Long-term supply agreements

Giuseppe Bellantuono (University of Trento) has an interesting entry on EU Energy Policy Blog.

I do not want to repeat what is said there, just wanted to mention two paragraphs:

“For a European observer, it is interesting to note that the same issues debated in the Morgan Stanley case surface in the antitrust proceedings of the European Commission and national competition authorities against long-term contracts. Does the different legal framework produce divergent outcomes ? Art. 81 EC Treaty allows competition authorities to shape contract terms like duration, volumes and termination rights so as to avoid market foreclosure. However, according to art. 81(3) negative effects can be assessed against efficiency benefits. Much the same role is played by art. 82 EC Treaty on abuse of dominance. However, it is very difficult to use this provision against unfair and excessive energy prices. From the point of view of black letter rules, there seems to be no reason to believe that American and European regulators should reach a different balance between freedom of contract and pro-competitive measures.
But the real difference lies in the range of competences available to the FERC and the Commission. The former has the power to regulate wholesale markets and can influence the behaviour of market players in several different ways. Therefore, it can foster competition without imposing rigid restrictions on long-term contracts. The latter can regulate wholesale markets to a very limited extent and relies on antitrust enforcement as the most powerful tool to build the Internal Energy Market. Hence, there is a serious risk that in European antitrust proceedings on long-term contracts considerations related to investment incentives will be downplayed. Moreover, inconsistent approaches could arise because of the decentred application of European antitrust rules. The different distribution of powers in the two multi-level regulatory systems could widen the gap with the American approach.” And many more interesting thoughts in the entry there…

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