| the Journal of Regulation

Jan. 10, 2015

Sectorial Analysis

January 6, 2015, the French Competition Authority expresses its concern about the effectiveness of the independence of the operator of the rail transport network, now integratednow integrated into the public group that also included public operator faced with competition

As soon as Regulation assumes independence of the operator who manages the essential infrastructure, ex ante conditions of such independence must be met.

Europe doesn't require legal autonomy of the essential infrastructure manager, probably because such autonomy, it would be both too ask the Policy, which may want more integrated organizations as soon as public transportation is a mix of public policies and that to public funds are used. But it would also be too little to ask the Policy because no matter the legal autonomy, the key is the real independence of the manager, that is under the control of the Regulator.

In France, the regulatory body is the Autorité de Régulation des Activités Ferroviaires (French Regulatory Authority of Railways Activities).

The Loi portant réforme ferroviaire (Railway Reform Act) of August 4, 2014 has made the integration of the company that manages the rail network, which the new name is SNCF Réseau (SNCF Network) in a public group, which also includes the SNCF, public transportation operator, in competition with new entrants in a newly opened sector to competition.

The Competition Authority in its opinion of 4 October 2013 had expressed reluctance towards the bill, to the influence that such corporate organization offers to the public operator, to the detriment of its competitors and the opening of the railway sector to competition.

The critical tone increases with the Opinion of 6 January 2015 relatif à des projets de décrets pris pour l'application de la loi portant réforme ferroviaire (on draft orders made for the purposes of Railwayl Reform Law).

The Competition Authority issues its opinion as a real essay on what should be the Regulation of the railway sector through the "governance" of the network manager. Indeed, the first part of the opinion relates to "the independent management of railway infrastructure" while the second focuses on the integration of railway network in the public group built par the law. The third part of this Opinion draws conclusions to measure whether we can consider that the Autorité de Régulation des Activités Ferroviaires (French Regulatory Authority of Railways Activities) shall have the capacity to ensure this independence by governance or not.

This review, in its construction itself, demonstrates the dialectic between Regulation and Governance (I), which is an observation and stresses the role of the regulator in the effectiveness of governance (II), which is more a question .

Jan. 8, 2015

Breaking news

In its December 2014 report on codes of conduct, the "Commission de Régulation de l'Energie" (French Energy Regulatory Commission) estimates that the company law doesn't make sufficient independent transmission system operators

The French law provides that the Commission de Régulation de l'Énergie - CRE (French Regulatory Energy Commission) publishes an annual report on compliance with codes of conduct and independence of the power transmission grid operators. In Decembre 2014, CRE has published its report on compliance with codes of conduct and independence of electricity networks and natural gas (Respect des codes de bonne conduite et indépendance des gestionnaires de réseaux d'électricité et de gaz naturel).

This particular statutory provision shows the proximity between Regulation and Governance, nearby sometimes believed limited to the sphere of banking and finance.

This is designed especially for managers of transport networks which are often subsidiaries of incumbents production and energy sales, economic and legal integration that the law does not prohibit even though it requires independence transport network managers. This independence must be de facto and not de jure, which is a higher requirement than mere legal autonomy of companies, the result of the requirements of "governance", the operator is obliged not to exercise the rights and powers its parent company status yet gives a regular basis so that the first principle of independence of the network manager is preserved.

The relationship between the controlling shareholder and its subsidiary are governed by "codes of conduct" in the mandatory order of the independence of management and decision making of the subsidiary. In a 90-page reportthe regulator sets the constraints so that this goal leads in effect on the parent company, beyond corporate law.

However, the regulator is very severe. It believes that the way in which subsidiaries present themselves to consumers mark such similarity with their parent that these third parties can't identify them as independent of them. According to the regulator, consumers therefore don't identify them as carriers or distributors of energy also offered by competitors of their parent.

Thus, the regulator considers it necessary that these subsidiaries will change their brands, logos and legal designation, eg ERDF ceases to have a name so close to EDF.

The implicit question is the legal effect of such reproaches and suggestions, if the companies aren't listening. The report discusses the prospect to bring the question before their independent body able to impose sanctions. But the case will be difficult because the principle of independence meets the principle of freedom and the terms of the interference between regulatory law and corporate law aren't yet clearly established.