The unbundling regime for electricity utilities in the EU: a case of legislative and regulatory capture?
Abstract
Theory and empirics suggest that by curbing competition, incumbent electricity companies (Vertically Integrated Utilities, VIUs), can increase their profitability through combined ownership of generation and transmission and/or distribution networks. Because curbing competition is 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 evidence that VIUs have tried to influence this choice through means of persuasion which should be more readily available in countries with a more corrupted political culture.
This paper shows that among the old EU member states, 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 EU member states that acceded in 2004.
We provide a conjecture for this observation.