Brussels (Platts)--15Nov2012/831 am EST/1331 GMT

Two-thirds of EU countries still regulate retail electricity and/or gas prices, hampering investment and distorting price signals for consumers, the European Commission said Thursday.

"We need to get to grips with regulated prices," EU energy commissioner Gunther Oettinger told reporters in Brussels as he presented the EC's review of the EU internal energy market.

"Eighteen member states still regulate their end-user prices, particularly electricity," Oettinger said. The state introduces rules and sets prices itself. This is not our understanding of what a single European market should be about."

The EC wanted to see regulated prices being phased out over the next few years, particularly those which are below market prices, Oettinger said.

"Looking at overall costs is the fairest way [to form prices]," he said. "We reject subsidies beyond this."

Oettinger added that price regulation is permitted under certain conditions, one of which is that it must not distort competition.

EC sources said national governments should protect vulnerable and disadvantaged customers, but stressed that such customers might need help understanding how to get a good deal more than financial support.

"Prices set by state intervention do not provide consumers with the best deal," the EC said in a statement Thursday.

Such regulated prices "risk giving a false impression of protection that de-incentivizes" consumers from actively exploring better options, including energy efficiency services, the EC added.

Only nine of the 27 EU countries do not have regulated retail energy prices: Austria, Czech Republic, Germany, Finland, Luxembourg, the Netherlands, Slovenia, Sweden and the UK.

Belgium, Greece, Ireland, Latvia, Lithuania and Spain have regulated prices for household customers, EC data shows. Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, France, Hungary, Malta, Poland, Portugal, Romania and Slovakia have regulated prices for both household and industrial customers.

Greece, Lithuania and Portugal have committed to phasing out regulated prices by 2013, and Romania by 2017.

The EC said that regulated end-user prices "impede investments" and deter new entrants.

"Prices regulated below costs lead to debts which ultimately fall back to taxpayers," it said. "The Commission will work with member states to empower consumers and to reduce state interventions which distort markets," it added.

The EC's review comes a month after EU leaders repeated their commitment to complete the internal energy market by 2014.

But the review found that 12 EU countries have still not notified to the EC full implementation of the EU's third package of internal energy market reforms, 20 months after the deadline to do so.

--Siobhan Hall, siobhan_hall@platts.com

--Edited by Richard Rubin, richard_rubin@platts.com

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