Brattle Principal Debates with EU Competition Commissioner Neelie Kroes on Break-Up Proposals for EU Energy Sector

NEW YORK, September 28 /PRNewswire/ --

The European Commission last week issued proposals that would require
Europe's utilities to split off their transmission businesses, with the aim
of creating a level playing field for competition in European energy markets.
Carlos Lapuerta, a principal in The Brattle Group's London office, addressed
these issues during a roundtable discussion at the 34th Annual Conference on
International Antitrust Law & Policy at the Fordham Competition Law Institute
led by Neelie Kroes, the European Commissioner for Competition.

Lapuerta argued that in a perfect world networks would be fully separated
from generation and other competitive activities, noting that, "For anyone
who believes in competition, there is no compelling synergy between the
ownership of transmission networks and supply activities."

"However, we live in an imperfect world, and implementing the
Commission's proposals would involve some real costs in the transition
period," Lapuerta added. These costs include:

-- Increased investor uncertainty;
    -- Spending valuable political capital;
    -- Inefficiencies if, as under one alternative put forward by the
       Commission, control of networks is placed in the hands of independent
       system operators (ISOs) who would operate but not own the networks.
       ISOs could impose a serious cost by assigning management to someone 
       who lacks the long-term financial incentives of ownership.

Lapuerta proposed "partial ownership separation" as a possible
alternative to the Commission's proposals. This would involve the creation of
separate equity shares for the supply and transmission businesses, which
investors could buy and sell separately. A holding company could retain full
ownership of the supply business and majority ownership of the transmission
business. This approach would avoid potential inefficiencies of ISOs by
preserving an alignment between the interests of management and the network
owners. According to Lapuerta, experience with partial ownership separation
has been positive to date and deserves serious scrutiny as an alternative to
ISOs.

Lapuerta's paper on the subject "The Costs of Moving to a Perfect World:
Forced Ownership Unbundling in the Natural Gas and Electricity Sectors," is
available at http://www.brattle.com.

The Brattle Group provides consulting services and expert testimony in
economics and finance to corporations, law firms, and public agencies
worldwide. We are active in a wide range of areas including antitrust and
competition, valuation and damages, and regulation and planning in network
industries. For more information on The Brattle Group, please visit
http://www.brattle.com.

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