from member states' preferences and perspectives. The emphasis on subsidiarity reflects member states' control over the further development. An interesting question is to what extent states can be said to control outcomes. As discussed earlier, this is hard to measure in an exact way. The focus here is on the transformative aspect of the reform process.
Some of the formulations in the directive are deliberately not clear with respect to several important issues. A further clarification of what is meant by different concepts and provisions in the directive was left to the implementation process. The emphasis on subsidiarity, as a political necessity, opened up for different national approaches with respect to how various provisions should be secured on the national level. This meant that the further elaboration of the new policy paradigm shifted from the EU level to member state level.
To ensure that implementation took place in time, and in accordance with the directive two follow-up committees were created by the Commission.
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One consisted of country representatives including EEA countries , the other of industry representatives. These Committees partly reflect the Commission's responsibility to secure implementation, but they are based on voluntary co-operation.
The implementation process faces the challenge of balancing three important aspects: To clarify the implications of the directive in relation to various national setting, allowing for a certain degree of flexibility with respect to the speed of reform and specific organisational solutions, and at the same time making sure that solutions are consistent with the directive and general EU competition law.
In other words, the problems is to secure convergence around one basic model of a liberalised gas market, while at the same time allowing for a certain degree of divergence with respect to how this model is operationalised in national context, even over a longer time period. For many years the discussion of whether and how much EU integration would lead to convergence or divergence has been central within EU research Steunenberg and Dimitrova However, ideas of convergence and divergence are difficult to pursue empirically without a clear theoretic definition of what we can expect to find.
In neo-sociological theory Strang and Meyer argue that convergence is tied to local implementation of idealised models. This also applies to the imitation of specific organisations and institutions. What is imitated is the abstract underlying basic models that certain arguments and structures are assumed to be more or less complete representations of Nee and Strang Isomorphic tendencies should not be regarded as equivalent with the uniformity of social processes and structures.
To what extent is this consistent with what we find in the natural gas sector? The report on the state of implementation the EU gas directive  summarises the situation six months before the process is to be completed. At this stage four countries had already passed legislation which to a large extent implements the directive.
Nine countries were well advanced in the implementation process. Two countries were lagging behind. All were committed to fulfil requirements before August , but the countries differed somewhat with respect to how objectives are to be realised. When it comes to the third party access to pipe-lines, one of the key issues, countries may choose either negotiated access based on publications of the main commercial conditions applicable or nationally regulated access based on published tariffs, or a combination of these two systems.
Eight countries will go for regulated third party access, and two countries a combination of the two models. Only three countries have chosen negotiated access, but in a restricted form. The directive requires countries to achieve a minimum level of market opening, 20 per cent by August and 33 per cent by However, most countries will go further and faster than this.
The same goes for the required expansion of eligible customers, and so-called unbundling of commercial functions. Here we find that member states are choosing different regulatory approaches. Few member states plan to establish independent regulators for gas, and a few want sector regulators for natural gas as such.
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In some countries the ministry responsible for energy matters will play a key role in the regulatory system. Similar patterns are found with respect to other articles of the directive. The point here, however, is that national solutions may vary considerable and still be found to be within the general model laid down in the directive. An important aspect of the implementation process is to make sure that various solutions are consistent with demands of equal treatment and general provisions of EU competition law.
This also means that legitimacy of national structures depends on consistency with the underlying model, and that this legitimacy in many ways becomes equivalent to the legality of particular arrangements. As Stern has pointed out the further dynamics of EU gas market liberalisation has been moved from the EU level to the national level.
The elaboration of the EU model rests heavily on national processes, but in the future industry strategies and court decisions will play a key role in the further maturing of the system. To what extent can we talk about a real transformation? As Fligstein pointed out in his analysis of the internal market programme, states were more willing to accept changes affecting transaction rules, than rules which involved areas which were deeply embedded in member state structure like property rights.
To some extent we find the same in the gas sector. There is reluctance to loose control over national reforms and regulatory authority. However, preservation of national divergence with respect to speed and forms of market liberalisation does not imply that changes are mainly a matter of form; new ways to legitimate traditional policies Brunsson The gas directive have changed the basic logic and unleashed dynamic forces of liberalisation.
The result is not only that national sectors are impacted by EU decision, it seems even more important that the relative weight of the market in relation to politics has been altered in a radical way. The next step is probably going to be a structural transformation of the market; with the introduction of new technology, new companies operating across energy sectors, new types of actors traders and price formation through the spot market. To summarise, the further elaboration of a European gas policy paradigm will most likely depend on developments on the national level for several years to come.
This process is likely to create pressures towards convergence, but variations in national arrangements may persists as long as they operate in a way which is consistent with the directive. If companies go to court with complaints that certain arrangements do not function properly, there will be pressures for change. This may be regarded as the continuation of a transformation, which started, with the legitimisation of an alternative and controversial frame and which was elaborated on the EU level to become a new directive.
The present situation is characterised by both convergence and divergence, where the basic rules of the game have changed and this is the point of departure for national adaptation. Changes in EU energy policy are indirectly driven by global economic competition wish for lower energy prices , but even more by clearly political changes which reflect and reinforce a paradigmatic shift in global thinking about energy markets. The construction of a new EU level paradigm is not, however, simply a copying process, it modifies and elaborates on the global trend. Such modifications have the underpinning of rational arguments about market functionality and market failure in the face of welfare capitalism.
At the same time policy changes reflect and reinforce EU integration; i. The changes that have taken place in the EU natural gas policy, legislation and market over the last decade can best be characterised as a radical and complex transformation. It is not only a result of states finding new ways to secure given self-interests or due to documented superior effectiveness of an alternative form of industrial organisation.
On the contrary, the construction of a new policy paradigm was only to a limited extent based on calculations, but rather legitimisation and elaboration of a market model.
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Authoritative reasons seemed to have outweighed means-end calculation of benefits. Therefore, these companies are free to distribute greater percentages of their earnings in the form of dividends to shareholders. The average dividend yield offered by top companies in the utility sector, which has been traditionally known to offer a high dividend payout. The utilities sector's primary appeal to investors is its resistance to economic ups and downs.
While it does not offer aggressive gains during bull markets, it tends to hold its value much better than the broader market during downturns and recessions. Of course, as within any market sector, some companies consistently outperform others. The general stability of their revenues, along with their consistently strong dividends, makes utilities of particular interest to income investors, especially in a lower interest rate environment.
It is also well-suited for conservative, buy-and-hold investors who, rather than trying to get rich quick, wish to accumulate wealth slowly over the long-term while eschewing significant risk. However, the sector's lack of volatility compared to the broader stock market does not preclude it completely from being subjected to the market's ups and downs.
As such, an investor who forecasts market trends correctly can profit from a fall in utilities by employing speculation methods such as short selling and various futures and options strategies, such as put options selling a stock in the future but at a price agreed upon today. So, when hedging exposure to utilities, investors seek sectors that do the opposite—gain more than the broader market during bull markets and lose more during bear markets.
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