EU Energy Law, Volume I: Internal Energy Market [5 ed.] 9077644652, 9789077644652

Table of contents :
Table of Contents
1 Introduction • Christopher Jones
2 Creating competition on the generation market • Christopher Jones, revised by Ruben Vermeeren
3 Network regulation and third party access • Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati
4 Unbundling of Transmission System Operators • Emmanuel Cabau, revised and updated by Lena Sandberg
5 Unbundling of Distribution System Operators • Christopher Jones, revised and updated by William-James Kettlewell
6 National Regulatory Authorities • Emmanuel Cabau, revised and updated by Kristóf Kovács
7 The EU Agency for the Cooperation of Energy Regulators (ACER) • Ernst Tremmel
8 The regulation on cross-border electricity exchanges: substantive rules • Christof Schoser, revised and updated by Lena Sandberg
9The gas regulation: substantive access rules...........................................513Floris Gräper
10 Public service obligations and the EU energy market legislation • Bartek Gurba
11 Derogations and exemptions • Jan Papsch
12 The establishment of common network rules • William Webster
13 Security of supply • William Webster
14 Reporting and review of the Directives • Jan Papsch
15 Implementation of the Third Internal Energy Market Package • Yona Marinova
16 The internal energy market and neighbouring countries • Erlendas Grigorovic, updated by William-James Kettlewell
17 Import Gas Pipelines under the Third Energy Package • William-James Kettlewell
Appendix 1: Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (recast)
Appendix 2: Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC
Appendix 3: Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003
Appendix 4: Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005
Appendix 5: Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators (recast)
Appendix 6: Regulation (EU) No 1227/2011 of the European Parliament and of the Councilo f 25 October 2011 on wholesale energy market integrity and transparency
Appendix 7: Commission staff working document. Ownership unbundling. The commission’s practice in assessing the presence of a conflict of interest including in case of financial investors
Appendix 8: Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply
Appendix 9: Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010
Appendix 10: Commission staff working paper. Interpretative note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas. The unbundling regime
Appendix 11: Commission staff working paper. Interpretative note on directive 2009/73/EC concerning common rules for the internal market in natural gas. Third-party access to storage facilities
Appendix 12: Commission staff working paper Interpretative note on directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas. Retail markets
Appendix 13: Commission staff working paper Interpretative note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas. The regulatory authorities
Appendix 14: Energy Community Treaty
Index

Citation preview

Edited by CHRISTOPHER JONES and WILLIAM-JAMES KETTLEWELL

EU ENERGY LAW VOLUME I

The Internal Energy Market

EMMANUEL CABAU FLORIS GRÄPER ERLENDAS GRIGOROVIC BARTEK GURBA CHRISTOPHER JONES WILLIAM-JAMES KETTLEWELL KRISTÓF KOVÁCS YONA MARINOVA

FIFTH EDITION

JAN PAPSCH LENA SANDBERG CHRISTOF SCHOSER MARKELA STAMATI ERNST TREMMEL RUBEN VERMEEREN WILLIAM WEBSTER

EU ENERGY LAW VOLUME I

THE INTERNAL ENERGY MARKET

Fifth edition

EU ENERGY LAW VOLUME I

THE INTERNAL ENERGY MARKET Fifth edition Emmanuel Cabau Floris Gräper Erlendas Grigorovic Bartek Gurba Christopher Jones William-James Kettlewell Kristóf Kovács Yona Marinova Jan Papsch Lena Sandberg Christof Schoser Markela Stamati Ernst Tremmel Ruben Vermeeren William Webster Edited by Christopher Jones and William-James Kettlewell CLAEYS & CASTEELS 2021

All views expressed are strictly personal. The opinions expressed in individual chapters are those of the author(s) in question.

© 2021 by the authors

ISBN 9789077644652 (Print) ISBN 9789077644669 (ePDF)

The paper and board used in the production of this book is sourced exclusively from replanted forests.

All rights reserved. This publication, in whole or in part, may not be copied, reproduced nor transmitted in any form without the written permission of the copyright holder and the publisher. Applications to copy, transmit or reproduce any part of this work may be made to the publisher.

Published in 2021 by Claeys & Casteels Law Publishers Deventer (Netherlands) – Leuven (Belgium) P.O. Box 2013 7420 AA Deventer Netherlands www.claeys-casteels.com

Table of contents

TABLE OF CONTENTS

Chapter 1 Introduction Christopher Jones

.....................................................................................1

Chapter 2 Creating competition on the generation market.........................................7 Christopher Jones, revised by Ruben Vermeeren 1.

2.

Electricity............................................................................................................... 7 1.1 Opening the generation market for competition.............................. 7 1.2 The authorisation procedure............................................................... 10 1.2.1 Substantive issues................................................................. 10 1.2.2 Procedural issues.................................................................. 13 Gas......................................................................................................................... 14

Chapter 3 Network regulation and third party access...............................................19 Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati 1. 2.

Introduction........................................................................................................ 19 Duties and responsibilities of transmission and distribution system operators................................................................................................. 24 2.1 General duties......................................................................................... 24 2.1.1 Network-related tasks......................................................... 24 2.1.2 Confidentiality obligation................................................. 31 2.1.3 Balancing............................................................................... 32 2.2 Specific duties and responsibilities of electricity transmission and distribution system operators...................................................... 32 2.2.1 Procurement of energy losses, reserve capacity and ancillary services................................................................... 33 2.2.2 Flexibility incentives............................................................ 41 2.2.3 Electromobility.................................................................... 44 v

Table of contents

3.

4. 5. 6.

7.

2.2.4 Energy storage...................................................................... 45 2.2.5 Dispatching........................................................................... 46 2.2.6 Data management................................................................ 51 Regulated third party access............................................................................ 53 3.1 Connection to the transmission system............................................ 54 3.2 Access and use of transmission and distribution systems.............. 57 3.2.1 Publication of standard tariffs........................................... 58 3.2.2 Regulation of tariffs............................................................. 62 3.2.3 Cost reflectivity.................................................................... 65 3.2.4 Level of detail of a tariff methodology............................ 73 3.3 Capacity allocation and congestion management.......................... 75 3.3.1 Gas......................................................................................... 75 3.3.2 Electricity.............................................................................. 76 Negotiated third party access (storage ancillary and ancillary services).81 Transit................................................................................................................... 89 Jurisprudence and Commission decisions.................................................... 91 6.1 VEMW and others................................................................................ 91 6.2 Citiworks................................................................................................. 98 6.3 Sabatauskas............................................................................................101 6.4 Swedish Interconnectors....................................................................103 6.5 DE/DK Interconnector.....................................................................104 Direct lines........................................................................................................106 7.1 Direct lines electricity.........................................................................106 7.2 Direct lines gas.....................................................................................111

Chapter 4 Unbundling of Transmission System Operators.....................................113 Emmanuel Cabau, revised and updated by Lena Sandberg 1.

Introduction......................................................................................................113 1.1 The need for unbundling....................................................................113 1.2 Unbundling...........................................................................................115 1.3 The first and second electricity and gas directives.........................116 1.4 The 2005 Sector Inquiry....................................................................118 1.5 The Third Energy Package: towards ownership unbundling......122 1.6 The Clean Energy Package . ..............................................................123 1.7 Ownership unbundling under EU competition rules.................124

vi

Table of contents

2.

3. 4.

5.

The unbundling options under the Clean Energy Package.....................127 2.1 Background ..........................................................................................127 2.2 Unbundling under the Clean Energy Package..............................128 2.2.1 Ownership Unbundling...................................................128 2.2.2 Independent System Operator (ISO)............................129 2.2.3 Independent Transmission Operator (ITO)...............130 2.2.4 General Principles on the Unbundling Options.........132 2.2.5 ITO+: “Unbundling à la carte” – a fourth unbundling option............................................................133 2.2.6 Implementation by the Member States.........................134 2.2.7 Exemptions granted by the Commission......................136 2.2.8 Derogations set out in the Directives............................141 2.2.9 Application of the unbundling principles across the gas and electricity sectors..........................................141 Level Playing Field – Intra EU Acquisitions..............................................142 3.1 Acquisition of rights within an ownership unbundled TSO.....143 3.2 General provision on level playing field..........................................145 Designation of TSO and the certification procedure..............................146 4.1 Approval and designation of the TSO............................................147 4.2 General rules on certification............................................................147 4.2.1 Launch and timing of the procedure.............................150 4.2.2 Procedure and timing........................................................151 4.3 Certification in case of control of an EU transmission system operator by a company from a non-EU country..............152 4.3.1 Introduction........................................................................152 4.3.2 Substance and Procedure.................................................156 4.4 Commission Control of Certification By National Authorities............................................................................................160 The unbundling options under under the Clean Energy Package in detail...............................................................................................................160 5.1 Ownership unbundling......................................................................160 5.1.1 Application of unbundling rules to companies controlling the TSO or supplier.....................................161 5.1.2 The concept of control......................................................162 5.1.3 The concept of “rights”.....................................................163 5.1.4 The rule in practice............................................................164

vii

Table of contents

Chapter 5 Unbundling of Distribution System Operators......................................217 Christopher Jones, revised and updated by William-James Kettlewell 1. 2. 3. 4.

5. 6.

7.

Introduction . ...................................................................................................217 Definition of a vertically integrated company...........................................221 Legal unbundling.............................................................................................224 3.1 Definition..............................................................................................224 3.2 Combined network operator............................................................225 Management unbundling...............................................................................226 4.1 Introduction . .......................................................................................226 4.2 General definition of management unbundling . .........................226 4.3 Independent Management . ..............................................................229 4.4 Separation of personal interests .......................................................231 4.5 Autonomy and control over assets by the network operator......232 4.6 Compliance officer and compliance programme..........................236 4.7 Prohibition to take advantage of vertical integration to distort competition.........................................................................239 Accounting unbundling ................................................................................240 5.1 The requirements of the Directives . ...............................................240 New ‘unbundling’ rules for electricity DSOs ...........................................244 6.1 Citizen Energy Communities...........................................................245 6.2 Electro-mobility-related services......................................................246 6.3 Storage services.....................................................................................248 6.4 Aggregation and flexibility services.................................................251 Exemptions . .....................................................................................................254 7.1 Exemption for small distributors . ...................................................254 7.2 Exemption for closed distribution systems . ..................................256 7.2.1 Definition of closed distribution systems ....................261 7.2.2 Scope of the derogation . .................................................262 7.2.3 Procedure . ..........................................................................263

Chapter 6 National Regulatory Authorities...........................................................265 Emmanuel Cabau, revised and updated by Kristóf Kovács 1. 2.

The need for a strong sector-specific regulator..........................................265 Designation of a single regulatory authority..............................................269 2.1 Regional regulatory authorities........................................................271 viii

Table of contents

3.

4. 5.

6.

7.

8. 9. 10.

2.2 Small and separated systems..............................................................272 Independence of regulatory authorities......................................................273 3.1 Principle of independence..................................................................274 3.1.1 Organisational requirements and transparency..........276 3.1.2 Personnel requirements....................................................277 3.2 Rules protecting independence.........................................................279 General objectives of the regulatory authorities........................................282 Duties of regulatory authorities....................................................................285 5.1 General principles applicable to the duties.....................................285 5.2 Content of the duties..........................................................................286 5.2.1 Tariffs....................................................................................293 5.2.2 Prevention of cross-subsidies...........................................293 5.2.3 Compliance and enforcement.........................................294 5.2.4 Cooperation and coordination.......................................295 5.2.5 Monitoring..........................................................................295 5.2.6 Reporting and Publication...............................................297 5.2.7 Consumer protection........................................................297 5.2.8 Specific duties related to ISOs and ITOs.....................298 5.2.9 Specific duties related to the ENTSO for Electricity and the EU DSO Entity...............................298 5.2.10 Specific duties related to the Regional Coordination Centres.......................................................299 5.3 Additional duties granted by other legal acts.................................299 Powers of regulatory authorities...................................................................301 6.1 Adopting binding decisions...............................................................304 6.2 Promoting effective competition and ensuring the proper ........305 functioning of the market..................................................................305 6.3 Information provision.........................................................................306 6.4 Penalties.................................................................................................306 6.5 Investigations and instructions.........................................................308 Procedural issues..............................................................................................308 7.1 Dispute settlement...............................................................................308 7.2 Complaints against tariffs or methodologies.................................310 7.3 Judicial review.......................................................................................311 Regulatory regime for cross-border issues..................................................313 ACER review ...................................................................................................315 Conclusion........................................................................................................318

ix

Table of contents

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER).......321 Ernst Tremmel 1. 2. 3. 4. 5.

Introduction......................................................................................................321 The legal basis...................................................................................................322 2.1 Overview...............................................................................................322 2.2 The new legal framework of ACER.................................................324 Purpose and objectives....................................................................................326 Types of acts......................................................................................................327 Tasks of ACER.................................................................................................329 5.1 General competences..........................................................................331 5.1.1 Advice to the EU institutions..........................................331 5.1.2 Request for information...................................................332 5.2 Cooperation of transmission system operators and distribution system operators............................................................334 5.2.1 Establishment of the ENTSOs and the EU DSO entity.....................................................................................335 5.2.2 Performance of the ENTSOs and the EU DSO.........337 5.2.3 Regulatory oversight of European and regional entities..................................................................................340 5.2.4 Methodology on the use of congestion income..........343 5.2.5 Certification of transmission system operators...........345 5.3 Regulatory authorities........................................................................347 5.3.1 Frame for the cooperation and coordination of regulatory authorities...................................................347 5.3.2 Review of decisions of national regulatory authorities............................................................................348 5.3.3 Advice on the application of Guidelines.......................351 5.3.4 Operational assistance in REMI investigations...........352 5.3.5 Reduction of cross-zonal capacities or deviation from ­coordinated actions.................................................353 5.3.6 Decisions on technical issues...........................................355 5.3.7 Decisions on regulatory issues of cross-border trade or cross-border system security.............................355 5.4 Regional coordination centres..........................................................362 5.4.1 Decision on the geographical scope of regional coordination c­ entres..........................................................363 5.4.2 Approval of tasks................................................................364 5.4.3 Monitoring..........................................................................365 x

Table of contents

5.5

5.6

5.7

5.8 5.9

5.4.4 Request for information . ................................................366 5.4.5 Opinions and recommendations....................................366 Nominated electricity market operators.........................................367 5.5.1 Monitoring..........................................................................368 5.5.2 Request for information...................................................368 5.5.3 Recommendations.............................................................369 Development and implementation of network codes and ­g uidelines......................................................................................369 5.6.1 Framework guidelines.......................................................370 5.6.2 Proposals for binding network codes............................372 5.6.3 Proposals for non-binding network rules.....................376 5.6.4 Amendments of network codes......................................378 5.6.5 Monitoring the implementation of network codes and guidelines.....................................................................381 5.6.6 Approval of Union-wider or regional terms and conditions or methodologies for the implementation of network codes and guidelines....................................384 5.6.6.1 Union-wide terms and conditions or methodologies..................................................385 5.6.6.2 Regional terms and conditions or methodologies..................................................386 5.6.6.3 Approval procedure . ......................................388 5.6.6.4 Delegated acts...................................................389 5.6.7 Bidding zone review..........................................................391 Generation adequacy and risk preparedness..................................392 5.7.1 European resource adequacy assessment and cross-border ­participation in capacity mechanisms....393 5.7.2 National resource adequacy assessments.......................395 5.7.3 Risk preparedness – security of electricity supply.......396 5.7.4 Security of gas supply........................................................398 5.7.5 Technical guidance on the calculation of CO2 emission values in the context of capacity mechanisms.........................................................................400 Exemptions for major new infrastructure.......................................401 Infrastructure........................................................................................404 5.9.1 Monitoring the implementation of interconnector capacity projects and the EU TYNDPs........................405 5.9.2 Participating in the identification of PCIs ..................406 5.9.3 Monitoring the implementation of PCIs.....................409 5.9.4 Energy system wide cost-benefit analysis......................411 xi

Table of contents

6.

7.

5.9.5 Sharing good practices regarding risk-related incentives for PCIs............................................................413 5.9.6 Investments requests and cross-border cost allocation.............................................................................415 5.10 Wholesale market integrity and transparency...............................416 5.10.1 Monitoring of wholesale energy markets......................418 5.10.2 Collection of data..............................................................420 5.10.3 Registration of market participants...............................422 5.10.4 Sharing of information between the ACER and other authorities.................................................................424 5.10.5 Coordination and cooperation ......................................426 5.11 Monitoring and reporting on the electricity and natural gas sectors..............................................................................................430 Procedure...........................................................................................................433 6.1 Consultation and transparency.........................................................433 6.2 Procedural safeguards for decisions.................................................435 6.3 Internal workflow: Director – Working Group – Board of ­Regulators.........................................................................................437 Organisation of ACER...................................................................................440 7.1 The Administrative Board..................................................................442 7.1.1 Composition and voting..................................................442 7.1.2 Functions.............................................................................445 7.2 The Board of Regulators.....................................................................449 7.2.1 Composition and voting..................................................449 7.2.2 Functions.............................................................................452 7.3 The Director..........................................................................................454 7.3.1 Profile and appointment...................................................454 7.3.2 Tasks.....................................................................................457 7.4 Board of Appeal...................................................................................459 7.4.1 Composition.......................................................................459 7.4.2 Appeals.................................................................................462 7.5 Working groups....................................................................................464 7.6 Staff.........................................................................................................466

xii

Table of contents

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules .................................................................................469 Christof Schoser, revised and updated by Lena Sandberg 1. 2. 3.

4.

5.

Introduction......................................................................................................469 Background – the properties of electricity.................................................471 Tarification........................................................................................................473 3.1 The physical and economic principles underlying tarification...473 3.2 The need for an inter-TSO compensation mechanism................475 3.3 Cross-border tarification and the Cross-border Electricity R ­ egulation.........................................................................476 3.3.1 From voluntary ITC agreements to binding ITC guidelines...................................................................480 3.4 National transmission and distribution tariffs principles............482 Congestion management and capacity allocation....................................484 4.1 Introduction..........................................................................................484 4.2 Constraints on available capacity.....................................................485 4.2.1 Long‑term capacity reservation agreements.................485 4.2.2 Public service obligations.................................................487 4.3 Congestion management methods..................................................487 4.3.1 The “first come, first served” method.............................487 4.3.2 Pro-rata method.................................................................488 4.3.3 Explicit auction method...................................................488 4.3.4 Implicit auction..................................................................490 4.3.5 From non market-based capacity allocation systems to market-based capacity allocation systems................491 4.4 Requirements of the Regulation.......................................................492 4.4.1 Requirement for market based methods.......................496 4.4.2 Maximisation of capacity use..........................................497 4.4.3 Requirement for co-ordination between TSOs..........498 4.4.4 Distribution of congestion rents.....................................498 4.5 The forthcoming CACM guidelines/network code . .................499 4.5.1 Congestion..........................................................................501 4.5.2 Flow-based calculation method......................................501 4.5.3 Matching of bids and offers using an algorithm..........502 4.5.4 Use of implicit allocations................................................502 4.5.5 Regional level cooperation...............................................503 Locational signals.............................................................................................503

xiii

Table of contents

6. 7. 8.

5.1 Introduction..........................................................................................503 5.2 Requirements of the Regulation.......................................................505 Harmonisation of tariffs.................................................................................507 Transparency.....................................................................................................508 Network security and calculation of available capacity...........................511

Chapter 9 The gas regulation: substantive access rules...........................................513 Floris Gräper 1. 2. 3. 4. 5. 6. 7.

8. 9.

Introduction.....................................................................................................513 Access rules in the the Gas Regulation........................................................514 Charges for access to networks....................................................................514 Third party access services..............................................................................517 4.1 Third party access services concerning storage and LNG facilities..................................................................................................521 Capacity allocation and congestion management....................................522 Capacity allocation and congestion management for LNG...................526 Transparency ....................................................................................................528 7.1 Introduction..........................................................................................528 7.2 Definition of relevant points.............................................................530 7.3 Level of detail to be published..........................................................531 Transparency for LNG...................................................................................532 Balancing...........................................................................................................533

Chapter 10 Public service obligations and the EU energy market legislation............539 Bartek Gurba 1. 2. 3. 4. 5. 6.

Introduction......................................................................................................539 Concepts of the Public Service Obligations and the Services of General Interest ..........................................................................................541 Public Service Obligations and the Third Energy Package ­Directives.543 Jurisprudence of the Court............................................................................544 The Security of Supply Regulation and the Clean Energy Package .....547 Public Service Obligations and state aid.....................................................551

xiv

Table of contents

Chapter 11 Derogations and exemptions.................................................................553 Jan Papsch 1. 2.

3.

Introduction......................................................................................................553 Derogations directly provided in secondary law.......................................555 2.1 TSO unbundling.................................................................................557 2.2 DSO unbundling.................................................................................560 2.3 Isolated markets (gas).........................................................................561 2.4 Emergent markets (gas)......................................................................564 2.5 Derogations under the electricity and gas Regulations...............567 2.6 Limited application of the electricity Directive to Malta...........569 2.7 Former derogations granted during the accession process..........569 Derogation and Exemption Decisions........................................................570 3.1 Small systems (electricity)..................................................................571 3.1.1 Assessment criteria.............................................................579 3.1.2 Derogation procedure.......................................................581 3.1.3 Derogation Decisions adopted by the Commission..583 3.1.3.1 The Azores.........................................................583 3.1.3.2 Madeira..............................................................584 3.1.3.3 Cyprus . .............................................................584 3.1.3.4 Malta...................................................................585 3.1.3.5 Greek non-interconnected islands...............586 3.2 Emergent regions (gas).......................................................................587 3.2.1 Assessment criteria and procedure.................................588 3.2.2 Derogations being dealt with by the Commission.....591 3.3 Take-or-pay contracts..........................................................................591 3.3.1 Derogation only from Article 32....................................594 3.3.2 Derogation procedure.......................................................595 3.3.3 Substantive issues ..............................................................596 3.4 New Infrastructure..............................................................................597 3.4.1 Scope and substantive issues relevant to an exemption..... 599 3.4.1.1 Eligible infrastructure.....................................602 3.4.1.2 The investment must enhance competition in supply.....................................603 3.4.1.3 The risk makes an exemption necessary......605 3.4.1.4 Legal unbundling.............................................607 3.4.1.5 Access charges...................................................607

xv

Table of contents

3.4.2

3.4.3

3.4.1.6 The exemption must not be detrimental to competition, market functioning, and the functioning of the regulated system.................................................................608 3.4.1.7 The investment must enhance security supply (gas only)..............................................608 3.4.1.8 No regulated income (electricity only).......609 Procedure.............................................................................609 3.4.2.1 Early contacts....................................................609 3.4.2.2 Role of ACER..................................................610 3.4.2.3 Adoption and notification of the national decision..............................................610 3.4.2.4 Commission decision......................................611 3.4.2.5 Implementation................................................613 Exemptions dealt with by the Commission.................617 3.4.3.1 Electricity..........................................................618 3.4.3.1.1 Estlink.................................................................618 3.4.3.1.2 BritNed..............................................................619 3.4.3.1.3 East-West-Interconnectors.............................620 3.4.3.1.4 Arnoldstein/Tarvisio.......................................620 3.4.3.1.5 ElecLink.............................................................621 3.4.3.1.6 Slovenian-Italian Interconnectors................623 3.4.3.1.7 Piemonte Savoia...............................................624 3.4.3.2 Gas pipelines.....................................................624 3.4.3.2.1 BBL.....................................................................625 3.4.3.2.2 Poseidon.............................................................625 3.4.3.2.3 Nabucco.............................................................626 3.4.3.2.4 OPAL.................................................................628 3.4.3.2.5 Gazelle................................................................631 3.4.3.2.6 TAP.....................................................................632 3.4.3.2.7 SK-HU Interconnector..................................635 3.4.3.3 Interconnector Greece-Bulgaria (IGB).......636 3.4.3.4 LNG terminals.................................................636 3.4.3.5 Gas storage........................................................640

xvi

Table of contents

Chapter 12 The establishment of common network rules.........................................643 William Webster 1. 2. 3. 4. 5. 6.

Introduction......................................................................................................643 The Florence and Madrid Fora and first cross border Regulations........644 Revisions to the Regulations in 2009 and the introduction of the network code development process..................................................646 The recasting of the Electricity Regulation 2019/943.............................650 Gas Regulation 715/2009 – Key principles...............................................660 The electricity and gas Regulations and network codes: legal and procedural issues...............................................................................................661 6.1 Implementation of the Regulations: direct effect.........................661 6.2 The comitology and implementing acts procedure......................662 7. TSO cooperation: establishment and tasks of ENTSOs........................664 7.1 Background...........................................................................................664 7.2 Tasks of the ENTSOs.........................................................................666 7.3 Regional cooperation and Co-ordination Centres.......................669 7.4 The European Network of DSOs.....................................................674 8. Establishment and modification of network codes..................................675 9. Summary of Network Codes and Guidelines adopted since 2009.......680 9.1 Gas..........................................................................................................680 9.2 Electricity...............................................................................................683 10. Modification of network codes.....................................................................688 Chapter 13 Security of supply .................................................................................691 William Webster 1. 2.

3.

Security of supply context..............................................................................691 1.1 Introduction..........................................................................................691 Balancing Supply and Demand.....................................................................695 2.1 Introduction..........................................................................................695 2.2 Role of the Wholesale markets.........................................................696 2.3 The Role of the TSO: electricity......................................................698 2.4 Role of TSOs: Gas...............................................................................703 System operation and operational security . ..............................................704 3.1 Background...........................................................................................704 3.2 System Operation Code (SO)...........................................................705 xvii

Table of contents

4. 5.

6.

3.3 Electricity Emergency and Restoration Code (EER)..................706 Investment in the competitive market.........................................................707 4.1 Electricity: Tendering and Capacity markets.................................707 4.2 Infrastructure and Storage – Gas . ...................................................710 Emergency Coordination and Safeguards..................................................716 5.1 Gas..........................................................................................................716 5.1.1 Background and key principles.......................................716 5.1.2 Common infrastructure standard..................................721 5.1.3 Common supply standard and protected customers.722 5.1.4 Coordination: preparation for a supply disruption . .724 5.1.5 Crisis Resolution................................................................726 5.2 Electricity .............................................................................................726 5.2.1 Background and key principles.......................................726 5.2.2 Risk Assessment and Scenario Modelling.....................728 5.2.3 Risk preparedness plans....................................................730 5.2.4 Management of Crisis Situations...................................732 Overall summary of security of supply legislation....................................733

Chapter 14 Reporting and review of the Directives..................................................735 Jan Papsch 1. 2. 4. 5. 6. 7.

Purpose of reporting obligations..................................................................735 Reporting by the Commission......................................................................736 Reporting by ENTSO-E and ENTSOG....................................................744 Reporting obligations of national authorities............................................747 Reporting obligations on national transmission system operators........749 Review provisions ...........................................................................................750

Chapter 15 Implementation of the Third Internal Energy Market Package...............755 Yona Marinova 1. 2.

The Third Internal Energy Market Package...............................................755 1.1 Implementation via formal enforcement action and other tools..............................................................................................756 Infringement action under the Third Energy Package . ..........................757 2.1 Initiation and steps in infringement proceedings.........................757 xviii

Table of contents

3.

2.1.1 Procedural steps in infringements..................................757 2.1.2 Confidentiality obligations..............................................758 2.2 Infringement cases for non-transposition . ....................................759 2.2.1 Situation upon expiry of the transposition deadlines....759 2.2.2 Initiation of infringement procedures: Letters of formal notice.......................................................................759 2.2.3 Reasoned opinions............................................................760 2.2.4 Decisions for referral to Court. Application of Article 260(3) TFEU........................................................760 2.3 Infringement cases for incorrect transposition or bad application . ..........................................................................................763 2.3.1 Non-conformity problems...............................................763 2.3.2 Systematic non-conformity assessment . ......................763 2.3.3 Ad-hoc cases . .....................................................................764 Infringement action under the Second Energy Package..........................765 3.1 Infringement cases for non-transposition . ....................................766 3.2 Infringement cases for incorrect transposition or bad application . ..........................................................................................766 3.2.1 Follow-up on the actions under the Second Energy Package.................................................................................766 3.2.1.1 Infringements initiated in 2006-2008 . ......766 3.2.1.2 Infringements referred to Court in 2008 ..768 3.2.1.3 Case C-474/08 Commission v. Belgium ... 768 3.2.1.4 Case C-475/08 Commission v. Belgium ... 768 3.2.1.5 Case C-274/08 Commission v. Sweden .... 769 3.2.1.6 Case C-264/09 Commission v. Slovak Republic ................................................. 770 3.2.1.7 Infringements initiated in 2009 . .................771 3.2.2 Follow-up on the actions under the Third Energy Package.................................................................................773 3.2.2.1 Introduction......................................................773 3.2.2.2 Non-compliance with the Second Package Directives...........................................773 3.2.2.2.1 Price regulation for non-household customers...........................................................773 3.2.2.2.2 Case C-265/08 Federutility .........................774 3.2.2.2.3 Reasoned opinions in 2011-2012................775 3.2.2.2.4 Case-36/14 Commission v. Poland..............775 3.2.2.3 Non-compliance with the Second Package Regulations........................................776 xix

Table of contents

4.

5.

3.2.2.3.1 C-198/12 Commission v. Bulgaria .............776 3.2.2.3.2 Cases against the United Kingdom and Ireland .......................................................779 Other implementation tools..........................................................................779 4.1 Contacts between the Commission and the Member States......779 4.2 Guidance by the Court in preliminary rulings..............................780 4.2.1 Case C-242/10 Enel Produzione....................................780 4.2.2 Cases C-105/12 to C-107/12 – Essent e.a..................781 4.2.3 Case C-92/11 RWE Vertrieb AG...................................783 4.2.4 Cases C-359/11 and C-400/11 Schulz & Egbringhoff..........................................................................784 4.2.5 Case C-510/13 E.ON Földgáz Trade Zrt....................785 4.2.6 Case C-121/15 ANODE.................................................788 4.2.7 Case C-347/16 Balgarska energiyna borsa AD (BEB)....................................................................................790 4.2.8 Joined cases C-262/17, C-263/17 and C-273/17 Solvay Chemica Italia........................................................791 4.2.9 Case C‑305/17 FENS spol. s r.o.....................................793 Concluding remarks........................................................................................795

Chapter 16 The internal energy market and neighbouring countries........................797 Erlendas Grigorovic, updated by William-James Kettlewell 1. 2. 3. 4. 5. 6.

7.

Introduction......................................................................................................797 Internal energy market and EU accession...................................................798 Energy Community Treaty............................................................................800 The European Economic Area, Norway and Switzerland.......................804 4.1 The European Economic Area and Norway...................................804 4.2 Switzerland............................................................................................805 Energy in Global International Instruments – The Energy Charter Treaty..................................................................................................806 Regional Agreements......................................................................................808 6.1 The Mediterranean Area....................................................................808 6.2 Eastern Partnership.............................................................................811 6.3 Bilateral Relationships and Agreements ........................................811 6.3.1 Russia....................................................................................812 6.3.2 Ukraine................................................................................814 Bilateral agreements of EU Member States with third countries...........816 xx

Table of contents

Chapter 17 Import Gas Pipelines under the Third Energy Package..........................819 William-James Kettlewell 1. 2.

3.

4.

Introduction......................................................................................................819 The inception and possible demise of the amendments to the Gas Directive.....................................................................................................820 2.1 The Gas Directive as an instrument for shaping the gas ­ importation landscape........................................................................820 2.2 The inapplicability of the Gas Directive to import gas pipelines.................................................................................................821 2.3 The Commission’s proposal . ............................................................823 2.4 The institutional negotiations and political compromise...........823 2.5 The reaction against Directive 2019/692.......................................825 Analysis of the amendments to the Gas Directive....................................826 3.1 Import Gas Pipeline under the Gas Directive, Regulation and Network Codes............................................................................827 3.2 Alternative regulatory regimes applicable to some import gas pipelines..........................................................................................830 3.2.1 Upstream Pipeline Networks to and from third countries..............................................................................830 3.2.2 Extension of the ISO and ITO options for import gas pipelines..........................................................832 3.2.3 Transmission lines under a specific intergovernmental agreement ........................................832 3.3 Exemption for Import Gas Pipelines...............................................838 3.3.1 Exemption for investment purposes..............................838 3.3.2 Exemption for prior completion (‘grandfather clause’)..................................................................................841 Consequences in practice...............................................................................844 4.1 Pipelines will be affected according to their entry point in the EU...............................................................................................844 4.2 Compliance path – and practical consequences – for affected pipelines.................................................................................846 4.2.1 Unbundling rules...............................................................847 4.2.2 Third Party Access requirements....................................848 4.2.3 Regulated Tariffs................................................................849

xxi

Table of contents

APPENDICES

Appendix 1............................................................................................851 Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (recast). Appendix 2..........................................................................................1001 Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC. Appendix 3..........................................................................................1093 Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003. Appendix 4..........................................................................................1143 Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005. Appendix 5..........................................................................................1193 Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators (recast).

xxii

Table of contents

Appendix 6..........................................................................................1259 Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency. Appendix 7..........................................................................................1297 Commission staff working document. Ownership unbundling. The commission’s practice in assessing the presence of a conflict of interest including in case of financial investors. Appendix 8..........................................................................................1311 Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply. Appendix 9..........................................................................................1323 Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010. Appendix 10........................................................................................1435 Commission staff working paper. Interpretative note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas. The unbundling regime. Appendix 11........................................................................................1475 Commission staff working paper. Interpretative note on directive 2009/73/EC concerning common rules for the internal market in natural gas. Third-party access to storage facilities.

xxiii

Table of contents

Appendix 12........................................................................................1495 Commission staff working paper Interpretative note on directive 2009/72/EC . 1495 concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas. Retail markets. Appendix 13........................................................................................1511 Commission staff working paper Interpretative note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas. The regulatory authorities. Appendix 14........................................................................................1537 Energy Community Treaty. Index........................................................................................................................... 1577

xxiv

Chapter 1 Introduction Christopher Jones

Chapter 1 Introduction

The first Internal Energy Market Package was adopted in 1966, the second in 2003 and the third in 2009.

1.1

The creation of the Internal Market has been a gradual process, and a moving target. The First Directive provided a basic framework; structural unbundling and negotiated third part access (“TPA”). The second took the step of opening all customers to competition, and increasing the effectiveness of unbundling and related regulations. The Third Directive and Regulation, in 2009, was the real step forward, and provides the basis of the market rules that we see today.

1.2

In essence, the Third Directive provided a robust structure for the development of real and effective competition and a process for developing the very detailed rules that would enable markets to become liquid and contestable, based on common detailed grid and tariff rules and mechanisms through the adoption of Grid Codes. In more details, the third Directive and Regulation provided for:

1.3

(i)

more effective unbundling, requiring real and effective separation of the transmission company from generation and supply, although shying away from mandatory ownership unbundling,

(ii)

a new European Agency, ACER, that brings together national energy regulators,

(iii) new transmission bodies, ENTSOE and ENTSOG, that take more concentrated and effective action to develop common rules that result in better market integration, and

1

Chapter 1 Introduction Christopher Jones

(iv) a new streamlined decision-making process, in which the new Agency and TSO bodies play a leading role, in developing common codes and rules.

1.4

Since the adoption of these provisions, markets have gradually integrated and energy companies have spread their footprint throughout Europe. Whilst the EU retains a number of strong national companies with important market shares at home, the days of the national monopoly have long since gone.

1.5

For many years, the Commission’s main focus was ensuring fair network access, by enforcing the unbundling rules and through competition policy. This issue has now largely passed, competition cases against a TSO for discriminating against competitors of its parent company are now rare, and becoming a thing of the past. It is widely accepted that the unbundling rules, together with TPA, effective regulation and the technical rules contained in the Grid Codes, have achieved many of the objectives that the EU had when starting this process in 2003. The framework in place is now almost certainly robust enough to continue this work.

1.6

However, whilst the 2009 framework and its supplementary and reinforcing measures (such as Grid Codes, regional cooperation, the Energy Community, the TEN-E and CEF infrastructure framework and the Security of Supply Regulations1 and framework) ‘are fit for purpose’ to achieve the objectives of the original liberalisation process, the EU now has to face a challenge that was simply not on its radar in 2003 or 2006: that of climate change and the need to completely decarbonise the energy system in just three decades.

1.7

Even in 2009, when the third Internal Energy Market package was adopted, together with the Renewable Energy and Energy Efficiency Directives, and the introduction of the Emission Trading System (“ETS”), the Commission was not truly aware of the real scale of the challenge ahead and quite how profoundly this would change the EU’s gas and electricity markets.

1.8

The 20-20-20 package, agreed in 2009, committed the EU to cutting CO2 by 20% compared to 1990 levels, achieving a 20% share of renewable energy sources (“RES”) for its entire energy system, and improving energy efficiency by 20%, all by 2020. This was agreed in the light of the EU’s Kyoto commitments.

1

Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply

2

Chapter 1 Introduction Christopher Jones

The EU has (pretty much) achieved its 20-20-20 target. But this is just the start. It has already agreed the 2030 target of 32% of its energy system being sourced from RES by 2030, combined with a 40% CO2 cut. The RES target is for the whole energy system, including electricity, industry, buildings, transport… However, getting RES into buildings, transport and industry in the short to medium term is logistically difficult, and in some cases expensive. The electricity system has therefore had to, and will have to until at least 2030, contribute the lions’ share to this transformation. The share of RES electricity in the EU’s gross electricity consumption has leaped from 14.2% in 2004 to 32.1% in 2018. This increase is almost entirely made up of intermittent wind and photovoltaic (“PV”) electricity.

1.9

The increase has been asymmetrical, in line with the 2009 RES Directive that required greater efforts from richer countries. In 2004, for example, 9.5% of Germany’s electricity was sourced from RES. This jumped to 38% in 2018, and again, almost all of this increase came from intermittent wind and PV. In 2018, for the first time, Germany produced, over a few days, more electricity than it could consume from RES.

1.10

This revolution in electricity markets has only just started. To meet the EU’s target of a 32% share of RES by 2030, the Commission estimates that the EU will need to source 50% or more of its electricity from RES. The EU has agreed (with Poland reserving its position) to be net zero-carbon by 2050, and the Commission tabled2 on March 4th 2020 a ‘Climate Law’ to give effect to this commitment.

1.11

This gives rise to new and major challenges to the EU’s electricity market.

1.12

First, it needs to deal with the issue of potential ‘renationalisation’ of electricity markets; Member States can and do limit RES subsidies to national production, although this issue is fading somewhat as RES-E becomes increasingly competitive.

1.13

Second, as the share of intermittent electricity becomes higher, the need for balancing energy becomes greater. When the wind does not blow enough and the sun does not shine, the system needs to use demand response wherever possible, and then call on reserve capacity. When there is too much electricity due to favourable conditions, again after having activated the available demand response,

1.14

2

https://ec.europa.eu/info/sites/info/files/commission-proposal-regulation-european-climate-lawmarch-2020_en.pdf

3

Chapter 1 Introduction Christopher Jones

the electricity needs to be stored. This can be done notably through pumped hydro, batteries (for short-term storage) and converting the excess electricity into other energy vectors, notably ‘green’ hydrogen.

1.15

This gives new, and very important, challenges to the Internal Electricity Market. Firstly, it requires the development of efficient and cost-effective balancing capacity, and in time to deal with the rapidly emerging and very significant peaks and troughs. Secondly, a good way to favour national producers is to only tender for locally produced reserve capacity, or to award it to a national company, for example via a ‘focussed’ tender. This risks again ‘renationalising’ a significant part of the Internal Electricity Market.

1.16

In 2018, the Electricity Market Design package3 was adopted, which aims to provide a foundation to deal with these challenges, inter alia addressing issues such as capacity mechanisms, reinforcing the powers and responsibilities of ACER, collaboration mechanisms between TSOs and DSOs, and increasing risk preparedness. This provides an excellent framework to deal with the issues that will be raised over the next decade as the Internal Electricity Market continues its transition, and these changes are covered in this new edition. The Electricity Market Design package is, however, a ‘staging post’: it will not answer all the questions that levels of RES in the electricity mix above 50% will throw up, and no doubt many of these challenges cannot be fully predicted today. We can confidently expect a new package of measures to be tabled during the next Commission, likely around 2027. Not least, it may need to address the question of price formation in a market dominated by generation sources with high CAPEX and very low OPEX, which may well have the tendency to push pool prices below levels needed to attract new investments.

1.17

The Internal Gas Market has not yet been affected by this decarbonisation agenda, or at least not to the same extent. The changes to the gas market, since the last edition of this book, come more from the Grid Codes which go a long way to integrate markets more efficiently and create liquidity and competition.

1.18

However, this is about to change. The Commission has acknowledged that the EU’s 2050 fully decarbonised energy market will require a great deal of decarbonised and renewable gas, notably hydrogen. Indeed, in 30 years’ time, assuming the EU meets its full decarbonisation goal, unabated fossil fuels will have no place in the EU’s electricity and gas markets. In many respects, this will be an 3

https://ec.europa.eu/energy/topics/markets-and-consumers/market-legislation/electricity-market-design_en?redir=1#new-electricity-market-rules

4

Chapter 1 Introduction Christopher Jones

even greater upheaval for the gas markets than that experienced by the electricity system. The Commission is now turning its attention to this issue. Measures need to be taken now if there is any chance that, in just three decades, a functioning and cost-effective renewable and decarbonised gas market and system exists to meet the undoubtedly significant role that it will need to play in the EU’s longer-term energy future. We can expect a ‘Energy System Integration’ package to be tabled in June 2021, and no doubt, the next edition of this book will once again have a great many changes and innovations to cover. The EU’s Internal Energy Market, thus, remains a moving target.

5

1.19

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

Chapter 2 Creating competition on the generation market

1.

Electricity

1.1 Opening the generation market for competition The liberalisation of the energy sector is based first and foremost on the separation of the regulated network activities on the one hand and the opening of the supply and generation markets on the other. Maintaining the monopolistic structure of network operation should enable competition on the generation as well as the supply segments.

2.1

The generation segment of the vertical chain entails not just the offering of electricity to interested buyers on the wholesale market and running the generation unit on the basis of the merit curve, it also involves the establishment of generation facilities throughout the EU (free establishment). Where there is a level playing field for new generating capacities there is a chance for new entrants to break the monopoly of the incumbent(s) which often historically holds significant shares of generating capacities in many Member States. Thus, already in the first electricity Directive, the principle of free competition in the generation of electricity was established. In the first Directive4, Member States could choose between two different systems regarding the manner in which their generation market was opened to competition; a ‘hands-off ’ authorisation procedure, whereby a number of objective criteria had to be complied with in order for an interested operator to be eligible, or a more centrally steered tendering procedure.

2.2

4

Article 4 of the first electricity Directive 96/92.

7

2.3

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

2.4

This choice resulted from the fact that a limited number of Member States at that time still believed that the electricity market should and would be opened to competition to only a very limited extent, and would remain characterised by state planning and state control, particularly on the generation side. Thus, the old Directive contained provisions on long‑term planning,5 tendering, and the single buyer procedure6. The rationale behind this was that the state would retain the central role in deciding, for example, the timing and location of investment in generation plant. Competition would be limited to the operation of the plant in a centrally operated wholesale market and in the supply to final customers.

2.5

However, in the years immediately following the entry into force of the first Directive it became more widely accepted that such a centrally‑planned approach to ensure generation adequacy was neither necessary nor appropriate, and that essential public services can be maintained and improved within the context of an effectively regulated but essentially free market, particularly when considering the question of investment in generation capacity. In practice, apart from exceptional circumstances, all Member States already had opted for the authorisation procedure as a result of implementing the first Directive. The third Directive provided for an authorisation procedure only, as the normal manner for permitting new generation to be licensed:

2.6

Article 7 (1) electricity “1. For the construction of new generating capacity, Member States shall adopt an authorisation procedure, which shall be conducted in accordance with objective, transparent and non‑discriminatory criteria.”

2.7

With the adoption of the fourth electricity Directive this article was renumbered and it is now Article 8.

2.8

The philosophy underlying this procedure is rather simple; Member States are obliged to publish a list of criteria that must be met by any undertaking wishing to establish new generation capacity. These criteria must be “objective, transpar‑ ent, and non‑discriminatory”. 5

6

Articles 2 (21), 3 (2) of the first electricity Directive. The idea behind longterm planning in the first Directive was that Member States could decide how much capacity would be needed on a year by year basis and tender for it. No freedom would be given to market participants to construct new capacity not envisaged under the longterm plan. Articles 2 (22), 15 of the first electricity Directive. This procedure was envisaged as an alternative to third party access. In practice, however, it proved unworkable, and no Member State used it.

8

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

Any undertaking meeting these criteria must have the right to build and operate generation capacity.

2.9

Thus, in normal circumstances Member States can only use the authorisation procedure. It is, in principle, not open to Member States to centrally plan, on a year‑to‑year basis, future estimated generation needs and to tender for future capacity. It must be left to the market to ensure that supply meets demand.

2.10

The move towards the authorisation procedure was also intended to be an additional protection against discrimination. Under a tendering procedure, given the dominant role of any ex‑monopoly and the economies of scale from which it can benefit, and given the interest of the incumbent to prevent the emergence of competition on “its” home market, there is every risk that this company will bid for and win all tenders if they are limited to large generation projects. An authorisation procedure, permitting new market entrants to build smaller plants, provides a greater level of flexibility necessary to encourage market entry.

2.11

Although the role of central planning has been severely constrained by the second and then third Directives, this does not mean that a Member State may not adopt a long-term plan indicating its view of expected future generation requirements7. However, any such plan must be indicative in nature with a role, for example, to guide the compilation of authorisation criteria.

2.12

Furthermore, the third electricity Directive retained, in Article 8, the possibility for Member States to tender in certain limited circumstances for new capacity. This could have been carried out where necessary for reasons of security of supply, or in order to promote environmental protection or new infant technologies. However, the fourth Directive no longer contains the tender procedure and the former Article 8 was erased altogether.

2.13

Even if the authorisation procedure clearly prevailed over the tendering procedure, this should not be seen as a sign of the increased trust in the market to deliver an adequate mix of generation capacity able to meet demand at all times. On the contrary, this trust has come under increasing pressure in recent years, as a result of the increased variability that comes with increasing shares of renewables in the generation mix.8 This widespread concern has not only led to the

2.14

7 8

Article 3 (2) of the third electricity Directive. Commission Communication COM(2013)7243, ‘Delivering the internal electricity market and making the most of public intervention’, http://ec.europa.eu/energy/gas_electricity/doc/com_2013_public_intervention_en.pdf

9

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

development of a number of so-called capacity mechanisms9, it has also inspired revisions to all articles relevant to the generation segment of the value chain, in the fourth electricity Directive as well as the revised electricity Regulation.

1.2 The authorisation procedure 1.2.1 Substantive issues 2.15

The fourth electricity Directive sets out, in Article 8 (2), the following exhaustive list of criteria that may be applied by Member States in establishing an authorisation procedure. These criteria are listed below, and commented upon:

2.16

a.

the safety and security of the electricity system, installations and associated equipment

Normally this criterion is met through an obligation that any new capacity meets the requirements of the grid code or other standard operational or safety criteria adopted by the transmission system operator and approved by the regulator.

2.17

b.

the protection of public health and safety

2.18

c.

protection of the environment

These criteria are typically met by requirements to respect any legislation on environmental and safety standards in force, and again, the grid code.

2.19

d.

land use and sitting

2.20

e.

use of public ground

In most Member States, there are no specific planning procedures relating to electricity generating plants, which must therefore meet the normal planning requirements applying to any new industrial or semi‑industrial plants or facilities. Such planning requirements are to a very large extent left to each Member State under the subsidiarity principle. However, according to Article 7 (3) of the third electricity Directive they may not be discriminatory in nature, and furthermore, “Member States shall ensure that specific authorisation procedures exist for small decentral9

Capacity mechanisms are State aid mechanisms through which Member States remunerate capacity for being available instead of or in addition to any revenues this capacity obtains from operating in the electricity market. These mechanisms are discussed in more detail in Chapter 13 on Security of Supply.

10

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

ised and/or distributed generation, which take into account their limited size and potential impact”. The obligation is rather generally phrased, but does give rise to specific rights. Member States must examine whether their planning procedures adequately reflect the enormous difference in environmental impact between a small renewable, CHP or micro‑generation plant and a major electricity facility. The difference should not only be reflected by the difficulty in getting acceptance for the project, but also the speed with which any application is processed. f.

2.21

energy efficiency

Also this criterion is typically met by requirements to respect any legislation on environmental and safety standards in force, and again, the grid code. g.

the nature of primary energy sources

2.22

In normal circumstances, it is not open to a Member State to prescribe which primary energy source should be used by a new generator because such an approach would be likely to result in discrimination vis‑à‑vis existing generators which have not been constrained in this manner. Furthermore, such constraints run contrary to the underlying objective of an authorisation procedure: freedom for new competitors to enter markets, only limited by authorisation criteria imposed to meet essential public service objectives. However, exceptionally, it may be necessary to put restraints on the use of primary energy sources by new generators, notably for reasons relating to security of supply or – possibly – environmental protection.

2.23

The imposition of such constraints needs to be considered carefully since they may easily lead to discrimination. In principle, to be compatible with the Directive, any such limitation must be the least restrictive approach of trade and competition reasonably possible to achieve the legitimate objectives in question. In examining this, the Commission would consider whether the measure was proportionate to its objective, and whether any other, less restrictive possibilities exist. In the event that such an authorisation criteria were seen as discriminatory, the Commission would need to launch an infringement procedure against the Member State concerned.

2.24

Practice however demonstrates that it is not under the authorisation procedure of Article 7 Electricity Directive that Member States introduce and justify constraints of one fuel in favour of the other. In recent years public intervention

2.25

11

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

of Member States in the generation sector has been a key topic in discussions on the functioning and the completion of the internal electricity market. First, the impact of support schemes for renewable energy has drastically changed the merit order and is raising generation adequacy risks in a number of Member States, which generally seek to remedy the situation by new interventions.10 These interventions however tend to take place outside of the ‘standard’ authorisation procedure framework of Article 7 and their legality is assessed under different legal instruments, such as the tender procedure of Article 8, the reviewed Energy and Environmental State Aid Guidelines or the public service obligations framework. This issue will therefore be further discussed in the Chapters on Security of Supply and public service obligations.11

2.26

h.

characteristics particular to the applicant, such as technical, economic and financial capabilities

When establishing authorisation criteria, Member States may set minimum solvency requirements that must be met by any undertaking operating on the market. Such criteria may be differentiated according to the activity undertaken, for example generator, trader, or supplier. Clearly, care must be taken to ensure that such requirements are non‑discriminatory, and take into account that it may not be appropriate to place the same solvency requirements on all market actors, because failure to take into account different objective requirements may favour incumbents.

2.27

i.

compliance with measures adopted pursuant to Article 9

A construction/operating license can be made subject to the respect of any public service criteria legitimately adopted pursuant to Article 912. However, given the fact that the preceding paragraphs already cover to a very large extent such obligations relevant to the generation sector, it is difficult to envisage that this paragraph will in practice add anything further.

2.28

j.

the contribution of generating capacity to meeting the overall Union target of at least a 32 % share of energy from renewable sources in the Union’s gross final consumption of energy in 2030 referred to in Article 3(1) of Directive (EU) 2018/2001 of the European Parliament and of the Council (19);

10

Commission Communication COM(2013)7243, Delivering the internal electricity market. Making the most of public intervention. See Chapter 13. See Chapter 10.

11 12

12

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

This criterion seems to add little in terms of concrete obligation. It should rather be seen as a political provision inciting Member States to ensure that the measures are taken to permit Member States to meet their commitments under the 2009 Renewable Energy Directive. k.

the contribution of generating capacity to reducing emissions.

2.29

This provision is similar to (j) above. It gives an incentive to Member States, where appropriate, to take specific measures to promote generation that contributes to reducing national emissions levels. In addition to this, Article 7 (3) provides a specific obligation to ensure that authorisation procedures for small decentralised and/or distributed generation exist. l.

the alternatives to the construction of new generating capacity, such as demand-response solutions and energy storage

2.30

This provision is a new addition introduced in the fourth Directive. It reflects the need, underlined already in the chapter on capacity mechanisms of the Energy and Environmental Aid Guidelines, for Member States to not only regard conventional power plants or renewable generators as potential capacity providers, but to include innovative capacity sources such as demand-response and storage as well. The need for such alternatives, and in particular their flexibility, is closely connected to the rapid development of variable renewables sources that require sufficiently flexible back-up.

1.2.2 Procedural issues Article 8 (4) of the fourth electricity Directive outlines the procedure to be followed regarding authorisation: Article 8 (4) electricity “The authorisation procedures and criteria shall be made public. Applicants shall be informed of the reasons for any refusal to grant an authorisation. Those reasons shall be objective, non‑discriminatory, well-founded and duly substantiated. Appeal procedures shall be made available to the applicant.”

13

2.31

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

2.32

2.33

2.34

2.35

This Article makes it clear that an authorisation procedure may be the subject of an active licensing procedure, typically (but not necessarily) carried out by the regulator. The grant of a license may be a precondition to authorisation to construct generating facilities. However, such a licensing system must respect a number of procedural safeguards, notably that Member States must make public the requirements to be met by any potential generator. This need not be in a specific legal act, but may simply be an obligation to meet listed and published requirements, such as a network code and existing planning and environmental legislation. Indeed, in most Member States no specific energy related authorisation criteria apply to generation. In the first electricity Directive, Member States were required to forward to the Commission a copy of any refusal to grant an authorisation. In reality this proved unworkable; the administrative cost of ensuring that all local government bodies that refuse permission on environmental or planning grounds inform the Commission of their negative decision outweighed any potential benefits. Thus, the present approach is based on transparency with, if necessary, action by the Commission on the basis of complaints. Thus, although Article 8 (4) of the fourth electricity Directive requires that Member States ensure that “appeal procedures shall be made available to the applicant” in the event of a refusal of a license, it is a question of subsidiarity as to the nature of the appeal procedure. For example, in many Member States, under administrative law, the grounds of any such appeal will be strictly limited; typically to the question whether a procedural error occurred during the decision‑making process. A right of appeal under national law does not prevent a complaint being made to the Commission under Community law. Whilst the Commission would not have jurisdiction to consider the merits of any given license application, it would have the task of verifying that the license procedure complies with the requirements of the Directive. If this would be found not to be the case, the only remedy would be the launch of an infringement procedure against the Member State in question for insufficient implementation of the Directive.

2. 2.36

Gas

Prior to the first gas Directive, in many Member States the national gas company held exclusive de facto or de jure rights to import and export gas and to construct gas infrastructure: transmission, distribution, storage and LNG. The 14

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

first gas Directive required the abolition of these exclusive rights, through provisions regarding market opening and third party access and an obligation to establish non‑discriminatory authorisation procedures for the construction of natural gas facilities. These provisions also exist in the second gas and now third Directive, Article 4 simply taking over the text from the first Directive, with a slight addition in the third Directive at the end of paragraph 2 (underlined), which adds however little if anything in practice: Article 4 gas “1. In circumstances where an authorisation (for example licence, permission, concession, consent or approval) is required for the construction or operation of natural‑gas facilities, the Member States or any competent authority they designate shall grant authorisations to build and/or operate such facilities, pipelines and associated equipment on their territory, in accordance with paragraphs  2 to 4. Member States or any competent authority they designate may also grant authorisations on the same basis for the supply of natural gas and for wholesale customers. 2. Where Member States have a system of authorisation, they shall lay down objective and non‑discriminatory criteria which shall be met by an undertaking applying for an authorisation to build and/or operate natural‑gas facilities or applying for an authorisation to supply natural gas. The non‑discriminatory criteria and procedures for the granting of authorisations shall be made public. Member States shall ensure that authorisation procedures for facilities, pipelines and associated equipment take into account the importance of the project for the internal market in natural gas where appropriate. 3. Member States shall ensure that the reasons for any refusal to grant an authorisation are objective and non‑discriminatory and that they are given to the applicant. Reasons for such refusals shall be notified to the Commission for information. Member States shall establish a procedure enabling the applicant to appeal against such refusals. 4. For the development of newly supplied areas and efficient operation generally, and without prejudice to Article 38, Member States may decline to grant a further authorisation to build and operate distribution pipeline systems in any particular area once such pipeline systems have been or are proposed to be built in that area and if existing or proposed capacity is not saturated.”

15

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

2.37

This gives rise to the following comments: –

Member States are not obliged to establish any specific authorisation procedure for the construction of new infrastructure; they may simply apply local or regional environmental/planning rules.

–

Where specific authorisation procedures exist, these have to be published and non‑discriminatory. Such authorisation procedures may be relevant not just for the construction of new infrastructure, but also regarding supply – i.e. any company wishing to sell gas in a Member State may be obliged to acquire a supply license from the relevant authorising body. In fact, the obligation to acquire a supply license, typically from the regulator, is rather standard practice in the EU. Usually, this license is the manner in which the regulator ensures the maintenance of security and public service standards by making them license conditions. – The conditions for the grant of a construction, operation or supply license must be established on implementation of the second Directive. In fact, they should already exist and be published as they were required by the first gas Directive. Any changes to the authorisation criteria must be published in good time prior to its entry into force. – Article 4(4) provides a significant limitation on the obligation on Member States to permit the construction of competing distribution infrastructure. Under Article 4 (4), Member States can refuse the construction of competing gas distribution systems “for the development of newly supplied areas and efficient operation generally”.

2.38

Article 4(4) makes it clear that Member States may only refuse authorisation to build new distribution facilities if existing or proposed capacity is not saturated. Thus, if a potential constructor of a competing distribution system has requested third party access and has been refused on the grounds of lack of capacity and if this congestion will not be resolved within a reasonable time‑frame due to planned grid reinforcements, authorisation must in principle be granted. The first sentence of 4 (4) permits a refusal to construct to be justified either on the basis of “the development of newly supplied areas” or for “efficient operation generally”. Distribution tariff systems, unlike transmission, are almost always based on postage stamp tariffs. Thus, the risk of companies “cherry picking” – building pipelines where it would be profitable and thereby undermining the ability of the distribution company to maintain postage stamp tariffs – exists 16

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

with distribution, but to a lesser extent with transmission. This explains why the possibility contained in Article 4 (4) to derogate from the basic rule that any company must in principle be free to construct competing infrastructure applies only to distribution systems. However, possible limitations on the right to construct transmission pipelines that compete with those of the incumbent network operator are contained in Article 38 of the third gas Directive13, which also permits Member States to make the grant of an authorisation to construct a direct transmission line subject to a refusal of network access due to lack of capacity. This possible limitation to the authorisation procedure contains, however, different conditions to those contained in Article 4(4).

2.39

Where the relevant body in the Member State responsible for granting authorisations (usually the regulator) refuses an application, the decision must be reasoned and the possibility of appeal must exist. It is left to subsidiarity to decide the procedure and grounds for appeal. Article 4(3) of the third gas Directive requires that the reasons “ for such refusals shall be notified to the Commission for information.”

2.40

This may be contrasted with the second and third electricity Directives which (unlike with respect to gas) deletes this notification requirement (it figured in the first electricity Directive). The reason for the deletion of the requirement to notify refusals of requests for authorisation regarding electricity was set out in preamble 30 to the second electricity Directive.

2.41

13

Article 38 Gas Directive 1. Member States shall take the necessary measures to enable: (a) natural gas undertakings established within their territory to supply the eligible customers through a direct line; and (b) any such eligible customer within their territory to be supplied through a direct line by natural gas undertakings. 2. In circumstances where an authorisation (for example, licence, permission, concession, consent or approval) is required for the construction or operation of direct pipelines, the Member States or any competent authority they designate shall lay down the criteria for the grant of authorisations for the construction or operation of such pipelines in their territory. Those criteria shall be objective, transparent and nondiscriminatory. 3. Member States may issue an authorisation to construct a direct line subject either to the refusal of system access on the basis of Article 35 or to the opening of a disputesettlement procedure under Article 41.

17

Chapter 2 Creating competition on the generation market Christopher Jones, revised by Ruben Vermeeren

Preamble 30 Electricity Directive “The requirement to notify the Commission of any refusal to grant authorisation to construct new generation capacity has proven to be an unnecessary administrative burden and should therefore be dispensed with.”

2.42

One may therefore presume that a refusal with respect to gas is viewed with more concern than with electricity, and may be expected to be very much the exception. This underlines the arguments set out above as to the difficulty to justify a refusal to construct competing transmission pipelines and LNG and storage facilities.

18

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Chapter 3 Network regulation and third party access14

1. Introduction Good functioning electricity and gas networks are essential for the system security and the security of supply of the European Union. All Energy Packages, including the latest update of the Third Energy Package for electricity with the Clean Energy for all Europeans Package,15 recognise the importance of independent transmission and distribution networks from the generation and supply segments as a condition for the market opening and more competition in the electricity and gas markets. To ensure such independence the tasks of the transmission and distribution networks are described in detailed manner and fall under strict regulation. The obligation to provide non-discriminatory access to the networks, including connection and use of such networks, as well as to the electricity markets fall within these tasks.

3.1

The transmission and distribution of electricity and gas in Europe have generally been considered as monopoly activities. Even where the legal right exists to construct parallel networks, with the exception of an occasional direct line, it will not typically be economically viable to construct a competing network. Thus, in order to have effective competition in the gas and electricity markets, any electricity or gas supplier must have non‑discriminatory access to the network in order to supply customers.

3.2

14 15

The content of this article does not necessarily reflect the official position of the European Union. Responsibility for the information and views expressed herein lies entirely with the author. Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators; Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity; Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU.

19

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.3

In some countries, notably Germany, the construction of gas transmission pipelines has not been considered a monopoly activity, and parallel lines or alternative routes exist to a certain extent. In those circumstances, it could be argued that it is unnecessary to require the owner of a gas transmission network to allow access to suppliers, as potential competitors to the existing pipeline owner could – in principle – construct a competing network. This approach would be similar to practice in the telecoms sector and to the way gas transmission networks in the USA have been regulated.

3.4

It was this line of argument that led to a choice for Member States between negotiated or regulated access to transmission networks in the first electricity and gas Directives. The possibility to choose between negotiated and regulated access to the transmission networks in gas was dropped in the second electricity and gas Directives. Regulated access to transmission lines, to be provided by legally and organisationally unbundled companies became the minimum requirement.16,17 The main reason for dropping the possibility for negotiated access was that competition in the electricity and gas markets was not developing satisfactorily. There are a number of reasons for this.

3.5

Firstly, there has been rather limited growth in the volume of gas and electricity transported. This is different from the telecommunication sector, where very strong growth in telecommunications traffic and fundamental technological changes have allowed parallel networks to become a reality in many areas. In the absence of such growth, competitors would find it particularly difficult to finance the construction of additional transmission lines and relying on the emergence of network competition would mean a very slow introduction of competition. In practice, it was therefore crucial that competitors could use existing networks. Secondly, electricity and gas transmission lines are, for geographical reasons, increasingly difficult to construct in densely populated areas such as the European Union, and many networks in Europe are much more meshed than the competing US trunk lines. New entrants would therefore typically rely on existing infrastructure owned by incumbents to access the market. Thirdly, the introduction of decoupled entry-exit pricing in some gas markets meant that access to the virtual or notional trading hub required the use of that particular infrastructure and limited potential competition between networks to the transit 16 17

Member States retain the choice between regulated and negotiated third party access regarding access to gas storage and gas ancillary services, with the exception of balancing for which regulated access is mandatory. Derogation from regulated access, however, was, and still is, possible: main examples are the exemptions from regulated third party access according to Article 36 of the gas Directive and Article 17 of the electricity Regulation as well as regional derogations according to Article 44 of the electricity Directive and Article 49 of the gas Directive.

20

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

of gas through those networks or market areas. Finally, an integrated system of transmission networks allows for a more efficient use of existing infrastructure, especially in a highly meshed system such as the European electricity (and to a more limited extent gas) grid. Regarding electricity, the example of Great Britain’s policy regarding transmission and distribution networks is also worth mentioning. Without changing the principle of the networks being a natural monopoly, Great Britain applies competition for the networks’ development and ownership on offshore transmission networks and interconnectors. Given the identified benefits for consumers, more competition on onshore transmission networks is introduced recently with an updated plan in this regard.18 In this regime where competitors participate in tenders for the ownership and operation of the transmission assets, it is noted that the requirements of unbundling and the independent performance of the system operators’ tasks are respected.

3.6

The Third Package Directives maintained the system of regulated access as the minimum requirement for distribution and transmission networks in the gas and electricity sectors. They also strengthened the unbundling requirements in order to overcome discriminatory obstacles in accessing networks of so-called vertically integrated companies. The unbundling rules are discussed in Chapter 4.

3.7

18

Regarding offshore transmission assets, in 2009 Great Britain has introduced a regime where the assets constructed by the offshore developer are transferred to the Offshore Transmission Owner (OFTO) who was identified through a competitive tender process. Potential OFTOs bid to purchase the transmission assets from the developer and then finance and maintain the assets over a twenty-year revenue stream period. In the first, so-called transitional period until 2014, the first tender started in July 2009 and the first offshore transmission licence was granted in March 2011. A second round of transitional tenders started in November 2010 and in February 2014 the third tender phase started under the so-called enduring regime. In this stage the offshore developers have the flexibility to choose whether they or an OFTO design and construct transmission assets. Important is thought that, in accordance with the unbundling requirements, regardless of the party who constructs the offshore transmission assets, an OFTO will be responsible for the ongoing ownership and operation of the transmission assets. See https://www.ofgem.gov.uk/electricity/transmission-networks/offshore-transmission/offshore-transmission-policy-design. Regarding the application of the competition regime to onshore transmission assets see “Update on competition in onshore electricity transmission”, published on 23 January 2018, https://www.ofgem.gov.uk/system/files/docs/2018/01/ competition_update.pdf. This document provides an update on OFGEM’s plans to introduce competitive tendering into onshore electricity transmission, sets the criteria and the process to be applied. The decision to introduce more competition on onshore transmission networks was based on the fact that that new, separable and high value onshore transmission assets should be competitively tendered to ensure value for consumers, with potential reduced costs and increased innovation. The process builds on the already applicable offshore transmission model which grants licences on the basis of competitive tendering which has led to considerable savings for consumers of between £600m and £1.2bn since its implementation in 2009.

21

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.8

With regard to electricity, a number of amendments have been made to Directive 2009/72/EC of the European Parliament and of the Council and Regulation (EC) No 714/2009 of the European Parliament and of the Council with the newly adopted Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (Electricity Directive) and Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (Electricity Regulation).

3.9

Even though the principles of third-party access and regulated networks have been maintained, the tasks of electricity system operators have been updated to accommodate the needs of the future electricity markets. The networks have to be able to integrate active customers who now have the right to actively participate in the electricity markets similarly to all other market participants and who need to be empowered to manage their energy consumption.19

3.10

Further, the electricity systems and markets need to be able to integrate the growing share of renewable energy and to make use of all available sources of flexibility with special focus on demand side solutions and energy storage. Also digitalisation will play a significant role through the integration of innovative technologies with the electricity system. The increasing market integration and the more volatile production will require an even closer coordination of the electricity system operators within and across Member States and use of more and more cross-border electricity trade.

3.11

Regarding access and use of Europe’s cross-border electricity networks, detailed rules that govern how network operators provide access to users have been developed with technical network codes and guidelines on the basis of Articles 6 and 18 of Regulation 714/2009. Whereas in the past, such technical rules were mainly decided nationally, the increased interconnections between countries and the need for more cross-border energy exchanges have made EU-wide rules increasingly necessary to effectively manage electricity flows in a fair and nondiscriminatory manner. These network codes and guidelines are legally binding European Commission implementing Regulations based on proposals submitted by the European Network of Transmission System Operators for Electricity (ENTSO-E) followed up by an assessment and review from the Agency for the Cooperation of Energy Regulators (ACER).20 19 20

See Recitals 10, 37, 42 and 55 of Electricity Directive. https://ec.europa.eu/energy/en/topics/markets-and-consumers/wholesale-market/electricity-networkcodes.

22

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Of relevance for the third party access to the transmission networks and electricity markets are the following network codes and guidelines (more details can be found in Chapter 12):

3.12

Market codes:

3.13

–

Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (CACM Regulation);21

–

Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (FCA Regulation);22

–

Commission Regulation (EU) 2017/2195 of 23 November 2017 establishing a guideline on electricity balancing (Balancing Regulation).23

3.14

Connection codes: –

Commission Regulation (EU) 2016/631 of 14 April 2016 establishing a network code on requirements for grid connection of generators (Requirements for Generators Code);24

–

Commission Regulation (EU) 2016/1388 of 17 August 2016 establishing a Network Code on Demand Connection (Demand Connection code);25

–

Commission Regulation (EU) 2016/1447 establishing a network code on requirements for grid connection of high voltage direct current systems and direct current-connected power park modules (HVDC code).26

3.15

System operation codes: –

21 22 23 24 25 26 27

Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation (System Operation Regulation).27 OJ L 197, 25.7.2015. C/2016/5946 OJ L 259, 27.9.2016. C/2017/7774 OJ L 312, 28.11.2017. C/2016/2001 OJ L 112, 27.4.2016. C/2016/5239 OJ L 223, 18.8.2016. OJ L 241, 8.9.2016. C/2017/5310 OJ L 220, 25.8.2017.

23

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.16

These technical legal acts contain details on the terms and conditions for connection and use of the transmission system, rights and obligations of TSOs and other market participants regarding access to the electricity markets as well as rules on system operation and cooperation of TSOs on various aspects of operational security including tasks on electricity balancing. Specific references to the individual network codes and guidelines are made in the relevant sections of this Chapter as well as in Chapter 8 (on capacity allocation and congestion managements).

2.

Duties and responsibilities of transmission and distribution system operators

2.1 General duties 2.1.1 Network-related tasks 3.17

The electricity and gas Directives list a minimum set of tasks of transmission and distribution system operators (‘TSO’ and ‘DSO’ respectively). Member States are free to entrust additional responsibilities to them, but they must make sure that as a minimum all tasks in the Directive are entrusted. The list of tasks differs to some extent between transmission and distribution as well as between electricity and gas. With regard to electricity, these markets differ from those for natural gas, as they involve the trading in a commodity which cannot currently be easily stored and which can be produced using various kinds of generating installations. For this reason, a well-interconnected transmission system across the Union and a high degree of integration of the electricity markets require close cooperation among system operators, market participants and regulatory authorities.28 The present chapter, firstly, describes the relevant provisions for electricity and, subsequently, for gas.

3.18

With respect to electricity, the new Electricity Directive sets the general duties in Article 31 for DSOs and Article 40 for TSOs. Some specific duties are described in other articles of the Electricity Directive and further principles to be followed by the DSOs/TSOs while performing these tasks are included in the Electricity Regulation. The core tasks of the DSOs and TSOs have not changed from the ones in Directive 2009/72 and they cover the following: 28

See recital 18 of Electricity Directive.

24

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Article 31 Tasks of distribution system operators “1. The distribution system operator shall be responsible for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity, for operating, maintaining and developing under economic conditions a secure, reliable and efficient electricity distribution system in its area with due regard for the environment and energy efficiency. 2. In any event, the distribution system operator shall not discriminate between system users or classes of system users, particularly in favour of its related undertakings. 3. The distribution system operator shall provide system users with the information they need for efficient access to, including use of, the system. […].”

Article 40 Tasks of transmission system operators “1. Each transmission system operator shall be responsible for: (a) ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity, operating, maintaining and developing under economic conditions secure, reliable and efficient transmission system with due regard to the environment, in close cooperation with neighbouring transmission system operators and distribution system operators; (b) ensuring adequate means to meet its obligations; (c) contributing to security of supply through adequate transmission capacity and system reliability; (d) managing electricity flows on the system, taking into account exchanges with other interconnected systems. To that end, the transmission system operator shall be responsible for ensuring a secure, reliable and efficient electricity system and, in that context, for ensuring the availability of all necessary ancillary services, including those provided by demand response and energy 25

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati storage facilities, insofar as such availability is independent from any other transmission systems with which its system is interconnected; (e) providing to the operator of other systems with which its system is interconnected sufficient information to ensure the secure and efficient operation, coordinated development and interoperability of the interconnected system; (f ) ensuring non-discrimination as between system users or classes of system users, particularly in favour of its related undertakings; (g) providing system users with the information they need for efficient access to the system; (h) collecting congestion rents and payments under the inter-transmission system operator compensation mechanism, in accordance with Article 49 of Regulation (EU) 2019/943, granting and managing third-party access and giving reasoned explanations when it denies such access, which shall be monitored by the regulatory authorities; in carrying out their tasks under this Article transmission system operators shall primarily facilitate market integration;

3.19

These Articles define the general tasks of system operators which are largely selfexplanatory and remained unchanged after the revision of Directive 2009/72. Compared to the second package, the third package had assigned some additional tasks to the electricity TSOs, namely the task of collecting congestion rents at interconnections and the granting and managing of third-party access. The new Electricity Directive added, however, some new general and specific tasks to electricity TSOs and DSOs necessary for the fulfilment of the objectives of the energy policy in the next ten to fifteen years, these being the decarbonisation of the energy markets, integration of renewable energy in the energy networks and active participation of final customers in the electricity markets. Article 40(1)(i) to (m) adds the following tasks in the main tasks of the TSOs: “(i) procuring ancillary services to ensure operational security; (j) adopting a framework for cooperation and coordination between the regional coordination centres;

26

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati (k) participating in the establishment of the European and national resource adequacy assessments pursuant to Chapter IV of Regulation (EU) 2019/943; (l) the digitalisation of transmission systems; (m) data management, including the development of data management systems, cybersecurity and data protection, subject to the applicable rules, and without prejudice to the competence of other authorities. […].”

Some of the tasks above were fully or partially already performed by TSOs, such as the procurement of ancillary services or the cooperation for the establishment of regional coordination centres (RCCs)29 based on previous legislation and the network codes and guidelines. The adoption of a framework for cooperation and coordination between RCCs will lead to an enhanced institutional model of the regional security coordinators established with the System Operation Regulation,30 will perform several coordinated tasks on behalf of the TSOs and their governance structure has to be defined by the TSOs in a coordinated manner. TSOs are obliged to take into account the recommendations issued by the regional coordination centres and they can deviate only under specific conditions.31 Other new tasks refer further to the integration of flexible energy sources, like storage and demand response, the facilitation of electro-mobility and data management tasks. These are further developed under section 2.2.

3.20

It is new that Member States or their designated competent authorities may allow TSOs or DSOs to perform activities other than those provided for in the Electricity Directive and in the Electricity Regulation where such activities are necessary for the network operators to fulfil their obligations. This is conditioned upon the regulatory authority’s assessment of the necessity of such a

3.21

29 30

31

TSOs were obliged to perform similar tasks under the System Operation Guideline and under the Balancing Regulation. This Regulation defines a set of minimum requirements for EU-wide transmission system operation, crossborder cooperation between TSOs, using the relevant characteristics of the connected DSOs and significant grid users (SGUs). The rules contained therein are necessary for safeguarding operational security, power supply frequency and the efficiency of the interconnected system and resources. These rules include requirements for operational security, operational planning, operational security analysis, requirements for scheduling between the control areas for which the TSOs are responsible and rules for the establishment of an EU-wide framework for load-frequency control and reserves. https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=celex:32017R1485. Article 40(3). For example, TSOs may deviate from coordinated actions in respect of coordinated capacity calculation and coordinated security analysis only in accordance with Article 42(2) of the Electricity Regulation. This article provides that TSOs can deviate from coordinate actions where their implementation would result in a violation of the operational security limits defined by each TSO in accordance with the SO GL.

27

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

derogation and it should be without prejudice to the right of the DSOs to own, develop, manage or operate networks other than electricity networks where the Member State or the designated competent authority has granted such a right.32

3.22

In accordance with paragraph 2 of Article 40 of the Recast electricity Directive, Member States may provide that one or several TSOs tasks be assigned to a TSO other than the one which owns the transmission system to which the responsibilities concerned would otherwise be applicable. The TSO to which the tasks are assigned shall be certified under the ownership unbundling, the independent system operator or the independent TSO model, and fulfil the requirements provided for in Article 43, but shall not be required to own the transmission system it is responsible for. This possibility is used in particular in Great Britain where various types of TSOs are certified and depending on the function of these TSOs the tasks have been assigned respectively.33

3.23

In addition to the assignment of the tasks by the Member State, a TSO is entitled to delegate, on their own initiative and under their supervision, certain tasks to other TSOs which are certified under the unbundling framework. Such a delegation is allowed under the condition that it does not endanger the effective and independent decision-making rights of the delegating TSO who remains responsible to fulfil the tasks assigned to it. This rule has been reflected as well in the network codes and guidelines covering sometimes also other entities as the Nominated Electricity Market Operators (NEMOs).34

3.24

With respect to gas, Article 13 of the Gas Directive contains the minimum responsibilities that must be entrusted to TSOs, which largely parallel those regarding electricity under the Third Package:

32 33

34

See Articles 31(10) and 40(8) of the Electricity Directive. This legal basis may be relevant in the future in cases of the development of other networks like heat or hydrogen networks by network operators. While there are three Transmission Operators (TOs) permitted to develop, operate and maintain a high voltage system within their own distinct onshore transmission areas (National Grid Electricity Transmission plc (NGET) for England and Wales, Scottish Power Transmission Limited for southern Scotland and Scottish Hydro Electric Transmission plc for northern Scotland and the Scottish islands groups) there is a single System Operator (SO) operating the system as a whole (National Grid Electricity Transmission plc (NGET)). E.g. Article 81 of CACM Regulation or Article 62 of FCA Regulation.

28

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Article 13 gas Tasks of transmission, storage and/or LNG system operators “1. Each transmission, storage and/or LNG system operator shall: (a) operate, maintain and develop under economic conditions secure, reliable and efficient transmission, storage and/or LNG facilities to secure an open market, with due regard to the environment, ensure adequate means to meet service obligations; (b) refrain from discriminating between system users or classes of system users, particularly in favour of its related undertakings; (c) provide any other transmission system operator, any other storage system operator, any other LNG system operator and/or any distribution system operator, sufficient information to ensure that the transport and storage of natural gas may take place in a manner compatible with the secure and efficient operation of the interconnected system; and (d) provide system users with the information they need for efficient access to the system. 2. Each transmission system operator shall build sufficient cross-border capacity to integrate European transmission infrastructure accommodating all economically reasonable and technically feasible demands for capacity and taking into account security of gas supply. 3. Rules adopted by transmission system operators for balancing the gas transmission system shall be objective, transparent and non-discriminatory, including rules for the charging of system users of their networks for energy imbalance. Terms and conditions, including rules and tariffs, for the provision of such services by transmission system operators shall be established pursuant to a methodology compatible with Article 41(6) in a non-discriminatory and cost reflective way and shall be published. 4. The regulatory authorities where Member States have so provided or Member States may require transmission system operators to comply with minimum requirements for the maintenance and development of the transmission system, including interconnection capacity.

29

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati 5. Transmission system operators shall procure the energy they use for the carrying out of their functions according to transparent, non-discriminatory and market based procedures.”

3.25

Similarly, with respect to distribution, the requirements under the gas Directive parallel those for electricity: Article 25 gas Tasks of distribution system operators “1. Each distribution system operator shall be responsible for ensuring the longterm ability of the system to meet reasonable demands for the distribution of gas, and for operating, maintaining and developing under economic conditions a secure, reliable and efficient system in its area, with due regard for the environment and energy efficiency. 2. In any event, the distribution system operator shall not discriminate between system users or classes of system users, particularly in favour of its related undertakings. 3. Each distribution system operator shall provide any other distribution system operator, and/or any transmission, and/or LNG system operator, and/or storage system operator with sufficient information to ensure that the transport and storage of natural gas takes place in a manner compatible with the secure and efficient operation of the interconnected system. 4. Each distribution system operator shall provide system users with the information they need for efficient access to, including use of, the system. 5. Where a distribution system operator is responsible for balancing the distribution system, rules adopted by it for that purpose shall be objective, transparent and non-discriminatory, including rules for the charging of system users for energy imbalance. Terms and conditions, including rules and tariffs, for the provision of such services by distribution system operators shall be established pursuant to a methodology compatible with Article 41(6) in a non-discriminatory and cost-reflective way and shall be published.”

30

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

As with electricity, these provisions are largely self-explanatory. A major difference in the third package compared to the second gas Directive is the more explicit obligation in Article 13(2) on TSOs to build sufficient cross-border capacity (albeit economically reasonable and technically feasible) in addition to the existing obligation in Article 13(1) to maintain and develop their systems under economic conditions. Similarly, DSOs are obliged to ensure the long-term ability of the system to meet reasonable demand for the distribution of gas, as required under Article 25(1) of the Gas Directive. These obligations are a reflection of the increased importance of ensuring sufficient investment in the DSO and TSO systems in order to facilitate the market and to contribute to further market integration.

3.26

2.1.2 Confidentiality obligation Articles 37 and 41 of the Electricity Directive and articles16 and 27 of the Gas Directive impose on transmission and DSOs an obligation to respect the confidentiality of commercially sensitive information.

3.27

In the case of DSOs, the provisions have not substantially changed with the adoption of the third legislative package. However, for TSOs (and for gas: storage and LNG system operators), the third package spells out the confidentiality requirements in more detail.

3.28

The reason for this is that the third package has increased the focus on fully nondiscriminatory access to the relevant systems and has as one of its core objectives the full independence and accountability of the TSOs. Although for transmission operators the preferred option is full ownership unbundling, somewhat more integrated unbundling options remain possible.

3.29

This is equally true for operators of storage and LNG systems. Therefore, in order to guarantee that commercially sensitive information at the disposal of system operators is dealt with in a responsible manner, the requirements in article 16 of the Gas Directive have been elaborated. The confidentiality requirements extend to the owners of transmission systems. As certain unbundling options introduce a distinction between the operator and the owner of the network and both are likely to be in possession of commercially sensitive information, it is consistent that both are covered by the confidentiality requirements.

3.30

31

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

2.1.3 Balancing 3.31

Access to the networks will involve the requirement to balance input and offtake, as a direct result of the physical limitations of both gas and electricity networks. As especially offtake (as a consequence of consumption patterns) may not always be fully predictable, balancing a portfolio can be difficult, depending on the requirements set by the network operator. Therefore, the Directives as well as the gas and electricity Regulations include specific rules on balancing, requiring network operators to implement balancing models and settlement arrangements for imbalances in a way that is non-discriminatory and cost reflective and subject to regulatory oversight. This is part of the general tasks conferred on the TSOs in Articles 13 (gas) and Article 40 (electricity).

3.32

The manner in which imbalances are charged for is a key determinant of the regulatory framework and will often determine the attractiveness of the market concerned for new investors. If, for example, generators have to pay an excessive price for imbalances caused by them, this could constitute an important risk to the profitability of their investment. On the other hand, too low imbalance charges would leave the financial burden of balancing to the network operator and would ultimately socialise the costs of imbalances and damage price signals for new investment.

3.33

The Directives envisage a transition in the treatment of balancing from a regulatory point of view: where markets are not yet sufficiently liquid (thus making market based balancing difficult or incomplete), access to specific balancing services provided by the TSO will require regulatory oversight. Once a market for balancing is established, the charges for imbalances should be determined by market forces. Regulatory oversight should then concentrate on the residual balancing role of the TSO (to provide for situations that the market cannot accommodate (extreme situations etc.) as well as the oversight of imbalance charges. For both gas and electricity this transition has been formalised in specific Network Codes for balancing.

2.2 Specific duties and responsibilities of electricity transmission and distribution system operators 3.34

In addition to the general tasks of Articles 40 and 31 of the Electricity Directive, a number of specific duties and responsibilities of TSOs and DSOs are included elsewhere. Articles 31 to 34 and 37 contain rules for DSOs while Articles 41 and 42 specific rules for TSOs. Some of these obligations are introduced in the 32

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Electricity Directive to create the appropriate legal framework for DSOs and TSOs to facilitate the integration of increased energy from renewable sources. They aim further at providing them with the necessary tools and incentives to enable new technologies, storage and demand response to participate in the electricity markets.

2.2.1 Procurement of energy losses, reserve capacity and ancillary services Losses and reserve capacity Electricity transmitted on a network is always subject to losses. Generally speaking, the further the electricity is physically transmitted, the greater the loss. Contractually, this can be dealt with in two ways. The network operator can require suppliers to put in more electricity than they sell proportionate to the losses, or it can itself add electricity to the network and charge for this service. An overview of the solutions applied in different EU Member States can be found in the annual report on transmission tariffs by ENTSO-E.35 Where the system operator is responsible for the compensation for losses it needs to purchase the necessary volume of electricity.

3.35

Article 31(5) of the Electricity Directive requires that in such circumstances the DSO has to procure the electricity in question in a competitive manner – i.e., the network operator cannot simply purchase the electricity from an affiliated supply company.

3.36

Article 31 Tasks of distribution system operators “[…] 5. Each distribution system operator shall act as a neutral market facilitator in procuring the energy it uses to cover energy losses in its system in accordance with transparent, non-discriminatory and market-based procedures, where it has such a function. […]”

35

https://docstore.entsoe.eu/Documents/MC%20documents/TTO_Synthesis_2018.pdf.

33

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.37

Regarding the obligation of TSOs to deal with losses, it falls under the general obligation to manage the system in a reliable manner to ensure the operational security (article 40(1)(a) and (d) of Electricity Directive).

3.38

Similar principles apply regarding reserve capacity as defined in the Electricity Regulation36 and in more details in the network codes and guidelines. No specific reference is made anymore to reserve capacity in the list of main tasks for DSOs/TSOs. The relevant obligations fall under the rules on ancillary services and balancing in the Electricity Directive and Electricity Regulation as well as in the System Operation Regulation and the Balancing Regulation.37

3.39

The regional dimension of the way TSOs perform the dimensioning of reserve capacity is enforced in the Electricity Regulation. In particular regarding reserve capacity Article 6(7) of Electricity Regulation provides that “The dimensioning of reserve capacity shall be performed by the transmission system operators and shall be facilitated at regional level.” The dimensioning of reserve capacity is, furthermore, included in the tasks of the regional coordination centres (RCCs)38 which, once established, will be responsible for the regional sizing of reserve capacity as follows. Regional coordination centres will calculate the reserve capacity requirements for the system operation region which shall: (a)

pursue the general objective to maintain operational security in the most cost effective manner;

(b)

be performed at the day-ahead or intraday timeframe, or both;

(c)

calculate the overall amount of required reserve capacity for the system operation region;

(d)

determine minimum reserve capacity requirements for each type of reserve capacity;

36

37

38

According to Article 2(19) “Reserve capacity” means the amount of frequency containment reserves (FCR), frequency restoration reserves (FRR) or replacement reserves (RR) that needs to be available to the transmission system operator. The rules regarding the definition of the volumes of reserve capacity, its dimensioning and sharing of reserve capacity among TSOs are included in the System Operation Regulation. See definition in Article 2(5) of the Balancing Regulation L: “balancing capacity means a volume of reserve capacity that a balancing service provider has agreed to hold and in respect to which the balancing service provider has agreed to submit bids for a corresponding volume of balancing energy to the TSO for the duration of the contract.” See about the purpose and tasks of the RCCs articles 35ff of Electricity Regulation.

34

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

(e)

take into account possible substitutions between different types of reserve capacity with the aim to minimise the costs of procurement;

(f )

set out the necessary requirements for the geographical distribution of required reserve capacity, if any.39

RCCs have been also assigned with the task of supporting TSOs in a certain predefined region in determining the amount of balancing capacity that needs to be procured as well as when procuring such capacity in the day-ahead and intraday timeframe. When doing so, RCCs have to take into account possible substitutions of the various types of reserve capacity in order to reduce relevant costs.40

3.40

Ancillary services Regarding ancillary services the main definitions and principles for the tasks of DSOs and TSOs are included in the Electricity Directive and Electricity Regulation partially reflecting the rules already established with the Balancing Regulation. The ancillary services include balancing and non-frequency ancillary services necessary for the operation of the transmission or distribution system but they do not include congestion management services.41

3.41

In the updated Electricity Directive, the TSOs/DSOs’ obligation to procure ancillary services based on objective, transparent and non-discriminatory marketbased conditions has been broadened to cover non-frequency ancillary services as well as new technologies e.g., inclusion of storage and demand response. Article 31(6) and (8) reads as follows:

3.42

Article 31 Tasks of Distribution System Operators “[…] 6. Where a distribution system operator is responsible for the procurement of products and services necessary for the efficient, reliable and secure operation of the distribution system, rules adopted by the distribution system operator for 39 40 41

Annex I (7) of Electricity Regulation. Annex I (8) of Electricity Regulation. According to the definition in Article 2(48) Electricity Directive.

35

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati that purpose shall be objective, transparent and non-discriminatory, and shall be developed in coordination with transmission system operators and other relevant market participants. The terms and conditions, including rules and tariffs, where applicable, for the provision of such products and services to distribution system operators shall be established in accordance with Article 59(7) in a nondiscriminatory and cost-reflective way and shall be published. […] 8. The procurement of the products and services referred to in paragraph 6 shall ensure the effective participation of all qualified market participants, including market participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation, in particular by requiring regulatory authorities and distribution system operators in close cooperation with all market participants, as well as transmission system operators, to establish the technical requirements for participation in those markets on the basis of the technical characteristics of those markets and the capabilities of all market participants.”

3.43

The new provision highlights that the DSOs have to closely cooperate with TSOs for the effective participation of market participants connected to their grid in retail, wholesale and balancing markets. The Directive is requiring an agreement with the relevant TSO when balancing services stemming from resources located in the distribution system will be delivered in accordance with Article 57 of the Electricity Regulation and Article 182 of System Operation Regulation.

3.44

Regarding TSOs’ tasks on ancillary services, Article 40 of Electricity Directive includes detailed rules on the obligation to manage electricity flows in the system and the procurement of ancillary services as follows: Article 40 Tasks of transmission system operators “[…] 1. Each transmission system operator shall be responsible for: […] 36

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati (d) managing electricity flows on the system, taking into account exchanges with other interconnected systems. To that end, the transmission system operator shall be responsible for ensuring a secure, reliable and efficient electricity system and, in that context, for ensuring the availability of all necessary ancillary services, including those provided by demand response and energy storage facilities, insofar as such availability is independent from any other transmission systems with which its system is interconnected; […] (i) procuring ancillary services to ensure operational security; […] 4. In performing the task referred to in point (i) of paragraph 1, transmission system operators shall procure balancing services subject to the following: (a) transparent, non-discriminatory and market-based procedures; (b) the participation of all qualified electricity undertakings and market participants, including market participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation. For the purpose of point (b) of the first subparagraph, regulatory authorities and transmission system operators shall, in close cooperation with all market participants, establish technical requirements for participation in those markets, on the basis of the technical characteristics of those markets.”

Regarding the progress achieved on the development of electricity balancing markets, there are markets which are sufficiently liquid and others which are not (thus making purely market based ancillary services difficult). In order to achieve the goals of the new electricity market design and move towards a genuinely integrated electricity market while ensuring operational security, efficient balancing rules were developed already with the Balancing Regulation. These rules aim at providing incentives for market participants to contribute in solving the system scarcities for which they are responsible. The Balancing Regulation establishes an EU-wide set of technical, operational and market rules to govern the functioning of electricity balancing markets.42 42

Recital 5 of Balancing Regulation.

37

3.45

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.46

Addressing the issue of the model to be applied by electricity TSOs regarding balancing, in accordance with the Balancing Regulation, the TSO should apply a self-dispatching model for determining generation schedules and consumption schedules. Exceptionally, TSOs that applied a central dispatching model at the time of the entry into force of this Regulation should notify this to the relevant regulatory authority in order to continue to apply a central dispatching model for determining generation schedules and consumption schedules.43 It is a task of the relevant regulatory authority to verify whether the tasks and responsibilities of the TSO are consistent with the definition of a central dispatching model in Article 2(18) of Balancing Regulation.

3.47

Even though the central dispatching model is still an option, the self-dispatch model is the default approach used in most Member States. It seems to be most suitable to address the needs of the future decentralised energy markets, the implementation of the single intraday market, the requirement of balance responsibility of all market participants including active customers and the financial risks associated with such responsibility. However, in some limited cases they may be good reasons justifying the continuation of a central dispatching model in some Member States.

3.48

With regard to the procurement and settlement of balancing services, the Balancing Regulation lays down common principles for the procurement and the settlement of all types of reserve capacity, i.e., frequency containment reserves (FCR), frequency restoration reserves (FRR) and replacement reserves (RR) and a common methodology for the activation of FRR and RR. Similar to other electricity guidelines,44 the Balancing Regulation does not itself contain all the methodologies required for the development of the future integrated balancing markets but it rather requires the development of several technical rules and harmonised methodologies (e.g., for the allocation of cross-zonal transmission capacity for balancing purposes) by the relevant TSOs. Based on the obligations imposed by the Balancing Regulation, the definition of the governance framework and the establishment of EU-wide balancing platforms are under development. On these platforms balancing energy bids will compete and therefore have positive effects on competition.45 43 44 45

Article 14 of Balancing Regulation. See more about the dispatching models under Section 2.2.5. In particular the CACM, FCA and System Operation Regulations have a similar structure. See recitals 10 and 11 of Balancing Regulation. See also information on the progress made in the implementation of the Balancing Regulation on https://www.entsoe.eu/network_codes/eb/. Regarding the platforms to be established, the following projects are under development: a). The Platform for the International Coordination of Automated Frequency Restoration and Stable System Operation (PICASSO) is the implementation project for the establishment of the European

38

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

When the Balancing Regulation will be fully implemented, TSOs and thus Member States will be able to share the resources used for balancing purposes. Further, new players such as demand response and renewables will be able to participants in this new market.

3.49

The main principles of the Balancing Regulation have been reflected in Articles 5 and 6 of the Electricity Regulation. Article 6 sets the objectives of the future balancing markets that shall be organised in order to, among others, ensure that services are defined in a transparent and technologically neutral manner and that they are procured in a transparent, market-based manner. The balancing markets have to ensure non-discriminatory access to all market participants, individually or through aggregation, including for electricity generated from variable renewable energy sources, demand response and energy storage.

3.50

The Electricity Regulation sets the rule of balance responsibility for all market participants in article  5(1) which means that each balance responsible party shall be financially responsible for its imbalances and has to try to be balanced or help the electricity system to be balanced.46 Therefore, the manner in which imbalances are charged for is a key determinant of the regulatory framework and will often determine the attractiveness of the market concerned for new investors. If generators or suppliers have to pay an excessive price for imbalances caused by them, this could constitute an important risk to the profitability of their investment. On the other hand, too low imbalance charges would leave the financial burden of balancing to the network operator and would ultimately socialise the costs of imbalances and damage price signals for new investment.

3.51

It is therefore important that Articles 31(6) (7) and 40(4) of Electricity Directive explicitly provide that the terms and conditions for balancing services must be cost reflective and market-based. The Balancing Regulation defines further the rules on imbalance settlement47 based on non-discriminatory, fair, objective

3.52

automatic Frequency Restoration Reserves (aFRR)-Platform. The International Grid Control Cooperation (IGCC) is the implementation project for the establishment of the European imbalance netting (IN)-Platform c). The Trans-European Replacement Reserves Exchange (TERRE) is the implementation project for the establishment of the European replacement reserve (RR)-Platform. d). The Manually Activated Reserves Initiative (MARI) is the implementation project for the establishment of the European Manual Frequency Restoration Reserves (mFRR)-Platform. e). The common market for procurement and exchange of Frequency Containment Reserves (FCR Cooperation) aims at the integration of balancing markets. Derogations to this rule are allowed under Article 5(2) to (4) in specific cases as demonstration projects and small-scale renewable energy generation facilities. According to Article 2 (9) of the Balancing Regulation “‘imbalance settlement’ means a financial settlement b).

46 47

39

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

and transparent criteria. The general objective of imbalance settlement is to ensure that balance responsible parties support the system’s balance in an efficient way and to incentivise market participants in keeping and/or helping to restore the system balance. With the goal to make balancing markets and the overall energy system fit for the integration of increasing shares of variable renewables, the Electricity Regulation (Article 6(5)) and the Balancing Regulation (Article 44(1)(b)) provide that imbalance prices should reflect the real-time value of energy and that settlement processes should establish adequate economic signals reflecting the imbalance situation.

3.53

The principle of cost reflectiveness does not generally exclude the application of imbalance penalties. It can be argued that these provisions refer to rules set and tariffs charged by the system operators. Additional fines imposed by the regulatory authorities are not expressly excluded and may be justified by externalities, e.g., ensuring that the balance risk is not socialised.

3.54

A TSO’s task which found its way in the Electricity legal framework is the procurement of non-frequency ancillary services. Non-frequency ancillary services are services procured or mandated by TSOs that support the electricity network, such as voltage support, short circuit power, black start capability, synthetic inertia or congestion management.48 They are in most cases supplied by electricity generators, while they can in some cases also be supplied by demand facilities, electricity storage or network equipment.

3.55

Before the adoption of new Electricity Directive, the procurement of nonfrequency ancillary services was not regulated at EU-level. The Member States apply national rules for the provision of non-frequency ancillary services (e.g., grid code) which were evolving continuously. For example, regarding the provision of reactive power voltage-related ancillary services, one of the most important non-frequency ancillary services several approaches are applied in Europe based on either market-based procedures or bilateral agreements or a mix of the above.49

48 49

mechanism for charging or paying balance responsible parties for their imbalances”. See rules on imbalance settlement in Articles 52 ff Balancing Regulation. Definition in accordance with Article 2(49) Electricity. Commission Staff Working Document Impact Assessment Accompanying the document Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast) Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast) Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector, SWD/2016/0410 final - 2016/0379 (COD), Section 1.3.2.

40

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Both for DSOs and TSOs the Electricity Directive (Articles 31(7) and 40(5) and (7)) requires similar rules for non-frequency ancillary services needed for the system in accordance with transparent, non-discriminatory and marketbased procedures, unless the regulatory authority has assessed that the marketbased provision of non-frequency ancillary services is economically not efficient and has granted a derogation. The obligation to procure non-frequency ancillary services does not apply to fully integrated network components of the distribution and the transmission system.50 These are network components that are integrated in the transmission or distribution system, including storage facilities, and that are used for the sole purpose of ensuring a secure and reliable operation of the transmission or distribution system, and not for balancing or congestion management. The definition of such components should be understood in a narrow way in order to not create obstacles in the development of non-frequency ancillary services markets. The introduction of the procurement obligations serves the creation of a level playing field between all relevant providers of such services, including demand response, aggregators and energy storage facilities.51

3.56

2.2.2 Flexibility incentives The task of demand-side management is in times of high shares of renewable generation not necessarily identical to reduction of total demand via efficiency increases. Instead, shifting demand away from peak hours, stabilizing the network as a frequency reserve (e.g., cooling and heating installations slightly adapting their electricity consumption in case of frequency changes) or interruptible supply in case of lack of peak generation capacities can be of great relevance in the future. Realising this potential, however, requires significant network investments (e.g., smart meters) at distribution level and full implementation of current legislation, including relevant network codes and guidelines (i.e., the Demand Connection Code and Balancing Regulation). Ensuring the necessary investments is particularly difficult as the demand side response services market is currently still underdeveloped, especially at residential level.

3.57

The role of DSOs in demand-side management will increase in the future as they have to cost efficiently integrate new, flexible electricity generation and demand response. Recognising the changes needed in the legal framework in order to incentivise the required investments, Article 32 of the Electricity Directive provides for the first time that DSOs should be enabled and provided with in-

3.58

50 51

Article 2 (51) of Electricity Directive. Respective responsibilities are assigned to regulatory authorities under article 59(1)(d) and (7)(b) of the Electricity Directive.

41

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

centives to use services from distributed energy resources. This has to take place based on market procedures so that DSOs can efficiently operate the networks and avoid or reduce costly investments in local grids. The overarching goal is to facilitate the participation of distributed energy resources in the electricity and flexibility markets in order to integrate more renewables into the system and facilitate demand response and storage in the most cost-efficient manner.52 Article 32 Incentives for the use of flexibility in distribution networks “1. Member States shall provide the necessary regulatory framework to allow and provide incentives to distribution system operators to procure flexibility services, including congestion management in their areas, in order to improve efficiencies in the operation and development of the distribution system. In particular, the regulatory framework shall ensure that distribution system operators are able to procure such services from providers of distributed generation, demand response or energy storage and shall promote the uptake of energy efficiency measures, where such services cost effectively alleviate the need to upgrade or replace electricity capacity and support the efficient and secure operation of the distribution system. Distribution system operators shall procure such services in accordance with transparent, non-discriminatory and market-based procedures unless the regulatory authorities have established that the procurement of such services is not economically efficient or that such procurement would lead to severe market distortions or to higher congestion.”

3.59

To fulfil these obligation DSOs, subject to approval by the regulatory authority, or the regulatory authority itself, have to establish the conditions for the flexibility services and where appropriate, standardised market products for such services at least at national level in a transparent and participatory process that includes all relevant system users and TSOs. The principles of effective and non-discriminatory participation of all market participants, including market ­participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation have to be respected. DSOs have further the obligation to exchange all necessary information and coordinate with TSOs in order to ensure the optimal utilisation of resources, to ensure the secure and efficient operation of the system and to facilitate market development. 52

Recitals 9, 10, 39, 42 and 55 of Electricity Regulation.

42

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Adequate remuneration for the procurement of such services is certainly a condition to allow DSOs to recover at least their reasonable corresponding costs.

3.60

The new rules are an important step towards a more competitive and more consumer-focused electricity market. They will enable all consumers to participate in price based and incentive based demand response schemes through the right to a smart meter and a dynamic price contract. In addition, a new framework for aggregators as market participants is created and final customers will be able to conclude contracts with aggregators without the consent of their supplier. In addition, the right of demand response to access to all electricity markets is enshrined in the Electricity Regulation.

3.61

In this fully integrated energy market, DSOs/TSOs will have to cooperate very closely to provide the right infrastructure. One crucial element of such cooperation facilitating new investments in the electricity markets will be the common planning of a transparent network. Member States are now obliged to introduce network development plans for distribution systems and provide to system users adequate information regarding the anticipated expansions or upgrades of the network, as currently such procedures do not exist in the majority of Member States. In particular, for DSOs the Directive introduces an obligation for the development of a distribution system based on a transparent network development plan that the DSO will have to publish at least every two years and submit to the regulatory authority.53

3.62

This network development plan will show the needs of future network extensions for the next five-to-ten years taking into account the medium – and longterm flexibility services in order to cover among others the future distributed energy generation but also storage and demand response that the distribution system operator has to use as an alternative to system expansion. DSOs will have to consult all relevant system users and the relevant TSOs on their network development plan before submitting it to the relevant regulatory authority, which may request for amendments. As for the unbundling requirements, the de mini‑ mis principle applies meaning that Member States may decide not to apply the obligation on the network development plan to integrated electricity undertakings which serve fewer than 100,000 connected customers or which serve small isolated systems.

3.63

53

Recital 61 and Article 31(3) and (4) of Electricity Directive.

43

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

2.2.3 Electromobility 3.64

Further, Article 33 of the Electricity Directive introduces new obligations on DSOs regarding electromobility and the connection of recharging points to the distribution networks.54 Article 33 Integration of electromobility into the electricity network “1. Without prejudice to Directive 2014/94/EU of the European Parliament and of the Council (25), Member States shall provide the necessary regulatory framework to facilitate the connection of publicly accessible and private recharging points to the distribution networks. Member States shall ensure that distribution system operators cooperate on a non-discriminatory basis with any undertaking that owns, develops, operates or manages recharging points for electric vehicles, including with regard to connection to the grid.”

3.65

Member States agreed in the negotiations for the Electricity Directive that the deployment of electromobility constitutes an important element of the energy transition. The role of the DSOs in this transition is to contribute to creating favourable conditions for electric vehicles of all kinds in a non-discriminatory manner. In particular, DSOs should ensure the effective deployment of publicly accessible and private recharging points for electric vehicles and should ensure the efficient integration of vehicle charging into the system.55

3.66

In principle, the development and operation of charging points should be a ­service provided by the market. For the potential investors, it has to be ensured that DSOs act as facilitators and provide fair and non-discriminatory access to the network for recharging points. Thus, the Directive provides that DSOs can only own, develop, manage or operate recharging stations if there is no interest from commercial operators or if they own private recharging points solely for their own use.56 There is a possibility for a derogation from the above restriction if the following conditions are cumulatively fulfilled: 54

55

56

The Commission Communication of 20 July 2016, entitled ‘European Strategy for Low-Emission Mobility’, stressed the need for the decarbonisation of the transport sector and the reduction of its emissions, especially in urban areas, and highlighted the important role that electromobility can play in contributing to those objectives. See Recital 40 of Electricity Directive and the Commission Communication of 20 July 2016, entitled “European Strategy for Low-Emission Mobility”, COM/2016/0501 final, where the importance of low-emission mobility was further elaborated for the fulfilment of the EU goals towards reducing its greenhouse gas emissions. Article 33 of Electricity Directive.

44

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

a)

no market interest exists after a tendering procedure has been followed under strict regulatory scrutiny, or the market could not deliver those services at a reasonable cost and in a timely manner;

b)

the regulatory authority has carried out an ex-ante review of the conditions of the tendering procedure and has granted its approval;

c)

the DSO has to respect the third-party access rules and is not allowed to discriminate between system users or classes of system users, and in particular in favour of its related undertakings.

Even where a derogation will be granted, Member States or their designated competent authorities have to perform, at regular intervals or at least every five years, a public consultation in order to re-assess the potential interest of the market in owning, developing, operating or managing recharging points for electric vehicles. If such market interest appears to exist, DSOs’ activities in this regard have to be phased out, subject to the successful completion of a tendering procedure. As part of the conditions of that procedure, regulatory authorities may allow the distribution system operator to recover the residual value of its investment in recharging infrastructure.

3.67

2.2.4 Energy storage The Electricity Directive includes for the first time provisions on energy storage and energy storage facilities that will evidently play an important role in the future electricity markets. The definitions of “energy storage” and “energy storage facility” in Article 2 of the Electricity Directive are very broad covering not only the pure storing of energy but also e.g., the conversion of electrical energy into a form of energy which can be stored and the subsequent reconversion of such energy into electrical energy or use as another energy carrier.57

3.68

Also in this case and for similar reasons as for flexibility and electromobility services, DSOs and TSOs will have to be objective facilitators of the relevant markets and should not substitute the market. In accordance with Articles 36

3.69

57

Article 2 (59) and (60) defines “energy storage” in the electricity system as “ deferring the final use of electric‑ ity to a moment later than when it was generated, or the conversion of electrical energy into a form of energy which can be stored, the storing of such energy, and the subsequent reconversion of such energy into electrical energy or use as another energy carrier” and “energy storage facility” in the electricity system “as a facility where energy storage occurs”. The new rules will be of relevance for the future developments in regards to integration of new technologies as power to gas facilities (e.g., electrolysers) which seem to fall under the scope of these terms.

45

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

and 54 of Electricity Directive, DSOs and TSOs respectively should be precluded from owning, developing, managing or operating such facilities. They could perform these tasks only in two cases and under the following conditions:

3.70

TSOs/DSOs prove that these facilities are “ fully integrated network com‑ ponents”. In this case, a regulatory approval is required. Such fully integrated network components can include energy storage facilities such as capacitors or flywheels which provide important services for network security and reliability, and contribute to the synchronisation of different parts of the system; or it is proven after a tender process that the market will not enable the needed investment and after a careful assessment by the relevant regulatory authority of the effect on competition.

3.71

The derogations will be limited in time and in any case, a review shall take place at least every five years in order to assess the existence of new interest in the market for such assets similarly to the case of recharging points for electric vehicles.

3.72

Thus, in the new electricity market design, energy storage services should be market-based and competitive. Consequently, cross-subsidisation between ­energy storage and the regulated functions of distribution or transmission should be avoided. Such restrictions on the ownership of energy storage facilities aims to prevent distortion of competition, to eliminate the risk of discrimination, to ensure fair access to energy storage services to all market participants and to foster the effective and efficient use of energy storage facilities, beyond the operation of the distribution or transmission system.58

2.2.5 Dispatching 3.73

One of the most important tasks of the TSO is the dispatching of electricity. Prior to liberalisation this involved the exercise of a degree of subjective judgement – determining the order in which the generation plants of the vertically integrated company should be dispatched to maximise efficiency and system security. As with liberalisation the market opens to competition and different generators compete for the dispatch of their respective generation units, this task, however, requires clear rules to avoid discrimination. In principle, in a fully liberalised market the TSO has only very limited power to decide which generating units will be dispatched, and the possibility of priority dispatch risks resulting in inefficient network use and possibly market distortion. 58

See recitals 62 and 63 of Electricity Directive.

46

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Keeping in mind the provisions of the Balancing Regulation as described above under section 2.2.1, Member States may choose their dispatching model based either on a central dispatching model or a self-dispatch model. According to the definition of the Electricity Directive a ‘central dispatching model’ is a ­scheduling and dispatching model where the TSO determines within an integrated scheduling process the generation schedules and consumption ­schedules as well as dispatching of power-generating facilities and demand facilities, in reference to dispatchable facilities. The ‘self-dispatch model’ is on the other side a scheduling and dispatching model where the generation schedules and consumption schedules as well as dispatching of power-generating facilities and demand facilities are determined by the scheduling agents of those facilities.

3.74

In Member States which traditionally had a pool-type structure to their electricity market, the central dispatching model is essentially maintained.59 However, instead of the TSO subjectively estimating the merit order of different plants, the dispatch is determined by the price bids of the generators into the pool.

3.75

The centralised pool approach is, however, increasingly replaced by a decentralised self-dispatch system whereby generation plants are only dispatched to the extent that they are “nominated” for dispatch by their owners. It is then up to the market participants to ensure that they have a customer for all the plants that they have nominated for dispatch – otherwise they will be out of balance and exposed to imbalance charges.60

3.76

According to this self-dispatch model, it is not the TSO who decides which plant is dispatched. The TSO simply receives notification from each network user of its intentions for dispatch during the day. After gate closure, the TSO has a residual role regarding dispatching. More particularly, its task is to determine which operations are required to balance the network on the basis of nominated injections and consumption. The TSO therefore only dispatches the required residual amount for balancing and it charges an appropriate imbalance charge to the network users contributing to the overall imbalance.

3.77

Irrespective of the model followed by the Member States, dispatch has to be performed based on market rules. Derogations from this principle reduce flexibility signals and act as barriers to the development of solutions such as energy storage, demand response or aggregation.

3.78

59 60

These are mainly Italy, Poland, Ireland and Greece. This may be an explicit bilateral contract or through trading in a power exchange or electricity pool.

47

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Derogations may be justified in certain cases but the new electricity market design does not leave any more room for broad derogations covering entire technologies.61

3.79

In light of this, the Electricity Regulation allows for limited cases of priority dispatch. The decrease of application of priority dispatch is justified due to the challenges it faces in a competitive market structure. Prior to liberalisation a Member State could require the national electricity company relatively easily to dispatch electricity generated from renewable sources before others, notably thermal. It could also limit this obligation, requiring the priority dispatch of renewable electricity up to a given price limit. However, in a fully liberalised market such an obligation is difficult or even impossible to implement. A TSO can only dispatch electricity generators with sales contracts and only competitive generators will have such contracts. Thus, a support scheme for renewable or combined heat and power based exclusively on priority dispatch will not be effective. As a result, Member States have implemented other support schemes, including green certificates and feed‑in tariff mechanisms.

3.80

Also using priority (re-)dispatch for renewables in the event of network congestion to renewables has little economic impact on the subsidised generation as low marginal cost renewables are likely to be dispatched first, and should be compensated for being curtailed on the basis of redispatch. The support schemes put in place by Member States have the objective of ensuring that renewables or combined heat and power can compete effectively with other forms of electricity. Guaranteeing priority dispatch in case of network congestion can reduce the efficiency of network operation and can be abused as a justification for lowering cross-border capacities. Taking into account that there are limited economic justification for priority dispatch of low marginal cost and especially subsidised generation, the possibility of priority dispatch has been limited in the new Electricity Directive. This becomes particularly relevant with high shares of energy from renewable sources, often representing very large parts of the total dispatched electricity in some Member States such as Spain, Denmark or Germany.62

3.81

The derogations cover mainly electricity from renewable sources from small power-generating facilities or sources using high-efficiency cogeneration. Articles 31(4) of the Electricity Directive and Article 12 of the Electricity Regula61 62

Recital 25 of Electricity Regulation. For the same reasons the Electricity Directive does not provide for priority dispatch for indigenous energy as it was the case in Article 15 (4) of Directive 2009/72.

48

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

tion set the conditions for such priority dispatch to be applied by TSOs and, where the Member State decides so, also by DSOs. Article 31 Electricity Directive Distribution system operators “[…] 4. A Member State may require the distribution system operator, when dispatching generating installations, to give priority to generating installations using renewable sources or using high-efficiency cogeneration, in accordance with Article 12 of Regulation (EU) 2019/943.[…]”

“Article 12 Electricity Regulation Dispatching of generation and demand response 1. The dispatching of power-generating facilities and demand response shall be non-discriminatory, transparent and, unless otherwise provided under paragraphs 2 to 6, market-based. 2. Without prejudice to Articles 107, 108 and 109 TFEU, Member States shall ensure that when dispatching electricity generating installations, system operators shall give priority to generating installations using renewable energy sources to the extent permitted by the secure operation of the national electricity system, based on transparent and non-discriminatory criteria and where such powergenerating facilities are either: (a) power-generating facilities that use renewable energy sources and have an installed electricity capacity of less than 400 kW; or (b) demonstration projects for innovative technologies, subject to approval by the regulatory authority, provided that such priority is limited to the time and extent necessary for achieving the demonstration purposes. […] 4. Without prejudice to Articles 107, 108 and 109 TFEU, Member States may provide for priority dispatch for electricity generated in power-generating facilities using high-efficiency cogeneration with an installed electricity capacity of less than 400 kW.” 49

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.82

3.83

Member States can introduce stricter rules regarding priority dispatch deciding not to apply priority dispatch to power-generating facilities that use renewable energy sources and have an installed electricity capacity of less than 400  kW with a start of operation at least six months after that decision, or to apply a lower minimum capacity than 400 kW. Such a decision has to be based on the provision of alternative conditions on the relevant markets allowing full participation of such sources in the markets in accordance to paragraph 3 of Article 12. In particular, the Member State has to prove that: (a)

it has well-functioning intraday and other wholesale and balancing markets which are fully accessible to all market participants;

(b)

redispatching rules and congestion management are transparent to all market participants;

(c)

the national contribution of the Member State towards the Union’s b­ inding overall target for share of energy from renewable sources63 is at least equal to the corresponding result of the formula set out in Annex II to Regulation (EU) 2018/199964 and the Member State’s share of energy from renewable sources is not below its reference points,65 or alternatively, the Member State’s share of energy from renewable sources in gross final electricity consumption is at least 50%;

(d)

the Member State has notified the planned derogation to the Commission setting out in detail how the conditions above are fulfilled; and

(e)

the Member State has published the planned derogation, including the detailed reasoning.

If a Member State decides to apply a derogation, no retroactive changes are allowed if they affect generating installations already benefiting from priority dispatch. However, voluntary agreements between a Member State and the opera63 64

65

In accordance with Article 3(2) of Directive (EU) 2018/2001 of the European Parliament and of the Council and point (a)(2) of Article  4 of Regulation (EU) 2018/1999 of the European Parliament and of the Council. Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action, OJ L 328, 21.12.2018, p. 1–77. Annex II sets the formula to calculate the national contributions for the share of energy from renewable sources in gross final consumption of energy in 2030. In accordance with point (a)(2) of Article 4 of Regulation (EU) 2018/1999 which sets the Union’s binding target of at least 32% renewable energy in 2030 and the Member States contributions from 2021 onwards and in a stepwise approach.

50

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

tor of a generating installation on a voluntary basis is allowed and can lead to further limitations of the priority dispatch cases. Such voluntary agreements are desirable and Member States may provide incentives to the benefiting installations to give up priority dispatch voluntarily without prejudice to the state aid rules of the TFEU. The Electricity Regulation opts for a stepwise limitation of priority dispatch rights for the power-generating facilities that use renewable energy sources and have an installed electricity capacity of less than 400 kW. For such power-­ generating facilities commissioned as from 1 January 2026, priority dispatch will apply only to such power-generating facilities that use renewable energy sources and have an installed electricity capacity of less than 200 kW.

3.84

The new rules do not have retroactive effect covering facilities which enjoyed priority dispatch before the entry into force of the Electricity directive.66 However, the right for of priority dispatch applies only as long as the relevant facilities are not significantly modified, in which case the relevant facilities lose their rights for priority dispatch.67

3.85

In terms of cross-zonal capacities, which have to be used to the maximum level possible, TSOs should not use priority dispatch as a justification for curtailment of cross-zonal capacities beyond what is provided for in Article 16 of the Electricity Regulation68 and shall be based on transparent and non-discriminatory criteria.

3.86

2.2.6 Data management Data management will play a crucial role in the future development of the electricity energy markets and integration of renewable energy and other energy sources, as storage and demand response. Under the Electricity Directive data means metering and consumption data as well as data required for customer switching, demand response and other services.69 66

67 68 69

This means that power-generating facilities that use renewable energy sources or high-efficiency cogeneration which were commissioned before 4 July 2019 and, when commissioned, were subject to priority dispatch under Article 15(5) of Directive 2012/27/EU or Article 16(2) of Directive 2009/28/EC of the European Parliament and of the Council will continue to benefit from priority dispatch. This seems to be the case at least where a new connection agreement is required or where the generation capacity of the power-generating facility is increased. This article provides for certain thresholds of minimum cross-zonal capacities that TSOs have to offer for allocation to the market. Derogations from such minimum thresholds are allowed under strict conditions and regulatory oversight. Article 23(1) of Electricity Directive.

51

3.87

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.88

The reason for the introduction of the new rules is that Member States have developed or are developing different models for the management of data following deployment of smart metering systems. Independently of the model used it is important that Member States put in place transparent rules under which data can be accessed. These rules have to be non-discriminatory and ensure the highest level of cybersecurity and data protection as well as the impartiality of the entities that process data. Data management can therefore be assigned to DSOs or other persons who nevertheless have to provide for access to data of the final customer to any eligible party and in a non-discriminatory manner and simultaneously.70 Where DSOs have been assigned with this role, Article 34 of Electricity Directive sets the rules for the management of data as follows. Article 34 Tasks of distribution system operators in data management “Member States shall ensure that all eligible parties have non-discriminatory access to data under clear and equal terms, in accordance with the relevant data protection rules. In Member States where smart metering systems have been deployed in accordance with Article  19 and where distribution system operators are involved in data management, the compliance programmes referred to in point (d) of Article 35(2) shall include specific measures in order to exclude discriminatory access to data from eligible parties as provided for in Article 23.”

3.89

Where DSOs are not subject to the unbundling requirements, Member States have to take all necessary measures to ensure that vertically integrated undertakings do not have privileged access to data for the conduct of their supply activities. Article 55(1)(e) of the Electricity Directive provides further that the EU DSO entity71 to be established in accordance with the Electricity Regulation will have the task of supporting the development of data management next to cyber security and data protection in cooperation with relevant authorities and regulated entities. Regarding TSOs, article 40(1)(m) also assigns to them a role for data management as follows:

70 71

Article 23(2) of Electricity Directive. Articles 52 ff of Electricity Regulation.

52

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Article 40 Tasks of transmission system operators “[…] (m) data management, including the development of data management systems, cybersecurity and data protection, subject to the applicable rules, and without prejudice to the competence of other authorities. […]”

3.

Regulated third party access

The Directives require that regulated third party access be applied to all transmission and distribution networks (Article 32 gas, Article 6 electricity) ­including balancing services and, for gas, cross-border infrastructure and LNG facilities (Article 32 gas). “Third-party access” therefore covers rules for connection to the transmission and distribution networks, as well as rules on use of such networks including interconnectors.72

3.90

The gas Directive has been amended by Directive 2019/692 in order for the former to cover “transmission line between a Member State and a third country up to the territory of the Member States or the territorial sea of that Member State”. Unless exempted, such interconnectors are therefore techically covered,73 to some extent, by the third party access rules. This amendment to the gas Directive is discussed in more details in Chapter 17.

3.91

72

73

The new Electricity Directive includes also rules on citizen energy communities that manage distribution networks providing that they should offer third party access under the same conditions as other networks. Recital 43 of the Electricity Directive highlights that community energy offers an inclusive option for all consumers to have a direct stake in producing, consuming or sharing energy. Community energy initiatives focus primarily on providing affordable energy of a specific kind, such as renewable energy, for their members or shareholders rather than on prioritising profit-making like a traditional electricity undertaking. The goal of the new provisions in this Directive is to recognise certain categories of citizen energy initiatives at the Union level as ‘citizen energy communities’, in order to provide them with an enabling framework, fair treatment, a level playing field and a well-defined catalogue of rights and obligations. Household customers are allowed to participate voluntarily in community energy initiatives as well as to leave them, without losing access to the network operated by the community energy initiative or losing their rights as consumers. Therefore, access to a citizen energy community’s network should be granted and under fair and cost-reflective terms. Since 24 February 2020, Member States are supposed to have transposed Directive 2019/692 into national law.

53

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.1 Connection to the transmission system 3.92

The third party access obligations include, as a first step, fair and non-discriminatory conditions for connection of new customers. The new Electricity Directive imposes certain obligations to Member States and network operators to ensure that all interested parties have a fair chance to get connected to the systems.

3.93

Regarding DSOs, the general obligation for such access is set in Article 31(2) and (3) (respectively 25) for the Recast Electricity Directive (respectively Gas Directive). According to these provisions DSOs should not discriminate between system users or classes of system users, particularly in favour of its related undertakings and to provide system users with the information they need for efficient access to, including use of, the system. In addition to this general task, the new role of the electricity DSOs to facilitate the integration of active customers that own an energy storage facility into the system is reflected into the right of these customers to a grid connection within a reasonable time after the request, provided certain conditions are met. Article 15 of the Electricity Directive sets these conditions as follows: Article 15 Active customers “(5) Member States shall ensure that active customers that own an energy storage facility: (a) have the right to a grid connection within a reasonable time after the request, provided that all necessary conditions, such as balancing responsibility and adequate metering, are fulfilled; (b) are not subject to any double charges, including network charges, for stored electricity remaining within their premises or when providing flexibility services to system operators; (c) are not subject to disproportionate licencing requirements or fees; (d) are allowed to provide several services simultaneously if technically feasible.”

54

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Similarly, electricity DSOs need to treat all parties interested to connect recharging points to the system in a fair and non-discriminatory way as provided for in Article 33(1) on connection of recharging points for electro-mobility (see above under section 2.2.2). Member States when transposing and implementing the Electricity Directive have to ensure that appropriate framework is established to enable the DSOs to fulfil their task.

3.94

Regarding electricity TSOs, article 42 of the Electricity Directive contains rules on the connection of new generating installations and energy storage facilities to the transmission system. It provides the following:

3.95

Article 42 Decision-making powers regarding the connection of new generating installations and energy storage facilities to the transmission system “The transmission system operator shall establish and publish transparent and efficient procedures for non-discriminatory connection of new generating installations and energy storage facilities to the transmission system. Those procedures shall be subject to approval by the regulatory authorities.”

Paragraphs 2 and 3 of this Article introduce some limitations for the cases where TSOs may want to refuse the connection of a new generating installation or energy storage facility. In principle, an electricity TSO is not allowed to refuse connection on the grounds of possible future limitations to available network capacities, such as congestion in distant parts of the transmission system or a new connection point, on the ground that it would lead to additional costs resulting from the necessary capacity increase of system elements in the close-up range to the connection point. The TSOs retain through the possibility to limit the guaranteed connection capacity or to offer connections subject to operational limitations, in order to ensure economic efficiency regarding new generating installations or energy storage facilities, provided that such limitations have been approved by the regulatory authority. When assessing such a case, the regulatory authority shall ensure that any limitations in guaranteed connection capacity or operational limitations are introduced on the basis of transparent and non-discriminatory procedures and do not create undue barriers to market entry. Important is that TSOs cannot apply such limitations when the generating installation or energy storage facility bears the costs related to ensuring unlimited connection.

55

3.96

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.97

According to Article  59(1)(q) of the Electricity Directive, the regulatory authorities are responsible to monitor the time taken by TSOs and DSOs to make connections.

3.98

Next to the principles established with the new Electricity Directive, some connection requirements apply based on three connection network codes adopted under Regulation 714/2009 creating the legal framework for connecting different kind of generation and demand facilities to the interconnected system.

3.99

These network codes are:

3.100

–

The Requirements for Generators Code sets out the requirements for grid connection of power-generating facilities to the interconnected ­system, in particular with respect to synchronous power-generating ­modules, power park modules and offshore power park modules. These rules aim at ensuring fair conditions of competition in the internal electricity market, system security and the integration of electricity from renewable sources.74

–

The Demand Connection code sets harmonised rules for connecting large renewable energy production plants as well as demand response facilities. The code will ease the integration of 260 gigawatts of photovoltaic & wind (almost tripling the current installed capacity in Europe) as well as 11 gigawatts of demand response in Europe (which could mean the sparing of 11 coal generation plants).

–

The HVDC Code specifies rules for long distance direct current (DC) connections. Such assets are used to link offshore wind parks to mainland or to connect Member States over long distances.75

The connection network codes are directly applicable to all Member States who need to specify certain requirements nationally. This may lead to different ways of implementation to these codes and thus, less degree of harmonisation across the European Union. ENTSO-E has published a number of implementation guidance documents to ease the implementation of the connection network codes.76 74 75 76

Recital 18 of Electricity Regulation. For example, NorNed is an interconnector linking Norway and The Netherlands with an HVDC submarine cable of 580 km. See https://www.entsoe.eu/network_codes/cnc/cnc-igds/.

56

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.2 Access and use of transmission and distribution systems The Directives require that regulated third party access be applied to all transmission and distribution networks (Article 32 electricity and gas), LNG facilities (Article 32 gas), balancing services and for gas, cross-border infrastructure. Regulated third-party access aims at creating a level playing field for all network users and more possibilities for customers, particularly at retail level. Access, i.e., use of the networks, is regulated in order to prevent system operators from taking advantage of their monopoly status or vertical integration as regards their competitive position on the market, in particular in relation to household customers and small non-household customers.

3.101

Article 6 (1) of the Electricity Directive and Article 32 (1) of the Gas Directive set the main principles of third-party access as follows:

3.102

Article 6(1) of the Recast “1. Member States shall ensure the implementation of a system of third-party access to the transmission and distribution systems based on published tariffs, applicable to all customers and applied objectively and without discrimination between system users. Member States shall ensure that those tariffs, or the methodologies underlying their calculation, are approved in accordance with Article 59 prior to their entry into force and that those tariffs, and the methodologies – where only methodologies are approved – are published prior to their entry into force.”

Article 32 (1) gas “1. Member States shall ensure the implementation of a system of third-party access to the transmission and distribution system, and LNG facilities based on published tariffs, applicable to all eligible customers, including supply undertakings, and applied objectively and without discrimination between system users. Member States shall ensure that those tariffs, or the methodologies underlying their calculation shall be approved prior to their entry into force in accordance with Article 41 by a regulatory authority referred to in Article 39(1) and that those tariffs – and the methodologies, where only methodologies are approved – are published prior to their entry into force.”

57

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.103

In accordance with above, regulated third party access requires: a.

the publication of non-discriminatory tariffs, and

b.

prior to their entry into force, their approval by a regulatory authority.

3.104

Specific requirements for the use of transmission and distribution systems are foreseen in the Directives and Regulations as well as in network codes and guidelines, on subjects such as how to allocate scarce capacities. This particularly applies to interconnections but can, e.g. where flow-based capacity calculation and allocation methods77 are used for electricity or where gas entry-exit zones do not overlap with Member State borders, also include internal congestion.

3.105

Article  6(2) of the Electricity Directive provides that, under specific conditions, the transmission or distribution system operator may refuse access where it lacks the necessary capacity. In such a case, a duly substantiated justification shall be given, in particular having regard to the public service obligations set in Article 9 of Electricity Directive, and based on objective and technically and economically justified criteria. Member States or, where Member States have so provided, the regulatory authorities of those Member States, shall ensure that those criteria are consistently applied and that the system user who has been refused access can make use of a dispute settlement procedure. The regulatory authorities shall also ensure, where appropriate and when refusal of access takes place, that the TSO or DSO provides relevant information on measures that would be necessary to reinforce the network in order to enable third party access. Given the importance attributed to electro-mobility, in the new Electricity Directive it has been added that such information shall be provided in all cases when access for recharging points has been denied.78

3.2.1 Publication of standard tariffs 3.106

The Directives require that all tariffs for access to the electricity and gas transmission and distribution systems, including balancing services, as well as LNG facilities, are published. This must be done in a manner which ensures that they are easily accessible and transparent. The first sentence of Article  6(1) of the electricity Directive and Article 32(1) of the gas Directive makes it clear that 77 78

In accordance with these methods some internal lines may be considered as critical network elements and, thus, be taken into account for the calculation of cross-zonal capacities. The party requesting such information may be charged a reasonable fee reflecting the cost of providing such information.

58

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

such tariffs, once published, must be applicable to all, without the possibility of individual renegotiation, discount or exemption. Under the second package Directives, this provision was meant to ensure that the often vertically integrated TSOs would not grant rebates from their­ standard tariffs to the benefit of their related supply companies. While such a conduct would favour the related supply companies over their competitors, it would not harm the vertically integrated company as a whole since the reduced revenue of the TSO would be compensated for by the reduced transmission costs of the related supply companies.

3.107

Since the third package Directives – as updated with the Clean Energy Package for electricity – still allow for vertical integration of distribution systems as well as for LNG and storage facilities, this requirement still seems to be necessary. Moreover, in the case of transmission systems, alternatives to full ownership unbundling are allowed, thus maintaining a degree of vertical integration and, hence, an inherent risk of discrimination. These provisions do not, however, require a single standardised tariff to be fixed for all users. Tariffs may be differentiated, for example, according to the type of capacity product (duration of the contract, interruptible or firm capacity, or location in the network).

3.108

This flexibility is somehow limited by the fact that, while deciding to differentiate between network users, Member States need to respect general Union rules and, in particular, state aid rules where applicable. For example, in the state aid case of the European Commission against Germany of 28 May 2018,79 Germany was obliged to recover illegal aid from certain large electricity users exempted from network charges in Germany in 2012-2013.

3.110

This case concerned to an exception put in place through an Ordinance in Germany80 according to which, between 2011 and 2013, electricity users that had an annual consumption above 10 gigawatt hours and a particularly stable electricity consumption were fully exempted from paying network charges under German law. In 2012, thanks to this provision, these users avoided paying an estimated €300 million in network charges.81 It was the first time that the Eu-

3.111

79 80 81

See Commission Decision (EU) 2019/56 of 28 May 2018 on aid scheme SA.34045 (2013/c) (ex 2012/ NN) implemented by Germany for baseload consumers under Paragraph 19 StromNEV, C/2018/3166 OJ L 14, 16.1.2019. § 19(2) of the German Network Charges Ordinance. These costs were instead financed by a special levy imposed on final electricity consumers (the so-called

59

3.109

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

ropean Commission had to assess a full exemption from network charges under the state aid rules.82 It concluded that there is no objective justification under EU State aid rules for a full exemption from network charges for electricity users, even if they have a stable electricity consumption. All network users had according to the decision to pay for the costs they caused to the network. Large and stable electricity users also generate network costs and make use of network services and it is for them to bear these costs. The resources used to support the said customers were found to constitute state aid, thus, Germany was found to violate state aid rules and was called to reassess the charges for such customers based on the costs they cause to the network. The decision acknowledged that these customers may have caused fewer costs than other customers did in 2012 and 2013 thanks to their stable and predictable consumption and thus, some reductions may be justified. Germany abolished the exemption and replaced it with a possibility for industrial customers to request for a reduced network charge. The decision has been appealed by several affected undertakings before the Court of Justice.83

3.112

In particular, regarding electricity distribution tariffs, Article 18 of the ­Electricity Regulation requires that distribution tariffs are cost reflective and take into ­account the use of the distribution network by system users including active customers. It confirms that the tariffs may contain network connection ­capacity elements and may be differentiated based on system users’ ­consumption or ­generation profiles. In addition, in cases where smart metering systems are deployed, regulatory authorities have to consider time-differentiated network ­tariffs when fixing or approving transmission tariffs and distribution tariffs or their methodologies and, where appropriate, time-differentiated network ­tariffs may be introduced to reflect the use of the network, in a transparent, costefficient and foreseeable way for the final customer.

3.113

Regarding the pricing of electricity cross-zonal capacities, the CACM Regulation provides for implicit allocation through auctions where the price for access to cross-zonal capacity is determined by the single day-ahead coupling and based on an approved methodology on capacity calculation methodology. Re-

82

83

§ 19-surcharge), which Germany introduced in 2012. See European Commission – Press release State aid: Germany needs to recover illegal aid from certain large electricity users exempted from network charges in Germany in 2012–2013 Brussels, 28 May 2018. Other state aid cases related to subsidies that reduced electricity-related costs for certain undertakings but not fully exempted certain undertakings from network charges. See for example preferential electricity ­tariffs granted by Italy to ThyssenKrupp, Cementir and Nuova Terni Industrie Chimiche (case C36a/2006) or Greece to Aluminium of Greece (case SA.26117, 2010). See e.g., cases T-704/18 Wacker Chemie v Commission, Case T-704/18 – Air Liquide Deutschland v Com‑ mission, T-706/18 T-705/18 – Air Liquide Industriegase v Commission.

60

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

garding intraday a pan–EU methodology has been developed by all EU TSOs and approved by ACER on how to price cross-zonal capacity in the single intraday coupling. This methodology sets auctions as the pricing method and the conditions for the performance of these auctions by the market operator.84 In the long-term timeframe, the FCA Regulation provides for explicit allocation of long-term transmission rights through auctions where the price is determined. No other fees or charges are imposed or allowed for use of cross-zonal capacity. Regarding electricity transmission tariffs, it has not been possible to further harmonise such tariffs in the EU. Initially Article 8(6) of Regulation 714/2009 and the following Commission Decision 2014/713/EU on the establishment of the annual priority lists for the development of network codes and guidelines for 201585 provided for the development of a network code on rules for harmonised transmission tariff structures and for the elaboration of a framework guideline setting out principles for such a network code. They would provide the minimum degree of harmonisation required to meet the aims of that Regulation and not go beyond what is necessary for that purpose.86 ACER was requested to prepare a framework guideline depending on the results of ACER’s scoping activity and decisions taken as part of the energy market design initiative.

3.114

ACER completed the scoping exercise in December 201587 and concluded the need for a framework guideline and a subsequent network code is not ­evident and that the existing policies, including implementation of the Agency’s ­Opinion No. 09/2014, are sufficient to prevent potential negative effects from any lack of harmonisation in electricity transmission tariff structures.88

3.115

84

85 86

87 88

Decision  01/2019 of ACER of 24 January 2019 establishing a single methodology for pricing of intraday cross-zonal capacity https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Individual%20decisions/ACER%20Decision%2001-2019%20on%20intraday%20cross-zonal%20capacity%20 pricing%20methodology.pdf. 2014/713/EU: Commission Decision of 13 October 2014 on the establishment of the annual priority lists for the development of network codes and guidelines for 2015 Text with EEA relevance, OJ L 296, 14.10.2014, pp. 28–30. In case the scoping exercise of ACER would show that there is a need for a network code, the following Commission Implementing Decision (EU) 2015/1960 on the establishment of the annual priority list for 2016 for the development of network codes and guidelines also provided for such a code. OJ L 284, 30.10.2015, p. 187–189. See relevant information about the process and the conclusions here https://acer.europa.eu/en/Electricity/ FG_and_network_codes/Pages/Harmonised-transmission-tariff-structures.aspx. Scoping towards potential harmonisation of electricity transmission tariff structures Conclusions And Next Steps December 2015, available here: https://acer.europa.eu/en/Electricity/FG_and_network_codes/ Documents/Scoping%20conclusions%20for%20harmonised%20Transmission%20Tariff%20Structures%20in%20Electricity.pdf

61

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.116

As a result of the negotiations on the Clean Energy Package, the new Electricity Directive does not include anymore a legal basis for a network code on tariffs. However, in a more pragmatic and forward looking manner, the compromise text of the Electricity Regulation includes in Article 18 principles for the Member States to follow when designing tariff structures. In addition, in order to increase transparency and comparability in tariff-setting where binding harmonisation is not seen as adequate, ACER has to provide a best practice report on tariffs transmission and distribution systems. The first ACER report was published on 5 October 2019,89 followed by reports issued every two years thereafter, which the Member States should take account of when setting their national tariff regimes.90

3.117

Among the principles incorporated in the Electricity Regulation is that network tariffs should be applied in a way which does not positively or negatively discriminate between production connected at the distribution level and production connected at the transmission level. In order to provide for a level playing field between all market participants network tariffs should not discriminate against energy storage and should not create disincentives for participation in demand response or represent an obstacle to improving energy efficiency.91

3.118

Lastly, whilst the role of the regulator may be either to approve tariffs or the underlying methodology (see below 3.2.2), actual tariffs must be published. It is not sufficient to publish a tariff methodology as the tariffs themselves must be published prior to their entry into force and cannot be applied to any contract before such publication.

3.2.2 Regulation of tariffs 3.119

Article 6(1) of the electricity and Article 32 (1) of the gas Directive allow the choice between the regulatory approval of tariffs prior to their publication and entry into force or the approval of the methodologies underlying the calculation of the tariffs. The corresponding provision with respect to the regulatory 89 90

91

See the report published here: https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/ Publication/ACER%20Practice%20report%20on%20transmission%20tariff%20methodologies%20 in%20Europe.pdf That best practice report shall address at least: (a) the ratio of tariffs applied to producers and tariffs applied to final customers; (b) the costs to be recovered by tariffs; (c) time-differentiated network tariffs; (d) locational signals; (e) the relationship between transmission tariffs and distribution tariffs; (f ) methods to ensure transparency in the setting and structure of tariffs; (g) groups of network users subject to tariffs including, where applicable, the characteristics of those groups, forms of consumption, and any tariff exemptions; (h) losses in high, medium and low-voltage grids. Recital 39 of Electricity Regulation.

62

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

authorities is set in Article 59 (1)(a) and 59 (7) – (9) of the electricity Directive and 41 (6)‑(7) of the gas Directive: Article 59 (1)(a) and (7) – (9)) electricity “1. The regulatory authority shall have the following duties: (a) fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies, or both; (…) 7. The regulatory authorities, except where ACER is competent to fix and approve the terms and conditions or methodologies for the implementation of network codes and guidelines under Chapter VII of Regulation (EU) 2019/943 pursuant to Article 5(2) of Regulation (EU) 2019/942 because of their coordinated nature, shall be responsible for fixing or approving sufficiently in advance of their entry into force at least the national methodologies used to calculate or establish the terms and conditions for: (a) connection and access to national networks, including transmission and distribution tariffs or their methodologies, those tariffs or methodologies shall allow the necessary investments in the networks to be carried out in a manner allowing those investments to ensure the viability of the networks; (b) the provision of ancillary services which shall be performed in the most economic manner possible and provide appropriate incentives for network users to balance their input and off-takes, such ancillary services shall be provided in a fair and non-discriminatory manner and be based on objective criteria; and (c) access to cross-border infrastructures, including the procedures for the allocation of capacity and congestion management. 8. The methodologies or the terms and conditions referred to in paragraph 7 shall be published. 9. With a view to increasing transparency in the market and providing all ­interested parties with all necessary information and decisions or proposals for decisions 63

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati concerning transmission and distribution tariffs as referred in Article  60(3), ­regulatory authorities shall make publicly available the detailed methodology and underlying costs used for the calculation of the relevant network tariffs, while preserving the confidentiality of commercially sensitive information.”

Article 41 (6) – (8) gas “6. The regulatory authorities shall be responsible for fixing or approving sufficiently in advance of their entry into force at least the methodologies used to calculate or establish the terms and conditions for: (a) connection and access to national networks, including transmission and distribution tariffs, and terms, conditions and tariffs for access to LNG facilities. Those tariffs or methodologies shall allow the necessary investments in the networks and LNG facilities to be carried out in a manner allowing those investments to ensure the viability of the networks and LNG facilities; (b) the provision of balancing services which shall be performed in the most economic manner and provide appropriate incentives for network users to balance their input and offtakes. The balancing services shall be provided in a fair and non-discriminatory manner and be based on objective criteria; and (c) access to cross-border infrastructures, including the procedures for the allocation of capacity and congestion management. 7. The methodologies or the terms and conditions referred to in paragraph 6 shall be published. 8. In fixing or approving the tariffs or methodologies and the balancing services, the regulatory authorities shall ensure that transmission and distribution system operators are granted appropriate incentive, over both the short and long term, to increase efficiencies, foster market integration and security of supply and support the related research activities.”

3.120 3.121

These provisions have given rise to a number of questions of interpretation. Firstly, the third package added – in Article 59 (7)(c) (electricity) and Article 41 (6) (c) (gas) – an explicit reference to access to cross-border infrastructures, including capacity allocation and congestion management procedures. It can be 64

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

argued that cross-border infrastructure is already covered by the general requirement in letter (a) given the interconnected character of the European transmission systems. On the other hand, given the explicit reference to ‘national’ networks in letter (a), the insertion of letter (c) seems to be meant to avoid any misunderstanding and to clarify that the general rule of tariff regulation applies equally to cross-border infrastructure. Moreover, in the case of gas, Article 13(1) of Regulation 715/2009 requires decoupled entry-exit tariff systems where tariffs may no longer be dependent on contract paths, notably including the case of cross-border flows. Secondly, two questions arise concerning the criteria that must be respected – or aimed at – by the regulatory authority when accepting the tariffs. (i) “who is responsible in setting the exact criteria contained therein or the tariffs and, in particular, whether the tariffs must be cost‑reflective?” and, (ii) “ how detailed must the methodology be?”. These issues are considered below in this order.

3.2.3 Cost reflectivity Under the second gas and electricity Directives, the main reason to require cost reflective tariffs for access resulted from the obligation to set non‑discriminatory tariffs. If tariffs are not cost‑reflective92 (i.e., if they may permit excessive or monopoly pricing of the TSO), a vertically integrated undertaking would acquire a significant and discriminatory advantage over its non‑vertically integrated ­rivals on the supply market through the potential cross subsidisation of its own subsidiaries. In such circumstances, the vertically integrated ­undertaking could afford to accept lower margins on the generation market to maintain or increase market share, because the overall group profitability is maintained through artificially high profits from its transmission business. This analysis is confirmed by a number of other provisions93 in the Directives as well as in the Regulation on cross‑border exchanges in electricity and the Regulation on gas transmission. This analysis is relevant for access to the distribution grids as well as for access to LNG facilities. For these facilities and grids, vertical 92 93

Cost reflective in this context should be taken to include a reasonable profit. See for example Article 31(5) of the Gas Directive which requires that gas undertakings, in their accounts, specify the rules for the allocation of assets and liabilities, expenditure and income as well as depreciation. This requirement only makes sense in the context of an obligation for the regulator to base its approval of tariffs on costs reflectivity; but also article 18 of the electricity Regulation and Article 41 (6) (b) of the gas Directive which require that tariffs and other terms and conditions must be approved by the national regulatory authority (either directly or on the basis of a methodology) in a non-discriminatory and cost reflective way and be published.

65

3.122

3.123

3.124

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

integration is still allowed under the third Directives and cost reflective access tariffs are necessary to prevent discriminatory cross-subsidisation.

3.125

It may be argued that the same holds true for transmission networks which are not subject to full ownership unbundling, thus maintaining a degree of vertical integration and hence an inherent risk of discrimination. From this, a need for additional regulatory oversight and control follows, which is reflected in the Articles on the Independent System Operator and the Independent Transmission Operator, as well as in Recital 72 in the electricity Directive and Recital 13 in the gas Directive: Recital 72 (electricity)

3.126

“The setting up of a system operator or transmission operator that is ­independent from supply and generation interests should enable a vertically integrated undertaking to maintain its ownership of network assets while ensuring the effective separation of interests, provided that such independent system operator or independent transmission operator performs all of the functions of a system operator, and provided that detailed regulation and extensive regulatory control mechanisms are put in place.”

Recital 13 (gas)

3.127

“The setting up of a system operator or a transmission operator independent from supply and production interests should enable a vertically integrated undertaking to maintain its ownership of network assets whilst ensuring an effective separation of interests, provided that such independent system operator or such independent transmission operator performs all the functions of a system operator and detailed regulation and extensive regulatory control mechanisms are put in place.”

3.128

For ownership unbundled transmission networks, vertical integration and risk of discrimination in favour of affiliated companies is no longer an issue. In this case, the requirement that tariffs are cost reflective is weaker and in this case cost reflectiveness is a criterion necessary in order to prevent monopolistic pricing strategies.

66

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Therefore, Article 18(1) of the Electricity Regulation and 13(1) of the gas Regulation require that charges for access to networks including connection, use and where applicable for network reinforcements, at both transmission and distribution level, respect the following conditions: Article 13 (1) – (2) gas Regulation “Tariffs, or the methodologies used to calculate them, applied by transmission system operators and approved by the regulatory authorities pursuant to Article 41(6) of Directive 2009/73/EC as well as tariffs published pursuant to Article 32(1) of that Directive, shall be transparent, take into account the need for system integrity and its improvement and reflect actual costs incurred, insofar as such costs correspond to those of an efficient and structurally comparable network operator and are transparent, whilst including appropriate return on investments, and where appropriate taking account of the benchmarking of tariffs by the regulatory authorities. Tariffs, or the methodologies used to calculate them, shall be applied in a non-discriminatory manner.”

Article 18 Electricity Regulation “Charges for access to networks, use of networks and reinforcement “1. Charges applied by network operators for access to networks, including charges for connection to the networks, charges for use of networks, and, where applicable, charges for related network reinforcements, shall be cost-reflective, transparent, take into account the need for network security and flexibility and reflect actual costs incurred insofar as they correspond to those of an efficient and structurally comparable network operator and are applied in a non-discriminatory manner. Those charges shall not include unrelated costs supporting unrelated policy objectives.

Without prejudice to Article 15(1) and (6) of Directive 2012/27/EU and the criteria in Annex XI to that Directive the method used to determine the network charges shall neutrally support overall system efficiency over the long run through price signals to customers and producers and in particular be applied in a way which does not discriminate positively or negatively between production connected at the distribution level and production connected at the transmission level. The network charges shall not discriminate either positively or negatively against energy storage or aggregation and shall not create disincentives for self-generation, self-consumption or for participation in demand response. 67

3.129

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati Without prejudice to paragraph 3 of this Article, those charges shall not be distance-related.”

3.130

The second sub-paragraph of Article  18(1) of the Electricity Regulation addresses issues that can potentially distort investment i.e. that of network charges on generators but also that of fair treatment of all users. This includes charges for use of the network, both at distribution-level and transmission-level (tariffs), as well as the charges applied to generators for their connection (connection charges). The European Commission identified in its impact assessment for the proposal on the Electricity Directive94 significant variations across the EU on the structure of these charges, which are set at Member State-level. For instance, some Member States do not apply any tariffs to generators, others apply them based on connected capacity and others based on the amount of electricity produced. With the new obligation on Member States, such tariffs should be fixed in a way which does not discriminate positively or negatively between production connected at different levels of the network.

3.131

Further, the regulatory framework under Directive  2009/72 and Regulation 714/2009 as applied in many Member States did not fully address the new challenges such as the complex electricity flows caused by small-scale generation. Addressing this kind of challenges through the regulatory framework requires the cost recovery for innovative investments and the introduction of the right incentives for flexible solutions which can contribute in solving short-term and long-term congestion in the distribution grids.95

3.132

It was thus widely accepted that the developments which are taking place in the distribution systems, such as the integration of vast amounts of renewable generation or the integration of new loads (e.g. heat pumps, electric vehicles), require distribution tariffs which provide the right economic signals for the use and development of the system, allocate costs in a fair way among system users and provide stability for investments for DSOs and connected infrastructure.96 94

95 96

See more in Commission Staff Working Document Impact Assessment Accompanying the document Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast) Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast) Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector, SWD/2016/0410 final - 2016/0379 (COD), section 2.2.1. https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=CELEX:52016SC0410. See “The future role for DSOs” (2015) CEER, “A Bridge to 2025 Conclusions Paper” (2014) ACER. See more in Commission Staff Working Document Impact Assessment Accompanying the document Proposal for a Directive of the European Parliament and of the Council on common rules for the internal

68

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Therefore, article 18 (1) second subparagraph second sentence calls for network charges which do not discriminate either positively or negatively against energy storage or aggregation and shall not create disincentives for self-generation, selfconsumption or for participation in demand response.

3.133

Given the increased importance of cross-zonal trading of electricity paragraph 6 of Article 18 provides that there shall be no specific network charge on individual transactions for cross-zonal trading of electricity. Hence, any kind of network fee on top of the prices as calculated based on the single day ahead and single intraday coupling in accordance with the CACM Regulation should not be allowed.

3.134

When assessing cost-reflectivity, it must be noted that both the gas and electricity Regulations refer to actual costs incurred, insofar these correspond “to those of an efficient and structurally comparable network operator”. It is submitted that this again is a clear reference to the non-discrimination requirement for vertically integrated operators. The requirement that the costs used for tariff setting must correspond to those of a structurally comparable and efficient operator was introduced to prevent costs of the supply or generation business to be allocated to the TSO. In that case, a TSO might argue that its tariffs were cost-based, but the costs would in that case still be artificially high. Thus, the notion of a structurally comparable network operator was introduced to ensure that vertically integrated operators would only take into account transmission-related costs.

3.135

It is further submitted that the reference to a structurally comparable network operator does not mean that actual costs incurred by a (unbundled) TSO should not all be included in calculating tariffs. This provision does not, for example, give a legal basis for the exclusion of some actual costs incurred in carrying out transmission tasks. Such exclusion, on the basis of a comparison with a structurally comparable and efficient network operator, would not correspond with the equally important requirement of Article 49 of Electricity Regulation97 that the need to provide for an appropriate return on investments must be taken into account when setting tariffs. Furthermore, the exclusion of actual costs incurred,

3.136

97

market in electricity (recast) Proposal for a Regulation of the European Parliament and of the Council on the electricity market (recast) Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast) Proposal for a Regulation of the European Parliament and of the Council on risk preparedness in the electricity sector, SWD/2016/0410 final - 2016/0379 (COD), section 3.3.3. According to paragraph 6, the TSO costs shall be established on the basis of the forward-looking long-run average incremental costs, taking into account losses, investment in new infrastructure, and an appropriate proportion of the cost of existing infrastructure, in so far as such infrastructure is used for the transmission of cross-border flows, in particular taking into account the need to guarantee security of supply.

69

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

would imply an interference with the enjoyment of property which is possible but requires more stringent conditions as provided for in the (First Protocol attached to the) European Charter of Fundamental Human Rights.

3.137

Further, the requirement of cost reflectivity does not mean that profits should always be limited to ongoing low rates of return without incentives provided to reflect desirable objectives. The fact that a regulatory authority accepts a high return on investment for specific assets to reward past risk, efficiency or to encourage future investment does not mean that the tariffs cannot be cost-reflective. This flexibility will be even more relevant taking into account the investments needed by the TSOs and DSOs to accommodate the variety of network users in the future.

3.138

This approach is followed in the note of the Commission services on the role of regulatory authorities,98 which states: “Although network tariffs need to be cost reflective in a general sense, this does not necessarily mean there should be a rigid and automatic correspondence between the costs of the regulated business and the revenues collected from network tariffs. Regulators are likely, for example, to wish to provide incentives to improve efficiency or to encourage ongoing investment or extension of the networks. A situation where companies have an incentive to preside over a deterioration of the assets should be avoided and regulators should be able to monitor the condition of assets on a regular basis as part of their work.”

3.139

3.140

This is a rather important element that the Directives and, notably, the Regulations require that regulatory authorities ensure that tariffs are based on cost reflectivity while providing a margin of discretion in this regard. Indeed, the importance of incentive-based regulation has become widely recognised as the most appropriate manner in which to address the issue of limiting excess tariffs whilst at the same time motivating TSOs to actively improve their efficiency. This was already reflected in paragraph 8 of both Article 37 of the Directive 2009/72 and of Article 41 of the gas Directive: “8. In fixing or approving the tariffs or methodologies and the balancing services, the regulatory authorities shall ensure that transmission and distribution system operators are granted appropriate incentive, over both the short and long term, 98

Note of DG Energy &Transport on Directives 2003/54/EC and 2003/55/EC on the internal market in electricity and natural gas, The Role of the regulatory authorities, 14.1.2004.

70

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati to increase efficiencies, foster market integration and security of supply and support the related research activities.”

Regarding incentives that should be given to electricity DSOs and TSOs, Article 18(2) of the new Electricity Directive strengthens the principle of incentivebased regulation through the tariff methodologies. These methodologies have to reflect the DSOs/TSOs fixed costs and provide them with appropriate incentives over both the short and long run, in order to increase efficiencies, including energy efficiency, to foster market integration and security of supply, to support efficient investments, to support related research activities, and to facilitate innovation in interest of consumers in areas such as digitalisation, flexibility services and interconnection.

3.141

Similarly, reference to pricing principles was already made in Article 14(2) of the gas Regulation:

3.142

“2. Transportation contracts signed with non-standard start dates or with a shorter duration than a standard annual transportation contract shall not result in arbitrarily higher or lower tariffs that do not reflect the market value of the service, in accordance with the principles laid down in Article 13(1).”

Such application of market principles, i.e. reflecting the willingness to pay or sell for buyer and seller respectively, may or may not coincide with traditional costreflective prices.

3.143

There are some differences in the wording between the gas and electricity Regulations regarding the requirement for cost reflectivity and/or other criteria.

3.144

Whereas the electricity Regulation makes it clear that default rule is for cost reflectivity, the gas Regulation provides that the regulators may take into account benchmarking of tariffs in particular where effective pipe-to-pipe competition99 exists. This is reflected in Recital 8 of the gas Regulation. The above-cited Article 14 also make reference to the “market value” of the service – i.e., reflecting the willingness to pay or sell for buyer and seller respectively – which again may or may not coincide with traditional cost-reflective prices.

3.145

In the case of electricity, on the other hand, deviations may take the form of locational signals in order to achieve a balance between generation and consump-

3.146

99

Note that with the introduction of decoupled entry-exit systems the scope for pipe to pipe competition has diminished.

71

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

tion of a region concerned. In some Member States locational signals are taken into account within the tariff, in others not. The electricity Regulation refers to the use of locational signals in several different provisions. Paragraph 3 of Article 18 provides that, where appropriate, the level of the tariffs applied to producers or final customers, or both shall provide locational signals at Union level, and take into account the amount of network losses and congestion caused, and investment costs for infrastructure.100

3.147

Before the update of the electricity market design and the new wording of Article 18 of Electricity Regulation, there were other relevant differences between the gas and electricity Regulations. Indeed, the gas Regulation clearly set out other objectives than cost reflectivity that tariffs had to adhere to. For example, gas tariffs have to be non-discriminatory, avoid cross-subsidisation and facilitate efficient gas trading as well as the promotion of the interoperability of the networks. In practice, this means that there is a trade-off between the requirements of the Regulation.

3.148

For example, there may be good grounds, and inevitable in the compulsory use of entry-exit tariff systems for a limited degree of cross-subsidisation among different entry and exit points and thus for an inevitably weaker link between costs and revenues. However, this is compensated for by the possibility to define a common notional balancing and trading point which in turn stimulates competition and secondary capacity trading. It is submitted that there is no pre-defined merit order for the rather varied set of requirements. In practice regulators are likely to focus on cost reflectivity as the main requirement, perhaps because it is the requirement that may lead to the most directly attributable effects: a tariff cut as a consequence of the implementation of a cost reflectivity requirement has a more visible impact than a change in the tariff system that will make more investment possible; the effects of which may not be tangible for some years. Similarly to the gas provisions, the new provision in Article 18(1) of the Electricity Regulation added other criteria for the network tariffs, which have to “be transparent, take into account the need for network security and flexibility and reflect actual costs incurred insofar as they correspond to those of an efficient and structurally comparable network operator and are applied in a non-discriminato‑ ry manner.” These criteria and other requirements added in other paragraphs of the article as mentioned above clearly show that cost reflectivity is only one from a number of elements that the regulatory authorities need to take into account when assessing the needs and thus, costs of the networks.

3.149

100 Recital 30, Article 18 (9)(d) Article 61(4)(b) of Electricity Regulation.

72

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

To sum up, the wording of the Directives and Regulations still needs to be interpreted with respect to the pricing principles underlying the calculation of tariffs. It is clear that the legislation has a “default” preference for cost-reflectivity. However, the Regulations and Directives are largely silent as to which costs need to be taken into account. The issue therefore is partly left to Member States when transposing or applying the legislation, although network codes have provided more details on cost recovery in some cases. Furthermore, tariff systems may not contravene the general principle of non-discriminatory third party access and tariff setting, as laid down in the relevant articles of the Directives.

3.150

3.2.4 Level of detail of a tariff methodology As mentioned above, the second important question regarding the interpretation of Article 59 of the Electricity Directive and Article 41 of the gas Directive is how detailed a tariff methodology must be. As there are still two options for Member States to implement at their discretion, the principle applies that regulatory authorities have to be entitled to perform control over tariff setting as effectively under the methodology approach as under the approach of approving the specific tariffs. Thus, where only an approval of a methodology takes place, there is an active duty on regulators: –

to ensure that the methodology is precise enough for it to be certain that tariffs are cost‑reflective and non‑discriminatory;101 and

–

to verify that the tariffs subsequently published comply with the approved methodology and, in practice, are non‑discriminatory. Where this is not the case the regulatory authority must require their modification.

For gas, Article 41 (8) of the gas Directive provides in this regard that: Article 41 (8) gas “Regulatory authorities shall have the authority to require transmission, LNG and distribution system operators, if necessary, to modify the terms and conditions, including tariffs and methodologies referred to in this Article, to ensure that they are proportionate and applied in a non‑discriminatory manner. (…)”

101

Article 18(1) of the electricity Regulation and 32 (1) of the gas Directive.

73

3.151

3.152

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

The similar article 37(8) in the Electricity Directive 2009/72 has been deleted in the new Electricity Directive. However, this does not limit the powers of the regulatory authorities to investigate and take measures where appropriate in accordance with Article 59(3) of Electricity Directive.

3.153

It is therefore submitted that the methodology must be detailed; in essence permitting tariffs to be calculated from its provisions and not, for example, being limited to general principles. The real difference in the level of overview of tarification by the regulator between the ex‑ante approval of tariffs and the approval of a tariff methodology should be limited to the period in which verification and control take place. Where only a methodology is approved by the regulator prior to its entry into force, the control takes place before and after publication of tariffs. Where tariffs are regulated ex‑ante, almost all the scrutiny takes place prior to publication. The level of work and verification, however, should not significantly differ overall.

3.154

Another significant element of the tariff setting is that the Member States must entrust independent regulatory authorities with the task to set the criteria for the tariff methodologies in a way that ensures that they fulfil the legal requirements and that they allow for a full judicial review. In this regard, the European Commission referred Germany and Hungary to the Court of Justice of the EU on 19 July 2018102 for reasons of non-compliance with the Third package rules on the independence of the regulatory authorities in setting the network tariffs or the methodologies therefor.

3.155

In the case of Germany, the European Commission identified that the regulator does not enjoy full discretion in the setting of network tariffs and other terms and conditions for access to networks and balancing services. The main argument brought forward is that many elements for setting these tariffs and terms and conditions are to a large extent laid down in detailed regulations adopted by the Federal government which goes against the EU legal framework.

3.156

Regarding Hungary, the European Commission decided that it has not implemented correctly the Third Energy Package requirements on network tariffs. The related provisions are the ones according to which (i) tariffs applied by network 102 A letter of formal notice was sent to Germany and Hungary in February 2015, followed by a reasoned opinion in April 2016 for Germany and two reasoned opinions for Hungary, respectively in December 2016 and April 2017. The decision againts Germany is still pending while the one against Hungary was published on 16 July 2020 accepting partially the Commission’s arguments. See the Court decision here (not available in English during the last update of this Chapter). http://curia.europa.eu/juris/document/document.jsf ?text =&docid=228671&pageIndex=0&doclang=DE&mode=lst&dir=&occ=first&part=1&cid=10737030

74

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

operators for the use of electricity and gas networks have to be regulated in order to prevent anti-competitive behaviour and (ii) national regulatory authorities should be entrusted with the task of setting these tariffs or their methodologies. The reason of the referral was that Hungary adopted rules in the energy field, which exclude certain types of costs from the calculation of network electricity and gas tariffs, in violation of the principle of cost recovery of tariffs provided for in the Electricity and Gas Regulations. In addition, the European Commission found that the applicable legislation jeopardises the right of entitled persons to a full judicial review of the national regulator’s decisions on network tariffs.103

3.3 Capacity allocation and congestion management Regulated access aims to ensure the non-discriminatory allocation of capacities, enabling all interested parties to benefit from the key infrastructure required to participate in the markets for gas and electricity trading and supply. The gas and electricity Directives therefore have specific provisions to ensure non-discriminatory capacity allocation and congestion management. These provisions are further elaborated in the Regulations as well as the detailed Network Codes.

3.157

3.3.1 Gas Regarding the management of congestion itself, the annex to the gas Regulation has already been modified, strengthening the provisions on non-discriminatory congestion management. Commission Decision  2012/490/EU of 24 August 2012 on amending Annex I to Regulation (EC) No 715/2009104 has introduced an oversubscription and buyback scheme to be applied, with the possibility to require firm day ahead use-it-or-lose-it, thereby strengthening access rights in case of contractual congestion and limiting capacity hoarding.

3.158

The Network Code on Capacity Allocation Mechanisms in Gas Transmission Systems (CAM)105 provides that auctions shall be used to determine access to gas interconnectors. It sets minimum thresholds of 10% each of the technical capacity to be made available as annual and as quarterly products respectively, thus ensuring a minimum flexibility margin and enabling short-term trading. The Network Code requires standard products to be defined for yearly, quarterly, monthly, daily and within-day timeframes. Yearly products can be offered

3.159

103 See – Press release of the European Commission of 19 July 2018, Infringement – Internal energy market: Commission refers Germany and Hungary to the Court of Justice of the EU for failure to fully comply with the Third Energy Package Brussels. The Hungary case is published on July 16, 2020. See footnote 102. 104 OJ 2012/L 231/16. 105 Regulation No 984/2013 of 14 October 2013, OJ 2013/L 273/5.

75

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

several years ahead, but no longer than 15 years. For products with longer than daily timeframes, regular auctions shall be organized using an ascending clock mechanism. For daily and within-day products, uniform price algorithms with single bidding rounds shall be used. Adjacent TSOs shall offer bundled products, to avoid mismatches between exit products from one entry-exit zone and entry products at the next zone.

3.160

TSOs shall also offer daily interruptible capacity products in both flow directions, thus including virtual (“backhaul”) capacity. Interruptible contracts shall be interrupted in the order that the contracts have entered into force.

3.3.2 Electricity 3.161

Third-party access to the electricity wholesale markets is only feasible through non-discriminatory allocation of capacities, including on interconnectors, ­enabling all interested parties to benefit from the key infrastructure required to participate in the markets for electricity trading and supply. For this purpose specific provisions are foreseen directly in the Third Package and the network codes and guidelines to ensure non-discriminatory capacity allocation and congestion management.

3.162

In electricity, in order to ensure legal certainty and robustness of the European regulatory framework, the high level principles on capacity allocation and congestion management including rules for access to cross-zonal capacities have been lifted from the electricity guidelines to Chapters II (General rules for the electricity market) and III (Network access and congestion management) of the Electricity Regulation.106 With the high-level principles included in the main text of the Electricity Regulation and the adoption of CACM and FCA Regulations, Annex I of Regulation 714/2009 would be a duplication and partially confusing and has therefore been deleted from the new Electricity Regulation.

3.163

Regarding electricity wholesale markets, the CACM and FCA Regulations contain rules on long-term and short term cross-zonal capacity calculation and allocation aiming at facilitating Union-wide trade in electricity, allowing more efficient use of the network and increasing competition, for the benefit of consumers. Among others, they both serve the objectives of ensuring optimal use of the transmission infrastructure, of optimising the calculation and allocation of cross-zonal capacity, of ensuring fair and non-discriminatory treatment of TSOs 106 Article 3 of the Electricity Regulation provides with the general principle of third party access to electricity wholesale markets for all electricity undertakings.

76

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

and other market participants as well as the objective of fair and orderly markets and optimal price formation, which are all essential elements of third-party ­access. Like previously provided for in Annex 1 to the Electricity Regulation 714/2009, these Regulations provide that TSOs shall endeavour to accept all commercial transactions, including for cross-zonal trade. When defining network areas between which congestion management has to apply, the so-called bidding zones,107 TSOs have to minimise the negative impacts on the internal market. This means that where structural congestion appears inside a bidding zone, this congestion either has to be resolved or congestion management procedures have to be applied to this congestion. This may require redefinition of the bidding zone in question to ensure that congestion costs are appropriately reflected in the wholesale market.108

3.164

Depending on the timeframe the capacity calculation and allocation procedures have common elements or they may vary. The CACM Regulation contains the rules for day-ahead and intraday capacity allocation whereas the FCA Regulation sets the conditions for forward capacity allocation. In all cases, the capacities should be calculated in a coordinated manner in mostly broader regions than just one bidding zone (the so-called capacity calculation regions)109 and based on a common grid model for all EU TSOs and for each timeframe. The CACM Regulation sets the process to establish capacity calculation regions to reduce inconsistencies between neighbouring TSOs and increase available capacities.110

3.165

107 A bidding zone is the largest geographical area within which market participants are able to exchange energy without capacity allocation according to Article 2 (65) of the Electricity Regulation. 108 The CACM Regulation defines the process for the bidding zones review by relevant TSOs who need to propose changes of the bidding zone configuration to the Member States based on specific criteria and following predefined methodologies and scenarios. The first bidding zone review has been performed by TSOs in 2018 with no proposal for a bidding zone reconfiguration. Given the challenges met in this first bidding review, the process has been improved in the Electricity Regulation which now includes an additional obligation for TSOs to offer to the market at least 70% of cross-zonal capacity (Article 16). This new requirement serves the goal of further integration of EU electricity markets and less discretion to individual TSOs to limit crosszonal capacities. 109 A capacity calculation region (CCRs) is the geographic area in which the coordinated capacity calculation is applied (Article 2(21) of the Electricity Regulation). 110 There are currently ten CCRs following proposals by all EU TSOs and approval by NRAs or, where NRAs could not agree, following a decision by ACER. See first decision of ACER No. 06/2016 of 17 November 2016 determining the CCRs here https://acer.europa.eu/Official_documents/Acts_of_the_Agency/Individual%20decisions/ACER%20Decision%2006-2016%20on%20CCR.pdf. Also following decisions here: https://acer.europa.eu/en/Electricity/MARKET-CODES/CAPACITYALLOCATION-AND-CONGESTION-MANAGEMENT/IMPLEMENTATION/Pages/CAPACITY-CALCULATION.aspx

77

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

The CACM Regulation sets further principles for a coordinated capacity calculation per CCR.111 In a meshed grid, capacities shall in principle be calculated based on a flow-based approach, taking into account congestion inside network areas and considering real electricity flows (i.e., not across a single line, but across the path of least resistance in a meshed grid). Under certain conditions, TSOs can propose an alternative approach, the coordinated net transmission capacity approach. Further, other coordinated methodologies as the coordinated redispatching and countertrading methodology shall ensure optimal use of resources (e.g., in case of different imbalances, imbalance netting can reduce the need for redispatch).112

3.166

The CACM Regulation also foresees a review process and substantive criteria for bidding zone configuration (Article 32 ff ). Whereas this process foresees a final decision by the Member States, they will have to respect the obligations directly resulting from the Third Package and other legislation while taking their decision.

3.167

The CACM Regulation sets, furthermore, detailed rules for TSOs and Nominated Electricity Market Operators (NEMOs) to perform the tasks of crosszonal capacity allocation and congestion management in the day-ahead and intraday markets. It establishes their rights and obligations when cooperating for the development and operation of the day-ahead and intraday markets including rules on governance and cost sharing and cost recovery.

3.168

For day-ahead and intraday timeframe, the CACM Regulation and now also the Electricity Regulation require that cross-zonal capacity should be allocated using implicit allocation methods, in particular methods which allocate energy and capacity together. In the case of single day-ahead coupling, this method should be implicit auction and in the case of single intraday coupling it should be continuous implicit allocation potentially complemented by auctions. The implicit allocation relies on effective and timely coordination between TSOs, NEMOs and a series of other service providers to ensure capacity is allocated and congestion managed in an efficient manner.

3.169

Regarding the single day-ahead coupling, the so-called “Price Coupling of Regions” (PCR) solution, designed by some TSOs and power exchanges as a regional project before the entry into force of CACM Regulation, served as basis for the implementation of the pan-European single day-ahead coupling. Similar111 See Articles 20ff of CACM Regulation. 112 These provisions are further detailed in the System Operation Regulation.

78

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

ly regarding the development of the single intraday coupling, the Cross-Border Intraday (XBID) project is the basis for the implementation of the pan-European single intraday coupling under CACM Regulation. The XBID project will enable the single continuous intraday trading with a stepwise approach across the entire European Union. It went live on 12/13 June 2018 covering fourteen countries113 and with 16 million trades in its first year of operation.114 A second go-live took place in November 2019 allowing seven new Member States to join the pan-EU platform. The FCA Regulation sets out detailed rules on cross-zonal capacity allocation in the forward markets including rules for a common methodology to determine long-term cross-zonal capacity. The calculation of cross-zonal capacities in the forward timeframe can be based on a coordinated net transmission capacity approach or a flow-based approach. Differently as in the day-ahead and intraday market the flow-based approach is not the default approach but rather an alternative and to be applied by the TSOs in a given CCR if certain conditions are met. A condition is for example that the use of the flow-based approach leads to an increase of economic efficiency in the CCR with the same level of system security as the coordinated net transmission capacity approach.115 In any case the forward capacity calculation methodology has to be compatible with the capacity calculation methodologies for the day-ahead and intraday timeframes in accordance with the CACM Regulation.

3.170

The FCA Regulation requires further explicit cross-zonal capacity allocation at least on yearly and monthly basis and based on harmonised allocation rules across the European Union. The long-term capacity allocation is performed by a single allocation platform at European level.116 This central platform is devel-

3.171

113 Belgium, Denmark, Germany, Estonia, Finland, France, Latvia, Lithuania, Norway, the Netherlands, Austria, Portugal, Sweden and Spain. 114 See: https://www.entsoe.eu/news/2019/06/12/press-release-xbid-1st-anniversary-and-announcement-of2nd-wave-go-live/. For more details on the projects and the progress see also Report from the Commission to the European Parliament and the Council: https://ec.europa.eu/transparency/regdoc/rep/1/2018/ EN/COM-2018-538-F1-EN-MAIN-PART-1.PDF and the Commission Staff Working Document Accompanying the document: Report from the Commission to the European Parliament and the Council: file:///U:/01.%20IEM%20Harmonisation%20-%20NC%20and%20GL,%20etc/1a.%20Electricity%20 harmonisation%20–%20NCs%20and%20GL/1.%20CACM/Report%20on%20NEMOs%20competition/REPORT/FINAL/SWP%20annexed%20to%20the%20report.pdf 115 See Articles 8 ff FCA Regulation. 116 The EU TSOs have fulfil their obligation by appointing the Joint Allocation Office ( JAO), a service company that facilitates the electricity market by organising auctions for cross border transmission capacity, as the single allocation platform since 1 October 2018. JAO performs long- and short-term auctions of transmission capacity and offers annual, non-calendar annual, half-yearly, quarterly, monthly, weekly, weekend, daily and intra-day auctions. What type of auctions and what type of long-term transmission rights are allocated

79

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

oped by all TSOs to facilitate the allocation of long-term transmission rights for market participants and provide for the transfer of long-term transmission rights from one eligible market participant to another. Long-term transmission rights may be allocated ether as physical transmission rights or financial transmission rights – options (‘FTRs – options’) and financial transmission rights – obligations (‘FTRs – obligations’). In some instances, Member States may decide after a thorough assessment that no long-term transmission rights are required on certain borders as other sufficient hedging opportunities exist or if not, they may ask TSOs to provide such hedging opportunities with other means than long-term transmission rights.117

3.172

The harmonised allocation rules to be accepted by all market participants willing to join the long term auctions performed contain a detailed description of the allocation process/procedure for long-term transmission rights, including the minimum requirements for participation, financial matters, type of products offered in explicit auctions, nomination rules, curtailment and compensation rules, rules for market participants in case they are transferring their longterm transmission rights, the use-it-or-sell-it (hereinafter ‘UIOSI’) principle as well as rules on force majeure and liability.118

3.173

The early stages of the implementation of FCA Regulation and CACM Regulation can overall be considered successful and an important step towards the development of a fully integrated electricity market across the EU. Despite the progress made, there are still important deliverables under development by TSOs and/or NEMOs and further harmonisation is required before meeting the goals set in the Third Energy Package. ACER identified in its latest Monitoring Report119 several points of attention and potential action by the relevant parties and/or the European Commission. on each border is decided by the regulatory authorities upon a proposal by the relevant TSOs. See more info about JAO here http://www.jao.eu/aboutus/aboutus/overview. See the status quo of relevant methodologies for forward capacity allocation and the single allocation platform in the following sites respectively: https://www.acer.europa.eu/en/Electricity/MARKET-CODES/FORWARD-CAPACITY-ALLOCATION/IMPLEMENTATION/Pages/FORWARD-CAPACITY-ALLOCATION.aspx.; and https://www.acer.europa.eu/en/Electricity/MARKET-CODES/FORWARD-CAPACITY-ALLOCATION/IMPLEMENTATION/Pages/SINGLE-ALLOCATION-PLATFORM.aspx. 117 This is the case on some borders in particular in the Nordic countries. See details on the alternative hedging opportunities in ACER’s Monitoring report on the implementation of the CACM Regulation and the FCA Regulation of 31 January 2019, pages 6ff, https://www.acer.europa.eu/Official_documents/Acts_of_the_ Agency/Publication/FCA_CACM_Implementation_Monitoring_Report_2019.pdf. 118 See the set of harmonised allocation rules here http://www.jao.eu/support/resourcecenter/overview. 119 See Recommendations in ACER’s Monitoring report on the implementation of the CACM Regulation and the FCA Regulation of 31 January 2019.

80

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Regarding the CACM Regulation some changes for legal clarification as well as other substantial amendments are recommended. Focus is given to the differences between regions using the flow-based capacity calculation approach and coordinated net transmission capacity approach as well as need to improve the governance of the market coupling operation function. The already performed bidding zone review is also criticised by ACER who requires an improvement of the process and methodology applied before a second review takes place in order to meet the objectives of the CACM Regulation. Regarding the FCA Regulation, the main concerns are that the harmonised allocation rules include regional specificities, which in a few instances significantly deviate from the HAR or even from the FCA Regulation itself. ACER recommends in its report that these annexes should remove all deviations and, where possible, all unnecessary regional specificities. Further, ACER sees with scepticism the decision of some regulatory authorities to maintain the status quo even where they identified a need to increase cross-zonal risk hedging opportunities. ACER recommends therefore the development of harmonised criteria and metrics based on which the need for hedging instruments issued by TSOs could be objectively identified.120

4.

3.174

Negotiated third party access (storage ancillary and ancillary services)

With respect to electricity, the whole transmission and distribution system is subject to regulated third party access.121 Regarding storage, the Electricity Directive includes a new regime on energy storage and energy storage facilities as presented in section 2.2.4 above.

3.175

For gas, however, an exception exists for gas storage and ancillary services for which according to Article 33 of the gas Directive, Member States may in principle chose between negotiated and regulated third party access:

3.176

120 See Monitoring report on the implementation of the CACM Regulation and the FCA Regulation of 31 January 2019, summary in pages 3 and 4. 121 It should be noted that no TPA is foreseen for electricity storage. This can be justified by the still limited significance of electricity storage, and the easier availability of other flexibility options. In consequence, storage is under the electricity Directive rather treated as generation.

81

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Article 33 Access to storage “1. For the organisation of access to storage facilities and linepack when technically and/or economically necessary for providing efficient access to the system for the supply of customers, as well as for the organisation of access to ancillary services Member States may choose either or both of the procedures referred to in paragraphs 3 and 4. Those procedures shall operate in accordance with objective, transparent and non-discriminatory criteria.

Regulatory authorities where Member States have so provided, or Member States shall define and publish criteria according to which it may be determined which access regime shall be applicable to storage facilities and linepack. They shall make public, or oblige storage and transmission system operators to make public, which storage facilities, or which parts of those storage facilities, and which linepack is offered under the different procedures referred to in paragraphs 3 and 4. This obligation shall be without prejudice to the right of choice granted to Member States in the first subparagraph.

2. The provisions of paragraph 1 shall not apply to ancillary services and temporary storage that are related to LNG facilities and are necessary for the regasification process and subsequent delivery to the transmission system. 3. In the case of negotiated access, Member States or when Member States have so provided, the regulatory authorities shall take the necessary measures for natural gas undertakings and eligible customers either inside or outside the territory covered by the interconnected system to be able to negotiate access to storage facilities and linepack, when technically and/or economically necessary for providing efficient access to the system, as well as for the organisation of access to other ancillary services. The parties shall be obliged to negotiate access to storage, linepack and other ancillary services in good faith.

Contracts for access to storage, linepack and other ancillary services shall be negotiated with the relevant storage system operator or natural gas undertakings. Regulatory authorities where Member States have so provided, or Member States shall require storage system operators and natural gas undertakings to publish their main commercial conditions for the use of storage, linepack and other ancillary services by … and on an annual basis every year thereafter. When developing these conditions, storage operators and natural gas undertakings shall consult system users. 82

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati 4. In the case of regulated access, the regulatory authorities where Member States have so provided, or Member States shall take the necessary measures to give natural gas undertakings and eligible customers either inside or outside the territory covered by the interconnected system a right to access to storage, linepack and other ancillary services, on the basis of published tariffs and/or other terms and obligations for use of that storage and linepack, when technically and/or economically necessary for providing efficient access to the system, as well as for the organisation of access to other ancillary services. Regulatory authorities where Member States have so provided, or Member States shall consult system users when developing these tariffs or the methodologies for these tariffs. This right of access for eligible customers may be given by enabling them to enter into supply contracts with competing natural gas undertakings other than the owner and/or operator of the system or a related undertaking.”

The main reason for the different treatment of storage is that gas storage is not necessarily a natural monopoly. Storage may simply be considered to be one of a number of “flexibility instruments” that a gas company uses to manage fluctuating demand. Other tools include supply flexibility (while gas is basically purchased on a constant off-take basis, it is usually possible to negotiate a limited degree of flexibility), demand flexibility and line pack.122 The gas storage business itself also allows for competition, providing that the technical and geographic possibilities for companies to invest in storage facilities exist. An important precondition in this respect is the availability of fair access to the transmission network, in which case there may be numerous opportunities for companies to invest in storage and use this to support their gas business across the European network. Especially where ownership of gas storage becomes sufficiently diversified (and unbundled from supply interests), there may be less need for regulation.

3.177

The text of Article 33 gives rise to a number of points of interpretation.

3.178

First of all, for TSOs line pack and ancillary services can only be subject to regulated access. Line pack is an integral consequence of the operation of a pipeline of network (and therefore an integral part of balancing requirements). It is difficult to see how regulated access and balancing can function alongside negotiated access to line pack.

3.179

122 Gas transmission pipes can be used as temporary storage by increasing the pressure in the pipes. The higher the pressure, the more gas is held in the pipes.

83

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.180

The same holds for ancillary services which, according to the definition in the Directive, include load balancing (i.e. balancing!) and blending. These services are typically both necessary for access to the networks as well as to the effective functioning of the market and are intractably linked to the operation of the network.

3.181

Thus, access to line pack and ancillary services must, for gas transmission networks, be regulated. This is now also reflected in the Regulation on the Balancing Network Code, which states in article  43 that the offering of a line pack flexibility service must be on the basis of prior approval of the terms and conditions by the national regulatory authority. Although strictly speaking this would appear to be in contradiction to the Directive, it underscores the presumption of regulated terms and conditions to be applicable to all aspects of access to the transmission networks.

3.182

Secondly system operators are only obliged to give third party access to their storage and line pack “when technically and/or economically necessary for providing efficient access to the system for the supply of customers”. It is submitted that in practice, with the possible exception of very small scale storage sites, this qualification will permit the rejection of few if any requests for third party access. The demand for gas of most customers varies very significantly according to the time of day and, particularly for customers using gas for heating purposes, according to the time of year. Thus, suppliers generally need to supply most gas during the day, and in winter. At the same time, however, because the use of gas transmission pipelines is expensive (particularly as most of the gas that is supplied in the EU travels considerable distances from its origin), and because gas producers wish to sell gas at a steady rate to reduce exploration and production costs, gas is generally123 purchased on a relatively constant off‑take basis during the whole year. To be able to deal with the difference between supply and demand, gas suppliers therefore need storage.

3.183

A further consideration is that storage (or other flexibility instruments, if available) is often needed in order to underpin the security of supply of gas delivery contracts, for cases where access to the transmission network fails – as a form of “back-up” (for example because of technical failures or because of the nature of the network access conditions which may be based on interruptible or rather short-term contracts). 123 This is notwithstanding the fact that some production of gas can be quite flexible. In essence in those situations, the gas producer is likely to charge its customer a price which will reflect the market value of this flexibility, which will typically be based on seasonal storage.

84

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

In these circumstances, there should be a presumption that a competing gas seller will require storage and/or line pack because it is “technically and/or eco‑ nomically necessary for providing efficient access to the system for the supply of customers”.

3.184

In the gas Directive, Article 33 (1) requires Member States or the Regulatory authorities to define and publish criteria to determine which access regime is applicable to storage and line pack. In addition, the resulting regime for each (part of a) storage facility must be published. The requirement to determine and publish the criteria for the relevant access regime applies both to the question of whether access is required and which access regime (regulated or negotiated) is used.

3.185

The fact that Article 33(1) refers to storage facilities and requires Member States or regulatory authorities to create clarity as to the applicable regime per facility or part thereof resolves an old question under the second gas Directive. That directive was silent on the issue of exactly to what access needed to be given and in which way storage operators would offer flexibility services. It stated simply that operators should give access to “storage and line pack”.

3.186

The gas Regulation also provides additional guidance on these issues, as it sets out the regulatory framework for access to storage facilities in terms of the types of third-party access services to be offered, the principles of capacity allocation and congestion management as well as transparency requirements. It clearly emerges from these articles that access must be given on a facility by facility basis. Moreover, storage operators are required to offer services to storage users that comprise both bundled and unbundled products such as send-in capacity, send-out capacity and storage space, as well as firm and interruptible services, etc.

3.187

The Regulation does not give further guidance on the issue of cost reflectivity for services provided by storage operators, however; but it is submitted that the answer to this question lies with the requirement that the third party access regime chosen must “operate in accordance with objective, transparent and non‑discriminatory criteria”. Thus, the question of the precise modalities of access is left to subsidiarity, reflecting the fact that the storage access regime will probably differ somewhat between Member States, due in particular to the differences in storage availability. This is also reflected in the interpretative note of the European Commission in which it is stated:

3.188

85

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati “In practice, three different situations can be derived from Article 33 of the Gas Directive. Either access is not technically and/or economically necessary or it is, in which case access can be regulated or negotiated. The choice of access procedure is explicitly left to Member States, as the use of storage, the geological potential for storage, and the function of storage differ between Member States. Moreover, as markets integrate, the geographical scope of that market may change, as may the uses and functions of storage. Therefore, Member States should be able to adapt their rules for access to storage based on changing market circumstances. Precisely for that reason, criteria have to be published, so as to ensure that under changing market circumstances, the rules governing access to storage facilities will be adapted accordingly. Such criteria are, moreover, needed for investors in storage facilities, to give certainty as to the access regime that will be applied to them when operating a storage facility. The obligation to establish delineating criteria refers not only to the determination of the choice between the options provided in Article 33(3) or (4) of the Gas Directive. Rather, the regulatory authorities (where Member States have so provided) or the Member States are also required to define and publish criteria according to which the technical or economic necessity may be determined. (…) The criteria under Article  33(1) of the Gas Directive must be established by the regulatory authorities (where Member States have so provided) or by the Member States and they must be applied correctly. It is left to Member States to decide who (e.g., the Member State, the National Regulatory Authority [NRA], or the SSO) determines, on the basis of the published criteria, the rules governing access to a specific storage facility, but this access regime has to be made public, pursuant to Article 33(1) second subparagraph of the Gas Directive.” The above issues underline the importance that the regulator has jurisdiction in the area of storage. Article 33 is ambiguous in this respect. The Member State is responsible for choosing the regulated or negotiated access procedure, but the definition and publication of the criteria according to which the relevant access regime may be determined are left either to the Member State or the regulator. Furthermore, for negotiated access it is principally the Member State, and where the Member State has so provided the regulator, which is responsible for ensuring that customers can negotiate freely with the storage system operator. In case of regulated access it is also either the Member State of the regulator (to be decided by the Member State) that may be responsible for ensuring access. Article 33 (4) on regulated access goes on to state that:

86

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati “Regulatory authorities where Member States have so provided, or Member States shall consult system users when developing these tariffs or the methodologies for these tariffs”

Hence, the regulated access regime for storage is different from regulated access to transmission networks and LNG in that there is no clear requirement on the regulator to fix or approve tariffs or the underlying methodologies on an ex-ante basis; the requirement is simply to ensure that system users are consulted.

3.189

In contrast, Article 41 (1) (n) requires Member States to give the regulator jurisdiction to monitor and review access conditions to storage, excluding tariff review where negotiated access has been defined.124 Also, regulators must monitor the correct application of the criteria determining whether a storage facility falls under negotiated or regulated access125 and they must deal with complaints. Lastly, Article 41 (8) of the Directive gives regulators the power to oblige storage system operators to modify their terms and conditions when necessary,126 excluding tariffs for storage facilities that apply negotiated access. This means that whereas the ex-ante regulation of storage tariffs may be weak and the relevant powers and responsibilities divided between Member States and regulators, the ex-post regulation of storage tariffs is unequivocally given to the regulatory authority.

3.190

Article 12 of the gas Directive requires gas companies owning storage to establish at least a separate business unit responsible for storage, the “storage system operator”. Article 15 goes further and obliges storage operators which are part of vertically integrated companies to be legally and organisationally unbundled from supply activities:

3.191

Article 15 Unbundling of transmission system owner and storage system operator “1. A transmission system owner, where an independent system operator has been appointed, and a storage system operator which are part of vertically integrated undertakings shall be independent at least in terms of their legal form, organisation and decision-making from other activities not relating to transmission, distribution and storage. 124 Article 41 (1) (n) of Directive 2009/73/EC . 125 Article (41) (1) (s). 126 Article 41 (8).

87

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

This Article shall apply only to storage facilities that are technically and/or economically necessary for providing efficient access to the system for the supply of customers pursuant to Article 33.

2. In order to ensure the independence of the transmission system owner and storage system operator referred to in paragraph 1, the following minimum criteria shall apply: (a) persons responsible for the management of the transmission system owner and storage system operator shall not participate in company structures of the integrated natural gas undertaking responsible, directly or indirectly, for the day-to-day operation of the production and supply of natural gas; (b) appropriate measures shall be taken to ensure that the professional interests of persons responsible for the management of the transmission system owner and storage system operator are taken into account in a manner that ensures that they are capable of acting independently; / (c) the storage system operator shall have effective decision-making rights, independent from the integrated natural gas undertaking, with respect to assets necessary to operate, maintain or develop the storage facilities. This shall not preclude the existence of appropriate coordination mechanisms to ensure that the economic and management supervision rights of the parent company in respect of return on assets regulated indirectly in accordance with Article  41(6) in a subsidiary are protected. In particular, this shall enable the parent company to approve the annual financial plan, or any equivalent instrument, of the storage system operator and to set global limits on the levels of indebtedness of its subsidiary. It shall not permit the parent company to give instructions regarding day-to-day operations, nor with respect to individual decisions concerning the construction or upgrading of storage facilities that do not exceed the terms of the approved financial plan, or any equivalent instrument; and (d) the transmission system owner and the storage system operator shall establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded, and ensure that observance of it is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet those objectives. An annual report, setting out the measures taken, shall be submitted by the person or body responsible for monitoring the compliance programme to the regulatory authority and shall be published. 88

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati 3. The Commission may adopt guidelines to ensure full and effective compliance of the transmission system owner and of the storage system operator with paragraph  2 of this Article. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3).”

This legal and functional unbundling requirement applies only to storage facilities which are subject to providing access in the first place, i.e., those facilities for which Member States or the regulatory authority have defined an access regime on the basis of regulated or negotiated access. By requiring legal and functional unbundling, effective access will be enhanced. This is because in the case of vertically integrated storage operators it is no longer necessary for a customer requesting the use of a storage facility to deal directly with a competitor.

3.192

Especially where the access regime is based on negotiated third party access the unbundling requirement makes it clear that – where the storage is part of a vertically integrated company – all capacity cannot simply be allocated to the integrated company and only the remainder being made available to the market. Moreover, Article 33 (1) requires that access must operate in “accordance with objective, transparent and non‑discriminatory criteria”. Thus the storage system operator must treat all customers, including the sales division of the vertically integrated company to which it belongs, in the same way, in terms of access, capacity reservation, and terms and conditions.127 If, therefore, it has congested capacity, it must make the capacity available on a non‑discriminatory basis. Similarly, the prices it charges to others must also be levied on its parent company.

3.193

5.

Transit

The first electricity and gas Directives did not cover transit, which was regulated at Community level by specific legislation, the transit Directives, adopted in 1990 (electricity) and 1991 (gas). These Directives, whilst laudable in objective, were limited in scope, simply requiring Member States to “take the necessary measures to facilitate transit” of electricity and gas, envisaging non‑discriminatory negotiated third party access. Conciliation procedures had to be established, on the basis of a body to be set up and chaired by the Commission. 127 This point is underlined in a note of the Directorate General for Energy and Transport of the European Commission on Third-party access to storage facilities, where it states at point 4 that nondiscriminatory would mean that services required from a third party would, in absolute terms and under the same circumstances, result in the same economic consequences of all parties requiring the same service.

89

3.194

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.195

3.196

3.197

3.198

3.199

The Commission set up this body, the “Committee of Experts on the Transit of Electricity and Gas between Grids”. The recommendations of this conciliation Committee were not binding on the parties. The Directives provided neither for unbundling nor for any effective regulation and had little real effect. The transit Directives were repealed in 2003 by the second electricity and gas Directives. From the implementation of these Directives, therefore, transit would, with respect to third party access, simply be considered as any other transmission service. This is logical; transit is simply the transmission of gas or electricity across the whole of a national system, rather than simply through a part of it. Thus, tariffs for transit would, like any other transmission tariff, need to be approved by a regulator either directly or on the basis of a methodology, prior to their entry into force, and be published. Whereas Article 32(1) of the second gas Directive (but not electricity) repealed the Transit Directive, it also stated that the contracts concluded under Article 3(1) of the Transit Directive should continue to be valid and implemented under the terms of that Directive. It was widely considered that, as a consequence of this provision, the terms and conditions for transmission and transit would only apply to new contracts as of the entry into force of the second gas Directive; old contracts remaining valid and unaffected by the repeal of the gas transit Directive. It was not clear, however, to precisely which contracts this provision in the second Directive applied, nor what the application of this provision to those contracts meant in practice. For example, did the level of “protection” which Article  32(1) of the Directive gave to these contracts extend to derogation from the prevalence of nondiscriminatory access (e.g., through the application of congestion management rules such as use-it-or-lose-it-rules) to the networks in the Directive? Also, it was not clear which contracts were covered by this Article, as notification of the Transit contracts was only foreseen in the Transit Directive as a procedural rule, not necessarily as a validity issue. Further, the accession of the 12 new Member States led to a question of whether similar existing contracts in these Member States would benefit from the same level of “protection”. The third gas Directive no longer has provisions regarding the continued validity and implementation of the old transit contracts, thus reducing the uncertainty regarding the scope of Article 32(1) of the second gas Directive. The provisions of the third package, notably those relating to congestion management and capacity allocation procedure, now apply in full to all transportation 90

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

capacity managed by TSOs and thus would include transportation contracts predating the Directive, i.e., without specific regard to the contracts concluded under the Transit Directive. In this respect, there is also significance in the fact that the new Regulation no longer refers to a procedure to be used in (the rare) cases where the application of congestion management rules would prove to constitute an infringement of a contract. The old Regulation (1775/2005) contained such provision in Article 5(4), which has now been dropped.

3.200

For electricity the concept of transit was never as prevalent as for gas. However, certain long-term purchase arrangements were agreed for the sale of electricity between electricity companies in different Member States in the 1990s. These agreements were often associated with blocks of capacity on specific interconnectors.

3.201

6.

Jurisprudence and Commission decisions128

6.1 VEMW and others Until 2005, ît was argued that, due to the assumption at the time of signing the contract that interconnection capacity would be available, the parties to the contract would have this capacity reserved for them as a priority user. This assumption was overturned following the judgement of the Court of Justice in case C-17/03 issued on 7 June 2005.

3.202

In 1998, The Netherlands transposed the first electricity Directive into national law. At that time the Dutch electricity system was run by SEP, a national body that ran both generation and transmission activities. All Dutch electricity companies were obliged to sell their electricity generation to SEP.

3.203

Prior to the entry into force of the first electricity Directive, SEP had concluded three major electricity purchase contracts with foreign producers, notably:

3.204

–

in 1989 with EDF for 600  MW per annum until 31 March 2002 and 750 MW per annum from 2002 until March 2009;

128 Further jurisprudence is presented in chapter 15.

91

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

–

in 1989 with Preuß en Elektra AG for 300 MW per annum up to 31 December 2005;129

–

in 1990 with Vereinigte Elektrizitätswerke Westfalen AG for the purchase of 600 MW per annum up to 31 March 2003.

3.205

It is clear that these were intended to be “import” contracts. In fact, at the time the contracts were concluded, the German and French markets were completely closed to competition. SEP could therefore not resell the electricity in Germany or France, but only import it. However, there were no back-to-back capacity reservation contracts signed for the actual import capacity on the interconnectors. At the time, this was considered unnecessary in a wholly integrated company: why should one sign contracts with oneself ? The interconnection capacity between the Netherlands and its neighbours amounted to 3200 MW. At its peak, these import contracts therefore accounted for half of the available capacity: 1600 MW (750 + 300 + 600).

3.206

As a central part of their implementation of the first Directive, in which the Netherlands took a conscious decision to follow an all-inclusive approach to market opening, the national law immediately moved to full ownership unbundling in the electricity sector. The transmission assets of SEP, including interconnectors, were therefore moved to a new state-owned company, TenneT, which remains the Dutch network operator. SEP continued in existence and retained ownership of the long-term contracts but ceased its role as “central buyer”. In addition, in the Dutch Electricity Act, an independent Regulator was established, the DTe. This body was given the responsibility to approve network access and tariff conditions, for both the domestic network and interconnectors. In particular, therefore, it had to approve the grid code, which took place in 1999. With respect to capacity on the interconnectors, the grid code reserved a maximum of almost 50% of the available capacity to SEP for the execution of its long-term contracts. In subsequent revisions of the code, this amount was reduced in line with the reduced quantities remaining under the above-mentioned contracts.

3.207

3.208

The interconnector capacity in question was scarce and valuable because the electricity prices in the Netherlands were generally higher than in neighbouring countries. The decision of the DTe was challenged in the Dutch national Courts by the association of energy and water users VEMW, the Amsterdam Power Ex129 In the year 2000, Preuß en Elektra and Bayernwerk merged to form E.ON.

92

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

change and electricity company Eneco. The national court made a reference under Article 234 of the EU Treaty to the European Court of Justice, asking it in effect whether this priority allocation of capacity was compatible with Article 86(2) of the EU Treaty and/or Article 7(5) of the first electricity Directive. The Court decided the case essentially on the basis of the first electricity Directive. Article 7(5), contained in the Article of the Directive that requires Member States to appoint a transmission operator and then defines the minimum set of competences that must be given to it, states that: Article 7(5) first electricity Directive “5. The system operator shall not discriminate between system users or classes of system users, particularly in favour of its subsidiaries or shareholders.”



The equivalent provision is contained in Article 12 (f ) of the third electricity Directive. In essence, the Court considered that the grant of priority capacity is discrimination within the meaning of Article 7(5). In reaching this conclusion it notes, at paragraph 48, that “the prohibition of discrimination, which is one of the fundamental principles of Community law, requires that comparable situations are not treated differently unless such difference in treatment is objectively justified.” The Dutch government argued that the very fact that these were “old” contracts justified this priority; in other words, that this was the necessary “objective justification” for the discrimination. The Court rejected this argument on the grounds that Article 24 of the Directive – on stranded costs – specifically catered for such situations. The relevant parts of Article 24 states the following:

Article 24 first electricity Directive “1. Those Member States in which commitments or guarantees of operation given before the entry into force of this Directive may not be honoured on account of the provisions of this Directive may apply for a transitional regime which may be granted to them by the Commission, taking into account, among other things, the size of the system concerned, the level of interconnection of the system and the structure of its electricity industry. The Commission shall inform the Member States of those applications before it takes a decision, taking into account respect for confidentiality. This decision shall be published in the Official Journal of the European Communities. 93

3.209

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati 2. The transitional regime shall be of limited duration and shall be linked to expiry of the commitments or guarantees referred to in paragraph 1. The transitional regime may cover derogations from Chapter IV, VI and VII of this Directive. Applications for a transitional regime must be notified to the Commission no later than one year after the entry into force of this Directive.”

3.210

3.211

3.212

This provision enabled Member States, subject to the agreement of the Commission, to derogate from the requirements of the Directive in order to take account of old commitments made to companies prior to liberalisation that could no longer be upheld under the new rules established by the first Directive. In fact at least 10 Member States made use of Article 24, usually through the grant of state aid to national electricity companies to cover the cost of running inefficient electricity plants that would not be competitive in a liberalised market. In essence, the Court therefore stated that Article  7  (5) simply required that interconnection capacity be allocated in a non-discriminatory manner and that the actual priority allocation was discriminatory in nature. Any arguments that this discrimination could be objectively justified due to legitimate expectations were rejected on the grounds that Article 24 provided a specific mechanism for dealing with such issues. No such application had been made to cover the priority allocation and therefore no discriminatory allocation could be accepted. As the second electricity Directive contained no equivalent provision to Article 24 on stranded costs, it was then too late to make such an application. A number of additional arguments, linked to legal certainty and legitimate expectations were also rejected by the Court, noting in particular in paragraph 78 of its judgement that the Community institutions had always been clear that they considered that liberalisation was an ongoing process which had not necessarily been completed by the first Directive. It concluded: “It cannot therefore be argued that the Community institutions created well-founded expectations on the part of the SEP that a monopoly for the importation of electricity into the Netherlands would be maintained or that the SEP would be allowed to enjoy a preferential right to use the network for the cross-border transmission of electricity until the expiry of the international contracts which had been entered into.”

3.213

The Court’s conclusion that priority capacity reservations are not acceptable would still seem to be valid even though the stranded costs provision of Article 24 is no longer part of the electricity Directive. To the extent that electricity suppli94

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

ers can still make a claim that liberalisation has affected their acquired rights, for example in the case of new Member States, they could potentially ask for state aid to compensate. However, as in the early stages of electricity market liberalisation, such state aid would be subject to the European state aid rules. Following the Court judgement, the Commission services published an interpretative note.130 This note covers two principal issues (i) the future validity of priority allocation of transport capacities and (ii) the applicability of the judgement to gas contracts.

3.214

In addition to these two issues, three further issues are considered below: (iii) Does the judgement also apply to interconnectors located at the EU’s border (and notably Switzerland)? (iv) Could a Member State defend priority capacity rights on the basis of public service objectives? and (v) Can long-term capacity reservations be concluded following the judgement?

3.215

(i)

The future validity of priority allocation of transport capacities.

The interpretative note of the Commission’s Services reaches a very clear conclusion on this issue:

3.216

“As a consequence, the grant to an undertaking of preferential transmission or distribution capacities must be considered as being discriminatory and is precluded by Directive 2003/54/EC and Regulation (EC) No 1228/3003.”

As no further derogations can be made under the stranded cost provisions of the first Directive, such preferential allocations are therefore illegal and must be abandoned. As the Interpretative Note states at paragraph 7, this does not mean that long-term supply agreements are illegal (they need, however, to be considered under the EU competition rules),131 but they cannot result in the grant of priority capacity rights.

3.217

In the case before the Court, there was in fact no formal capacity reservation contract. It could be argued that even if in parallel to supply contracts with the foreign suppliers, a back-to-back transmission agreement had been concluded between the sales arm of SEP and its transmission side, the Court would have arrived at the same conclusion. Otherwise, it would mean that the legal assess-

3.218

130 Note on preferential access to transport network following the decision  C-17/03 of 7 June 2005 of the Court of Justice; SEC(2006) 547, 26.04.2006.. 131 See Article 37 (1) (l) of the electricity Directive and Article 41 (1) (l) of the gas Directive.

95

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

ment of the capacity reservation would depend on the structure of the national electricity industry. If, for example, a separate transmission company had existed at the time of the contract, such a back-to-back transmission contract would have been concluded. In these cases, the situation differs from the case under discussion in so far as the discrimination took place in the past (when allocating the long-term capacities) and not in the present (when formalizing the implicit capacities). However, the impact is in both cases similar, allowing formerly vertically integrated undertakings to benefit from advantageous capacity allocation.

3.219

3.220

Following the Court judgement, the preferential capacity reservation of crossborder lines had to be abandoned. Subsequently, the Commission opened proceedings against eight Member States for maintaining such preferential arrangements. Following the reasoned opinions on 12 December 2006, this issue could be settled with the Member States concerned. (ii) Applicability of the judgement to gas contracts. There are many differences between the gas and electricity industries in this respect: –

long-term supply contracts with foreign companies form the basis of the gas business in almost all Member States;

–

the transit rights accompanying these import contracts are fundamental for their execution. Indeed, the contracts are in most cases specifically import contracts, usually with an obligation to import the gas into the destination country and, in the past, with an obligation not to re-export132.

–

Recital 42 of the third gas Directive states that “long-term contracts will continue to be an important part of the gas supply of Member States and should be maintained as an option for gas supply undertakings in so far as they do not undermine the objectives of this Directive and are compatible with the Treaty, including competition rules. It is therefore necessary to take them into account in the planning of supply and transportation capacity of gas undertakings.”

–

Article 32 (3) of the third gas Directive states that “the provisions of this Directive shall not prevent the conclusion of long-term contracts in so far as they comply with Community competition rules.”

132 The re-export obligation turns this into a destination clause, objected to by the Commission.

96

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Notwithstanding these differences, the Interpretative Note of the Commission services concludes on this point that “in substance and spirit, the Court ruling is therefore applicable to the grant of preferential transmission and distribution capacities of natural gas.” The third gas Directive has reinforced this interpretation by deleting Article 32(1) of the second gas Directive which defined an exemption for transit contracts that were concluded and implemented under the terms of the first gas Directive. To conclude, in spite of the greater importance of long-term supply contracts in the gas industry, the existence of such long-term contracts does not justify the automatic grant of priority capacity rights to the gas companies concerned. Where the renewal of a capacity contract takes place in the event of congestion, the gas company concerned will therefore have to acquire the respective capacity on the basis of a non-discriminatory market-based mechanism. If capacity is scarce, this means that the gas supplier may well have to pay a higher price for the capacity than originally expected.

3.221

3.222

(iii) Application of the judgement to interconnectors located at the EU’s border (and notably Switzerland). Article 2 (13) of the electricity Directive defines interconnectors as “equipment used to link electricity systems”. As the Directive covers the whole of the Community territory, there seems to be no reason why the judgement should not also apply to capacities allocated by EU regulatory authorities (or rather TSOs subject to their regulatory oversight) on interconnectors with non-EU countries, such as Switzerland.133 With respect to the part of the interconnector capacity located outside the Community territory, the Directive does not apply (notwithstanding the possibility to apply similar requirements, especially pursuant to intergovernmental agreements).

3.223

It would, however, be clearly inefficient and distortive if a different approach were taken by neighbouring countries in so far as they are closely linked to the EU’s internal energy market. Any such discrepancies would give rise to important issues of reciprocity to be solved in bilateral agreements. The ongoing negotiations between the Community and Switzerland indeed address the issue of long-term capacity reservation on interconnectors.

3.224

133 In view of the definition of interconnector in Article 2 (17) of the third gas Directive which makes reference to the borders of Member States, the application of the gas Directive at external borders of the EU remains a more complex issue than in electricity.

97

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

(iv) Could a Member State defend priority capacity rights on the basis of public service objectives?

3.225

Article 3(2) of the gas and electricity Directives essentially permit a Member State to derogate from some of the key requirements of the Directives where (i) this is absolutely necessary to achieve a legitimate public service requirement and (ii) the measures in question are the least distortive of trade and competition reasonably necessary to achieve the objectives in question. Article 3(2) lists the public service objectives which might be relied upon in this context, which includes both “security, including security of supply”, regularity” and “quality and price of supplies”. Moreover, the third electricity and gas Directives have added the objective of “environmental protection, including energy efficiency, energy from renewable sources and climate protection.”

3.226

Against this background, it appears not impossible that public service obligations may relate to capacity allocation. However, Article 3 (10) of the gas Directive provides only for a single provision (Article 4 on Authorisation Procedures) from which Member States may deviate insofar as its application would obstruct obligations imposed in the general economic interest. Contrary to Article 3 (14) of the electricity Directive, a deviation from the obligations under Article 32 on third-party access is thus not foreseen in the gas Directive. Thus, at least for the gas Directive, public service obligations do not allow for the allocation of priority capacity rights.

3.227

(v) Can long-term capacity reservations be concluded following the judgement? The judgement does not prohibit such reservation agreements; only those that result in discrimination. Thus, if, following the introduction of competition, the transmission system operator offers capacity on a long-term basis, but in a nondiscriminatory manner (i.e. through an auction approved by the national regulator) the resultant priority will, subject to competition policy requirements, be valid.

6.2 Citiworks134 3.228

On 22  May 2008, the European Court of Justice issued a preliminary ruling stressing the crucial importance of the principle of third-party access in the electricity Directive.135 134 Case C-439/06 Citiworks [2008]. 135 Article 20(1) in the second electricity Directive, corresponding to Article 32(1) in the third Directive.

98

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

The case referred to the Court of Justice for preliminary ruling concerned a provision in the German Energy Law (‘Energiewirtschaftsgesetz’) which transposed the second electricity Directive into national law. The law included a provision allowing regulatory authorities to classify local electricity networks as a ‘site network’ (‘Objektnetz’) and thus to exempt them from the application of large parts of the law, in particular from the obligation on operators of such site networks to grant anyone access to their system without discrimination. Paragraph 110 (1) of the German Energy Law provides for three alternative definitions of ‘site networks’. The definition most commonly applied and the one contested in the present case laid down the conditions under which the status of “site network” could be obtained, notably “ located on a geographically con‑ nected operation zone and predominantly serving to supply the energy needs of the undertaking itself or of connected undertakings”.

3.229

The Court case was triggered by the German electricity supplier Citiworks. Since 2004, Citiworks supplied electricity to a customer on the Leipzig/Halle airport. The airport maintains its own electricity network with which it meets its own electricity requirements and those of 93 other undertakings established on the airport site. During 2004, the system supplied in total approximately 22,200 MWh, of which 85.4% was used by the airport company itself. The airport applied to be classified as a site network. By decision of 12 July 2006, the regulatory authority granted the airport’s application. Citiworks, which would be henceforth unable to supply its customer in the airport because it no longer had the right to third party access to the network, appealed against that finding to a national court which referred the following question to the Court of Justice for preliminary ruling:

3.230

“Is the first point of Paragraph  110 (1) of the [German Energy Law] compatible with Article 20(1) of Directive 2003/54/EC … inasmuch as, in accordance with the conditions laid down in the first point of Paragraph 110 (1) …, a so-called ‘operation network’ is exempted from the general provisions on system access … even where such system access would not impose an unreasonable burden?”

The Court of Justice, firstly, found that the airport electricity network in question could indeed be classified as an electricity distribution system within the meaning of the electricity Directive. The Directive did not intend to exclude particular transmission or distribution systems from the scope of its application by reason of their size or consumption of electricity. Rather, the purpose of transporting electricity to supply customers was the decisive criterion.

99

3.231

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.232

Secondly, the Court went on to investigate under which circumstances such a distribution system could possibly be exempted from regulated third party access or, in other words, how a provision such as the first point of Paragraph 110 (1) of the German Energy Law could come within the scope of any exemptions or derogations of the electricity Directive.

3.233

While the Directive regards lack of necessary capacity as a potentially valid reason for a network operator to refuse third party access, the provision in question could not be justified on such grounds because it was general in nature and not based on a case-by-case assessment. This view was in fact already expressed by the national Court which, in the preliminary ruling question, described the exemption as applying ‘even where such system access would not impose an unreasonable burden’. The fact that Citiworks already supplied a customer on the airport, moreover, seemed to show that there was no technical incapacity of the system to allow for third party access.

3.234

The Court also investigated whether the general exemption for site networks could be justified by public service requirements on the network operators according to Article 3(8) of the Directive or under the exemption for ‘small isolated systems’.136 The Court, however, concluded that none of the two provisions were applicable in the present case.

3.235

The Court of Justice finally concluded that the first point of Paragraph 110 (1) of the German Energy Law on site networks was incompatible with the third party access rule of the electricity Directive. The widespread use of such derogations in Germany exempting hundreds of local distribution networks from the fundamental principle of third-party access became therefore illegal. The Court’s judgement in this case gives rise to some comments. Firstly, the Court has stressed the utmost importance of the third party access principle in the energy legislation. This core principle may be restricted only in very few, clearly defined circumstances. Any derogation for distribution systems such as the limited derogation for ‘closed distribution systems’ in Article 28 of the third electricity Directive thus has to preserve the general principle of third-party access. Secondly, the Court defended a broad definition of what constitutes a relevant electricity system. A small size or electricity consumption of a network can as such not limit the application of the Directive. For regulatory authorities this raises the question how to deal with the regulation of small networks with-

3.236

136 The derogations for small isolated systems are included in Article 26(1) of the second and Article 44(1) of the third electricity Directive.

100

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

out imposing a disproportionate burden on the operators of such networks. The limited derogation for ‘closed distribution systems’ may at least give part of the answer to this question.

6.3 Sabatauskas137 On 9 October 2008, the European Court of Justice issued a preliminary ruling which further clarified the fundamental principle of third-party access. The case referred to the Court of Justice for preliminary ruling concerned the Lithuanian Law on Electricity which transposed the second electricity Directive into national law. The law included a provision allowing customers to connect to the transmission system only if the local DSO refused to grant access to its distribution system for technical or operational reasons. The aim of the provision was to prevent large consumers from directly connecting to the transmission grid, thus avoiding distribution fees. The Lithuanian Law stipulates as follows: “A customer’s equipment may be connected to a transmission network only in cases where the distribution network operator refuses, on account of established technical or operating requirements, to connect to the distribution network the equipment of the customer which is on the territory indicated in the distribution network operator’s licence.”

3.237

Some Lithuanian Members of Parliament including Mr Sabatauskas brought a complaint before a national court claiming that this provision failed to ensure the customers’ freedom to choose between having a connection with a transmission or distribution system for the purpose of ensuring supply. They argued that Article 20 of the second Directive on third-party access (corresponding to Article 32 in the third Directive) did not expressly restrict the ability of an electricity customer to connect its equipment to a transmission system nor did it oblige it to connect only to a distribution system. As a background, it should be noted that in Lithuania six industrial undertakings were connected directly to transmission systems. These connections dated from the Soviet era when no distinction was made between the generation, transmission and distribution of electricity.

3.238

The national court referred the following question to the Court of Justice for preliminary ruling (par. 20):

3.239

137 Case C-239/07 Sabatauskas [2008].

101

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati “Is Article 20 of [the] Directive … to be interpreted as obliging Member States to establish legal rules whereby any third party has the right, at his discretion, provided that the electricity system has ‘the necessary capacity’, to choose the system – electricity transmission system or electricity distribution system – to which he wishes to be connected and the operator of that system has an obligation to grant access to the network?”

3.240

The Court of Justice found that the electricity Directive distinguishes between the terms ‘access’ and ‘connection’. The term ‘access’ is linked to the supply of electricity, including inter alia the quality, regularity and cost of the service and is often used in the context of guaranteeing non‑discrimi­natory tariffs. In contrast, the term ‘connection’ is used, in particular, in a technical context and relates to physical connection to the system. Thus, the Court concluded that ‘access’ to the system includes the right to use electricity systems in general while ‘connection’ corresponds to physical connection to the system. Article  20 of the Directive imposes obligations on Member States only in respect of access to the system and not in respect of connection thereto. The customers’ freedom to choose supplier as required by the Directive can be guaranteed whether the supplier connects them to a transmission or to a distribution system.

3.241

The Court of Justice deducted from the above that the decision on the physical connection to the system is in principle a matter of subsidiarity as long as the general access to the system is ensured. Member States thus retain a certain degree of flexibility in steering customers towards one or another type of system, provided, however, that they do so for non-discriminatory reasons and in accordance with objective considerations. In other words, customers have a right of access to the electricity system but Member States may decide that the connection is to be made on one or another type of system. The criteria chosen by Member States to connect to either system, however, need to be objective and non-discriminatory (and respect the powers of the regulatory authority under Artilce 37 (6) a) of the Directive).

3.242

The Court of Justice concluded that the third party access principle of the electricity Directive is to be interpreted as defining the Member States obligations only in respect of the access and not the connection of third parties to the electricity transmission and distribution systems. It does not therefore lay down that the system of network access that the Member States are required to establish must allow an eligible customer to choose, at its discretion, the type of system to which it wishes to connect.

102

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

While the Court’s reasoning is essentially based on a strict interpretation of the wording of the electricity Directive, the outcome is also reasonable from an economic point of view. Firstly, the electricity networks, whether transmission or distribution, are natural monopolies in their respective areas and it would be illogical to attempt to introduce competition between them. The efficient operation and tariff setting of these networks is a matter for the national regulatory authorities and cannot be ensured by network competition. Secondly, allowing large industrial customers to connect directly to the transmission network could undermine the financing of the distribution network and would, in practice, leave a larger financial burden on households and smaller industrial customers which could not possibly connect to the transmission network. In the Court proceedings, the Lithuanian Government had brought forward that the price of electricity could rise by between 10% and 30% if only small customers were to pay for the distribution network. This type of behaviour on the part of large customers could be described as “cherry-picking” or as “snowball effect” if imitated by other large customers. The regulatory and economic risk of such behaviour is also apparent in exemptions for “direct lines” and will be discussed further in this context.

3.243

6.4 Swedish Interconnectors138 On 14 April 2010 the European Commission has adopted a decision regarding third party access to interconnectors based on a potential violation of Article 102 of the Treaty on the Functioning of the European Union (TFEU) which prohibits the abuse of a dominant position which may affect trade within the EU’s Single Market and prevent or restrict competition. Such a decision does not reach a conclusion on whether EU antitrust rules have been infringed but legally binds the company to respect the commitments.

3.244

Based on Article 9 of the EU’s Antitrust Regulation (Regulation 1/2003) allowing the Commission to conclude antitrust proceedings by accepting commitments offered by a company, it rendered legally binding commitments offered by the Swedish TSO, Svenska Kraftnät (SvK) in order to increase trade in electricity within Sweden and between Sweden and neighbouring countries. The aim of the decision was to ensure a fair treatment of network users and better allocation of resources contributing ultimately, to lower prices for customers and end consumers. SvK offered the commitments as the European Commission had expressed concerns that SvK may be abusing its dominant market position in the Swedish electricity transmission market by reducing the amount of

3.245

138 Case 39,351 – Swedish Interconnectors (2010).

103

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

export capacity on the interconnectors between Sweden and neighbouring EU and EEA Member States, thus, by discriminating between domestic and export electricity transmission services and segmenting the Single Market. (Article 102 TFEU). SvK committed to no longer limit cross-border trading, instead allowing electricity flows to adjust to transmission capacity through market prices.

3.246

As a further commitment, SvK offered to split the Swedish electricity market into several bidding zones. Defining the bidding zones based on structural congestion within the Swedish electricity system would allow electricity trading to adjust to effectively available transmission capacity through market prices, rather than through arbitrary curtailment measures at the bidding zone borders. In addition, the configuration of the zones would be flexible as they could adapt quickly to changes in future electricity flow patterns in the Swedish transmission system. With these measures, SvK is managing congestion in the Swedish transmission system without limiting trading capacity on interconnectors.

3.247

There was one exception to this system, i.e. congestion in the West-Coast-Corridor, due to specific technical constraints in the area concerned limiting the possibility of electricity trading with southern Norway and Denmark. SvK offered to alleviate congestion in the West-Coast-Corridor by building and operating a new transmission line in the area by 30 November 2011, at the latest. Transmission lines are currently still in the building phase in this area and planned to be operational in 2023.139

3.248

This decision was a first of its kind and of high importance about the interpretation of third-party access to cross-zonal capacities, definition of bidding zones and measures needed to alleviate internal structural congestions in a fair and non-discriminatory way. The European Commission raised similar concerns in its second and recent case on the German Danish interconnector as described below.

6.5 DE/DK Interconnector140 3.249

The European Commission opened a formal investigation on 19 March 2018 against TenneT TSO GmbH (TenneT) which is the largest of the four electricity TSOs in Germany. The Commission was concerned that TenneT infringed EU antitrust rules by systematically limiting cross-zonal capacity at the electricity interconnector between Western Denmark and Germany. The European 139 See in particular the Skogssäter – Stenkullen project by SvK. 140 Case AT.40461 – DE/DK Interconnector [2018].

104

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Commission had concerns that TenneT discriminated against non-German electricity producers as this conduct prevented the export of cheap electricity from the Nordic countries, which is mainly produced from renewable energy sources (mostly wind and hydro) into Germany. This led to less competition between electricity producers on the German wholesale market and therefore higher electricity prices. Following the opening of the investigation and based on the process of article 9 of Regulation 1/2003 on 7 December 2018 the European Commission adopted a decision rendering legally binding commitments offered by TenneT to significantly increase cross-border flows of electricity between Denmark and Germany.

3.250

The commitments, which will remain in force for nine years, included the following:

3.251

–

TenneT offered to make available to the market the maximum capacity respecting the safe operation of the interconnector; and

–

in any case, to offer a minimum hourly capacity of 1300 megawatts on the interconnector which is approximately 75% of its technical capacity. TenneT had six months to implement this minimum guaranteed hourly capacity.

The commitments also included a timeline for increasing the offered capacities following plans for extension of the interconnector between Western Denmark and Germany in 2020 and 2022.141 The increased capacity will reach a guaranteed hourly capacity of 2,625 megawatts by 1 January 2026. Only under strict conditions and as a last resort solution, TenneT can reduce the capacity offered below the minimum guaranteed level.

3.252

The investigation into TenneT complements the Commission’s efforts to address the systematic limitation of cross border capacity on electricity interconnectors across the EU. The Commission has proposed to update the Electricity Regulation as part of the ‘Clean Energy for All Europeans’ package, which is currently being discussed by the EU’s Council of Ministers and the European Parliament. Among other things, the proposal aims to improve EU rules on cross-border capacity in order to maximise the capacity made available and to ensure that TSOs do not unduly limit the volume of cross-border capacity.

3.253

141 The East Coast Line and the West Coast Line projects respectively.

105

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.254

This decision, similarly to the Swedish interconnector’s case, impose binding obligations on TenneT to increase capacity on the electricity interconnector between Denmark and Germany to allow more electricity producers to access the German wholesale market. On top of competition law concerns, this case had a relevance from the internal energy market perspective. Already Regulation 714/2009 and the network codes in place, in particular CACM Regulation, required that TSOs calculate cross-zonal capacities in a coordinated manner and offer to the market maximum available capacities. These rules allowed curtailments only as a last resort solution and only if other market-based solutions were not available. Therefore, such behaviour, had it been confirmed, would be contrary to the creation of an integrated Energy Union where energy flows freely across borders with no restrictions to competition and the best possible use of resources.

3.255

This decision is, hence, fully in line with the goals of creating a more competitive and integrated European energy market in which participation is taking place without discrimination between cross-zonal trading and trading within a bidding zone. It is also in line with the new Electricity Regulation which contains concrete thresholds for TSOs to offer 75% of the cross-zonal capacities to the market under certain conditions while deviations therefrom are allowed only under specific reasons and with regulatory supervision.

7.

Direct lines

7.1 Direct lines electricity 3.256

The electricity and gas Directives provide for the possibility for an electricity or gas supply company or, in the case of very large consumers, an eligible customer, to construct a direct line. The relevant provisions are laid down in Article 7 of electricity Directive and Article 38 (gas).

3.257

The text differs slightly between electricity and gas, and they will therefore be considered separately.

3.258

A “direct line” in electricity Directive is defined as either an electricity line linking an isolated generation site with an isolated customer or an electricity line linking a producer and an electricity supply undertaking to supply directly their own premises, subsidiaries and customers.

106

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

Article 7 of the electricity Directive defines the rights and obligations of Member States as follows:

3.259

Article 7 of Electricity Directive Direct lines “1. Member States shall take the measures necessary to enable: (a) all producers and electricity supply undertakings established within their territory to supply their own premises, subsidiaries and customers through a direct line, without being subject to disproportionate administrative procedures or costs; (b) all customers within their territory, individually or jointly, to be supplied through a direct line by producers and electricity supply undertakings. 2. Member States shall lay down the criteria for the grant of authorisations for the construction of direct lines in their territory. Those criteria shall be objective and non-discriminatory. 3. The possibility of supplying electricity through a direct line as referred to in paragraph 1 of this Article shall not affect the possibility of contracting electricity in accordance with Article 6. 4. Member States may issue authorisations to construct a direct line, subject either to the refusal of system access on the basis, as appropriate, of Article 6 or to the opening of a dispute settlement procedure under Article 60. 5. Member States may refuse to authorise a direct line if the granting of such an authorisation would obstruct the application of the provisions on public service obligations in Article 9. Duly substantiated reasons shall be given for such a refusal.”

Article 7(1) is rather self-explanatory. It establishes the principle that any party may be supplied by a direct line. The remainder of the Article goes on, however, to qualify this principle. Not many changes took place on this text with the new Electricity Directive. The small adaptations refer rather to the reflection of the principle that persons affected undertakings are not subject to disproportionate administrative procedures and costs as well as the deletion of the work “eligible” as all customers are considered as eligible customers since 1 July 2007.142 142 Article 33(1)(c) of Directive 2009/72/EC.

107

3.260

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.261

It is clear from Article  7 (2) that when implementing the Directive, Member States must ensure that the authorisation criteria relevant to the construction of a direct line (usually environmental planning rules) are laid down and published. It is not sufficient that a set of rules is drawn up only when an undertaking applies to build a direct line; they must be established and transparent when the Directive becomes applicable.

3.262

Article 7(3) makes it clear that the fact that a company constructs a direct line in no way prevents it from also having access to the main grid, under the normal third party access rules. This gives rise to the question whether the direct line should be considered to be part of the transmission or distribution network, and third-party access applied to it. Such lines would clearly constitute transmission or distribution lines; they are used for the transmission or distribution of electricity. The rules on third-party access (appointment of TSOs/DSOs, unbundling, third party access) apply to transmission and distribution systems. Articles 2(40) and 2(41) provide definitions for the terms “interconnected system” and “direct line”, but these definitions do not provide a clear answer to this question as the term “direct lines” are not defined as being part of the distribution or transmission system. However, given that the existence of a large number of direct lines could prejudice the effective functioning of the internal market if they were closed to third party access, a direct line should be viewed as a transmission or distribution system and thus open to third party access. Given the general importance of ensuring third party access to all parts of the electricity network, it is therefore necessary to interpret this Article in the light of the objectives and spirit of the Electricity Directive. Where a company constructs a direct electricity line it is submitted that it will therefore have to comply with the provisions of the Electricity Directive on TSOs and DSOs, unbundling and regulated third party access.

3.263

Article  7(4) provides a major limitation to the right of undertakings to construct a direct line. Many tarification systems at transmission and distribution level involve cross-subsidisation from customers located in major population centres towards those located in remote areas. This occurs when postage stamp tariff systems are implemented where all customers are charged the same transmission fee irrespective of the cost they incur to the network company. This approach may be taken for a number of reasons: –

economic; it makes no sense to implement distance-related charges in an enmeshed electricity network;

108

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

–

social; ensuring that the price of electricity is largely the same throughout the territory; and

–

to encourage the introduction of countrywide competition.

For these reasons a Member State may wish to discourage direct lines. If a large company or industrial site is situated close to a power station or a neighbouring country, it may well be cheaper to construct a direct line than to use the standard postage stamp transmission tariff. By building a direct line one can avoid participating in the cross subsidies inherent in such a tariff system. However, to permit the construction of the direct line in such circumstances would artificially benefit a small class of customers, those wishing to build a direct line, meaning that if the single tariff were to continue, the remaining customers would have to pay higher tariffs. This could lead to a snowball effect, forcing the country to abandon its postage stamp tariff policy. An alternative, less laudable and unacceptable, motivation for not wishing to permit the construction of direct lines is to protect a rather inefficient domestic transmission or distribution company.

3.264

Article 7(4) permits Member States to refuse permission to construct a direct line unless the company wishing to build it has requested access to the main grid to transport the electricity for which it intends to construct the line and that access has been refused on the grounds of a lack of capacity. The fact that a company considers that the tariffs are too high or that it could save money by building the line is not relevant. This is particularly the case given the fact that since the entry into force of the second Directives tariffs or tariff methodologies must in any event be approved by the regulator. This provision should ensure that TSOs cannot charge ‘abusive’ tariff fees.

3.265

According to Article 7(4), a Member State may also choose to grant permission to construct subject to the “opening of a dispute settlement procedure under Arti‑ cle 60”. The term dispute settlement procedure dates back to the first electricity and gas Directives when Member States were not yet obliged to establish regulatory authorities.143 Since the second Directives, system users have a real right to complain to the regulator regarding tariffs, conditions, etc. set by transmission or distribution companies. Thus, the term dispute settlement procedure now refers to Article 360 (2) of the electricity Directive and 41 (11) of the gas Directive i.e. a complaint made to the regulatory authority which acts as “dispute settlement” authority.

3.266

143 See Article 23 (3), first electricity Directive.

109

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

3.267

It is interesting that Member States may make the grant of authorisation to construct subject to the “opening” of a dispute settlement procedure, and not the closure of the procedure with a finding in favour of the complainant. Nonetheless, the wording is clear and unequivocal, and if Member States choose this approach, it will suffice to lodge a well-founded complaint with the regulatory authority regarding tariffs or access conditions, and the right to build a direct line must then be granted. However, it is unlikely that Member States wishing to limit the construction of direct lines will go down this route; they will rather make construction subject to a refusal of system access due to lack of capacity. Article 34 (4) is clear that Member States may choose between these two options.

3.268

Where Member States chooses the option of granting permission to build a direct line subject to the existence of a prior refusal of network access, the question arises whether they may also limit an authorisation to construct to cases where the transmission or distribution system refuses to remedy the capacity constraint within a reasonable period.144 Whilst this would not be an ­unreasonable extension of the possibilities given to Member States by Article 7, the text of the Directive makes no provision for such a limitation. Thus, it is not open to a Member State to do so, unless it relies on Article 7 (5).

3.269

Article 7 (5) extends the possibility for Member States to refuse the authorisation to construct a new direct line to reasons connected to public service tasks, i.e. “security, including security of supply, regularity, quality and price of supplies and environmental protection, including energy efficiency, energy from renewable sources and climate protection.” It can be argued that the underlying reason for refusing an authorisation for a direct line on the grounds of a public service is similar to the more general reasoning mentioned above, namely that the extensive authorisation of direct lines would undermine the general network tariffs for those customers remaining inside the postage stamp system. However, this paragraph could be used to reinforce the possibility to refuse permission to construct a direct line unless the TSO/DSO refuses to resolve capacity constraints in a reasonable time, and in a manner accepted by the regulatory authority. In any event, any such limitation must be notified to the Commission which will determine whether the approach taken is justified i.e. that it is the least restrictive approach of trade and competition reasonably necessary to achieve the legitimate objectives in question.

144 For example, according to a timetable considered reasonable by the regulatory authority.

110

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

It remains to be seen whether the extended justification for defining public service obligations in Article 9(2) to ‘environmental protection’ will have an indirect impact on the authorisation procedure for direct lines in so far as it adds another potential reason to refuse such authorisation. For the time being, it would seem that Article 7(5) adds in practice little to the preceding paragraphs, which already provide considerable room for manoeuvre for Member States to limit the construction of direct lines.

3.270

7.2 Direct lines gas 3.271

With respect to gas, Article 38 states: Article 38 gas “1. Member States shall take the necessary measures to enable: (a) natural gas undertakings established within their territory to supply the eligible customers through a direct line; (b) any such eligible customer within their territory to be supplied through a direct line by natural gas undertakings. 2. In circumstances where an authorisation (e.g. licence, permission, concession, consent or approval) is required for the construction or operation of direct lines, the Member States or any competent authority they designate shall lay down the criteria for the grant of authorisations for the construction or operation of such lines in their territory. These criteria shall be objective, transparent and non-discriminatory. 3. Member States may make authorisations to construct a direct line subject either to the refusal of system access on the basis of Article 35 or to the opening of a dispute settlement procedure under Article 41.”

This may be interpreted in the same manner as with respect to electricity, subject to the qualification that this Article omits the text contained in: –

Article 34 (3) of the electricity Directive on the right to third party access even when a direct line is constructed, and

111

3.272

Chapter 3 Network regulation and third party access Floris Gräper & Christof Schoser – revised and updated by Floris Gräper and Markela Stamati

–

3.273

3.274

3.275

Article 34 (5) of the electricity Directive on the possibility to refuse the construction of a direct line on public service grounds.

This is probably a reflection of the fact that it is more difficult to find valid arguments in favour of limiting direct lines for gas than electricity, at least at transmission level. In most cases, tariff mechanisms for gas are not fully postage stamp in nature and the main legitimate reason for refusing permission to construct direct lines is therefore less evident for gas than electricity. However, at local or distribution level, tariff systems may contain significant postage stamp elements, which, depending on the factual situation, may also exceptionally be present at national level (in the case of very small Member States). In certain circumstances, therefore, a Member State may wish to limit the right to build direct lines. It might also be considered necessary to do so to protect the “unity of the network”, because the proliferation of direct lines would, over time, make third party access and the development of effective competition more difficult and complicated. In any event, Member States retain the right to limit authorisation to construct a direct line to situations where there is a refusal of access due to lack of capacity, or, if a Member State chooses this option, a valid complaint regarding access conditions is lodged with the regulator. Unlike with respect to electricity, however, because the gas Directive omits the text of Article  34(5) of the electricity Directive, there are no grounds for extending the reasons for a refusal for authorisation to cover cases where a TSOs or DSOs refuses grid access because of congestion, but agrees to carry out the necessary extension of capacity. Thus, the omission of the text of Article 34(5) of the electricity Directive with respect to gas does have a substantive effect. However, the standard provisions of the gas Directive remain applicable when a direct line is constructed, even in the absence of explicit provisions to this effect. Indeed, as set out above, third party access should also be applicable to the direct line as well.

112

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Chapter 4 Unbundling of Transmission System Operators145

1.

Introduction

1.1 The need for unbundling Without non‑discriminatory access to the electricity and gas transmission and distribution networks, competition in these sectors is impossible. In Europe, many of these networks are, or have historically been, owned by vertically integrated companies responsible for generation, transmission, distribution and supply. Such vertically integrated companies have the incentive, as well as the means, to discriminate against their competitors regarding access to their transmission and/or distribution networks. This is exacerbated by the fact that electricity and gas transmission infrastructure is a so-called essential facility, i.e., it is indispensable for the provision of electricity and gas and can only be duplicated at great cost.

4.1

A vertically integrated undertaking There are various methods that can be used to prevent competitors from obtaining fair access to these networks. Obvious discriminatory methods aside, such companies may overtly refuse to give access to networks or charge higher prices to competitors than to their own vertically integrated company for equivalent services, using more subtle means. Examples of this include: –

manipulating tariff categories so that while the same tariffs appear to be applied to all parties, in practice, the vertically integrated company’s subsidiaries pay cheaper tariffs than its competitors;

145 We are grateful to Charles Clarke for his research assistance.

113

4.2

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

–

preferential allocation of scarce capacity to the vertically integrated company (e.g., on a “first‑come‑first‑served” basis). The vertically integrated company will have prior warning and will therefore always be the first applicant;

–

making it difficult for final customers to switch from a vertically integrated supplier, for example, by implementing onerous or expensive procedures, such as an obligation to install a new meter, or to complete timeconsuming and burdensome administrative procedures; and

–

manipulating capacity availability so that lines required by competitors are “congested”.

4.3

In addition, a vertically integrated company might cross‑subsidise its generation and supply activities by using profits from its transmission and distribution activities. Demand elasticity for access to transmission and distribution grids is very low, particularly in the short to medium term, meaning that transmission and distribution companies are able to charge prices for network access which exceed costs by a large margin, without significantly reducing the demand for network (i.e., transmission and distribution) services. As the group to which the vertically integrated network business belongs receives the profits from network fees, high access tariffs combined with lower sales prices would not impact the group’s profitability, but would deter entry by new competitors.

4.4

Finally, the existence of vertically integrated companies also gives rise to discrimination in relation to the provision of commercially important information. First, network operators hold information of considerable commercial importance to electricity generators and sellers, notably information regarding maintenance programmes for major generation plants and load forecasts, expected levels of congestion, and the timing of congestion alleviating measures. If the vertically integrated company were to make such information available only to its own generation and sales departments, or provide it to them earlier than to competitors, this would provide its group companies with a clear advantage. Second, a clear risk exists that a network company will misuse commercial information relating to its competitors, for example by informing its sales department when a retail consumer notifies its intention to change supplier to a rival of its group company. This risk is particularly strong at the distribution level. The transmission or distribution operator may even require customers wishing to switch supplier to inform it of the details of the new contract, allowing its own sales department to selectively offer a better deal to the customer. 114

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The various opportunities which a vertically integrated company has to discriminate against competitors, combined with clear economic incentives to do so, has led to an understanding in Europe that unless generation and supply activities are separated from so-called network activities (i.e., transmission and distribution), effective competition will not emerge. Unbundling aside, other measures exist to limit opportunities for discrimination, notably regulated third party network access and the imposition of fines on network companies found guilty of discrimination (either through general competition law or under national sector‑specific powers given to regulators). However, given the incentives to discriminate, and the presence of numerous subtle methods for doing so are very difficult to detect and quasi-impossible to prove, such preventative measures have proved to be inadequate at ensuring fair network access.146

4.5

1.2 Unbundling There are four types of unbundling which have been introduced over the course of the three energy packages: 1.

accounting unbundling, which requires separate accounts for generation, transmission and distribution activities;

2.

management (functional) unbundling, which requires ensuring that (a) organisation and decision-making in relation to transmission is independent from other activities unrelated to transmission (i.e., generation/ supply, and distribution); and (b) organisation and decision-making in relation to distribution is independent from other activities unrelated to distribution (i.e., generation/supply, and transmission);

3.

legal unbundling, which requires that generation/supply, transmission and distribution are carried out in separate legal entities; and

4.

ownership unbundling, which requires that entities involved with generation/supply on the one hand, and transmission on the other hand have separate owners.

146 For example, the Commission’s Final Report on the Sector Inquiry found that one of the German gas incumbents offered a gas delivery contract for a new power plant requiring substantial import capacity to be shipped through the network of its associated network company. New entrants were not granted firm capacity on an almost identical pipeline path, although they had requested substantially lower amounts of capacity than the ones granted to the power plant. The Final Report noted that such discrimination was difficult to detect (Communication from the Commission (COM(2006) 851 final): Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (Final Report) and its Technical Annex SEC(2006) 1724, para. 168).

115

4.6

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

1.3 The first and second electricity and gas directives 4.7

Both the first and second Electricity and Gas Directives recognised the above issues in relation to vertically integrated undertakings and as a result, mandated differing levels of unbundling. In the first Directives of 1996 (electricity)147 and 1998 (gas),148 the unbundling requirements were limited: only accounting and management unbundling was required for electricity and only accounting unbundling was mandated for gas. With respect to gas, there was not even an obligation to nominate an identifiable transmission system operator (“TSO”), meaning that a TSO could remain fully vertically integrated with its supply business without any functional restraints. Furthermore, the text of the first Electricity Directive was very vague in relation to management unbundling, leaving open a wide scope for differing interpretations.149 Further, it applied only to transmission, and not to distribution.

4.8

It soon became clear, following the implementation of these Directives, that they were unable to achieve the unbundling goals it was hoped that they would achieve, both at transmission and distribution level.150 The provisions were transposed into national law incompletely, incorrectly and even not at all. Even when the provisions were transposed “as intended”, this did not mean that network operators complied with them, and in any event, the provisions failed to address the fundamental conflict of interest which remained.

4.9

The first Electricity Directive was intended to cultivate price transparency, combined with measures to facilitate electricity transits between high-voltage grids across Member States. The limited effect of the accounting unbundling duty and the lack of an obligation to establish national electricity regulators meant that little progress was made towards the goal of competitive markets. On the contrary, network tariffs increased and discrimination was commonplace. Market distortion resulted from the different results achieved by each Member States in opening the electricity market to competition. In the 1990s the European electricity market remained heavily dominated by national and regional verti147 Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity, OJ L27, 30.1.1997, pp. 20-29. 148 Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas, OJ L 204, 21.7.1998, pp. 1-12. 149 Article 7(6), of the Electricity Directive 96/92 provided only the following requirement regarding management unbundling: unless the transmission system is already independent from generation and distribution activities, the system operator shall be independent at least in management terms from the other activities not relating to the transmission system. 150 For example, the Sector Inquiry findings made clear that the unbundling provisions required by the Second Energy and Gas Directives were inadequate.

116

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

cally integrated monopolies engaged in generation and supply. It was clear that Member States had made very few changes to the overall market structure. The European Commission (the “Commission”) monitored the development of competition and liberalisation through Benchmarking Reports.151 The conclusions of both the first and the second Benchmarking Reports (2001/2002) on the first Energy Package highlighted the ways in which the electricity and gas markets had failed to adequately liberalise in the different Member States, distorting competition and preventing new entry. The Benchmarking Reports also both found there was variation in power between companies within numerous Member States and that the ‘patchwork legislation’ was diminishing the development of a competitive market.152 Although Member States seemed to be implementing the Directives, there were many irregularities in implementation.153

4.10

The Commission’s 2001 proposals for a second package of measures (the “Second Energy Package”) put forward a much more robust approach to unbundling, providing legal, functional and accounting unbundling for TSOs and Distribution System Operators (“DSOs”). The Second Energy Package came into effect in 2003, and was designed to achieve full liberalisation of the European electricity154 and gas155 markets and introduced also a new Regulation on cross border exchanges in electricity.156 Although these proposals initially met with strong opposition, particularly from certain elements of the EU gas sector, and to a lesser extent electricity industry, in the end they made their way into the Second Energy Package.

4.11

151 https://ec.europa.eu/energy/data-analysis/market-analysis_en?redir=1#gas-and-electricity-market-reports. 152 Commission Staff Working Paper, Brussels, 3.12.2001, SEC (2001) 1957; First benchmarking report on the implementation of the internal electricity and gas market, pp. 9-12, 19. 153 EU Energy Infrastructure Policy Unintended Redistribution of Economic Opportunities?, Per Ove Eikeland Fridtjof Nansen Institute, Memo for CANES meeting, 09.11.2007, p. 1. 154 Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC, OJ L 176, 15.7.2003, p. 37 56 (the Second Electricity Directive). 155 Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC, OJ L 176, 15.7.2003, p. 57 78 (the Second Gas Directive , together with the Second Electricity Directive forming the Second Directives). 156 Regulation (EC) No 1228/2003 of the European Parliament and of the Council of 26 June 2003 on conditions for access to the network for cross-border exchanges in electricity, which was replaced by Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity (the Electricity Regulation ), which is discussed in Chapter 8.

117

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.12

At the time of the Second Directives, there was already a general recognition that ownership unbundling (which involves obliging a vertically integrated company to sell its network business to third parties that are not active in the electricity or gas generation, production or sales businesses) would be the best way to prevent discrimination, minimise the need for regulation, and ensure that the network is operated in ways promoting a competitive market.157 At that time, however, the Commission could not, propose ownership unbundling because it would not have been acceptable to all or even a qualified majority of Member States. In addition, until at least all other options had been tried and demonstrated to be inadequate, such drastic measures would be legally questionable under the principles of subsidiarity and proportionality.158 When the proposals for the Second Directives were put forward, it could not be clearly established that the combination of accounting, legal and functional unbundling would be inadequate to achieve the desired objective. At that time it was therefore necessary to initially follow the more limited approach of legal and functional unbundling.

4.13

Nevertheless, this more limited approach subsequently proved to be inadequate, as barriers to competition remained. As a result, in 2005 the Commission launched a sector inquiry (“Sector Inquiry”) to identify the barriers which were preventing free competition in the electricity and gas markets.

1.4 The 2005 Sector Inquiry 4.14

The Sector Inquiry made the following observations: 1.

market concentration at the wholesale level in gas and electricity market remained at high, pre-liberalisation levels, which allowed the harmful exercise of market power;

2.

the current level of unbundling of network and supply interests resulted in negative results on market functioning and incentives to invest in networks, constituting an obstacle to new entry and a threat to security of supply;

157 ERGEG confirmed that full ownership unbundling was its preferred option. In addition, the European Parliament in its resolution of 10 July 2007 on prospects for the internal gas and electricity market referred to ownership unbundling at transmission level as the most effective tool by which to promote investments in infrastructure in a non-discriminatory way, fair access to the network for new entrants and transparency in the market (OJ C 175 E, 10.7.2008, p. 206). 158 The subsidiarity principle means that measures taken at Community level must be limited to what is demonstrably necessary.

118

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.

the lack of market integration caused by the lack of competitive constraint by cross-border sales and insufficient interconnector capacity;

5.

a lack of transparency in the market (i.e., a lack of reliable and timely information on the market);

6.

a lack of effective and transparent price formation;

7.

only limited competition at the downstream level, including that caused by the cumulative effect of long-term contracts; and

8.

problems with balancing markets, including the favouring of incumbents, the creation of obstacles for newcomers and the current size of balancing zones being too small (which led to increased costs and the protection of incumbents’ market power).

On this basis, the Sector Inquiry identified the following main deficiencies in the competitive structure of Union gas and electricity markets: 1.

structural and systemic conflicts of interest caused by insufficient unbundling of networks from competitive parts of the sector;

2.

persistent regulatory gaps, particularly for cross-border issues, and inconsistencies between the regulatory systems which were in place;

3.

a chronic lack of liquidity in both the electricity and gas wholesale markets; and

4.

a general lack of transparency in market operations.159

4.15

Following the 2005 Sector Inquiry, the Commission proposed new legislation in 2007 (the “Third Energy Package”) to strengthen competition in the electricity and gas markets, including introducing ownership unbundling.

4.16

In its 10 January 2007 Communication, the Commission acknowledged that progress had been made since 2004 in relation to the legal unbundling of TSOs, leading to an improvement in third party access to networks. A system based on the basic

4.17

159 Communication from the Commission: Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (Final Report), Brussels, 10.1.2007, COM (2006) 851 final, paragraph 52.

119

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

principles of non-discrimination had been established and, for the most part, tariff structures had been developed which encourage the development of competition.

4.18

However, the Commission considered that both national reviews and its Sector Inquiry had provided evidence that legal and functional unbundling, as required by the Second Directives, remained a major source of both actual and potential distortion and could not ensure the development of a competitive European market for electricity and gas. The main problem identified by the Commission was that “ inherently, legal unbundling does not suppress the conflict of interest that stems from vertical integration, with the risk that networks are seen as strategic assets serving the commercial interest of the integrated entity, not the overall interest of network customers”.160

4.19

The Commission highlighted three problems under the Second Energy Package which resulted from this conflict of interest.

4.20

First, the legal and functional rules under the Second Directives were unable to eliminate the discrimination and access to information resulting from this conflict of interest.

4.21

As regards discrimination, the Second Directives’ unbundling rules could not remove the incentives for TSOs to favour their affiliated companies over competing third parties and to (ab)use network assets to make competitors’ entry more difficult. The Commission also identified remaining discriminatory access conditions relating to the connection of new entrants’ power plants, unequal access to network capacity (hoarding), the maintenance of artificially small balancing zones, and failing to make unused capacities available.

4.22

Non-discriminatory access to information also could not be guaranteed, as the information barriers put in place under the functional unbundling rules could not ensure that TSOs would not release market sensitive information to the generation or supply business of the integrated company.

4.23

Second, the Commission highlighted the distortive effect of this conflict of interest on the TSO’s incentives to invest. Vertically integrated network operators have no incentive to develop the network for the overall benefit of the market, nor to facilitate new entry at generation or supply levels. On the contrary, they have an inherent interest in limiting new investment when it will benefit its competitors and bring new competition onto the incumbent’s “home market”. 160 DG Competition Report on energy sector inquiry, SEC(2006) 1724, 10 January 2007.

120

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Vertically integrated companies that are also historically national dominant suppliers are particularly disinclined to increase electricity interconnection capacity or gas import capacity with other Member States as this would increase competition in their home market. This had prevented progress from being made towards the creation of the single European internal energy market, and was also detrimental to security of supply within the European Union.

4.24

The Commission concluded that this inherent conflict of interest was almost impossible to control through regulatory means, given that the independence of a TSO within an integrated company cannot be monitored without excessively burdensome and intrusive regulation. As a result of this, the Third Energy Package was introduced. This consisted of the following:

4.25

–

the Regulation establishing an Agency for the Cooperation of Energy Regulators (ACER) (the “ACER Regulation”);161

–

the Regulation on conditions for access to the network for cross-border exchanges in electricity (the “Electricity Regulation”);162

–

the Regulation on conditions for access to the natural gas transmission networks (the “Gas Regulation”);163

–

the Directive concerning common rules for the internal market in electricity (the “(Third) Electricity Directive”);164 and

–

the Directive concerning common rules for the internal market in natural gas (the “(Third) Gas Directive”).165

The objective of the unbundling rules in Third Energy Package is the complete removal of any conflict of interest between generators/suppliers, on the one hand, and TSOs, on the other hand.

161 Regulation 713/2009 of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators. 162 Regulation 714/2009 of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity. 163 Regulation 715/2009 of 13 July 2009 on conditions for access to the natural gas transmission networks. 164 Directive 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity. 165 Directive 2009/73/EC of 13 July 2009 concerning common rules for the internal market in natural gas. Together with the Electricity Directive, the Third Directives.

121

4.26

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

1.5 The Third Energy Package: towards ownership unbundling 4.27

In September 2007, the Commission put forward a legislative proposal aimed at ensuring structural independence of network operation. This proposal contained the following three options on the unbundling of TSOs, which provide for different degrees of structural separation of network operations from production and supply activities: –

ownership unbundling;

–

the independent system operator (“ISO”); and

–

the independent transmission operator (“ITO”).166

4.28

The first option of ownership unbundling was presented as the preferred option, i.e., a clear ownership separation between TSOs and any supply undertakings. In the Council this approach was viewed as being the most effective means of achieving effective unbundling and ensuring that network companies are not influenced by generation/supply interests, particularly with respect to investment decisions. This option also avoids excessively complex regulation and disproportionate administrative burdens.

4.29

The second option is the independent system operator which enables vertically integrated companies to retain ownership of their network assets, while requiring the transmission network itself to be managed by an independent system operator – an undertaking or entity entirely separate from the vertically integrated company – which performs all of the functions of a network operator. The ISO approach was viewed as being less effective in addressing the disincentives to invest in networks, and as requiring more detailed, complex and prescriptive regulation in order to be effective.167 In the course of the legislative 166 With a fourth, ISO+ option which is discussed later. 167 Arguably, one of the reasons for the Commission presenting an alternative ISO proposal was to limit the risk of being accused of infringing 345 TFUE. This Article provides that : “The Treaties shall in no way prejudice the rules in Member States governing the system of property ownership”. It was argued, also at the time of the Second Energy Package, that this would prevent any proposal of the Commission of an exclusive system of ownership unbundling. It is submitted that ownership unbundling does not violate Article 345. This is because the objective underlying Article 345 is to guarantee that Member States wishing to retain certain industries within state ownership may continue to do so. Thus, even if it should wish to do so, the Commission cannot challenge the fact that in certain countries the dominant electricity/gas company remains in state ownership. It does not, however, prevent an obligation of ownership unbundling. The Third Energy Package provides clear rules allowing ownership unbundling to be implemented by public entities. In addition, the right to property is not

122

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

process and as a result of the negotiations within the Council, a third option, the independent transmission operator, was added. This option allows TSOs to remain part of integrated undertakings while following detailed rules in relation to autonomy, independence and investment, which are very similar to the principles on functional and legal unbundling.168 In sum, the Third Electricity Directive and Gas Directives which were adopted on 3 September 2009 mandated structural separation between TSO activities, on the one hand, and activities relating to generation and supply, on the other hand. The ultimate aim of this type of unbundling is to avoid conflicts of interest, ensure that TSOs take independent decisions, and prevent discrimination towards all network users. These objections are relevant for both the daily operations of TSOs, as well as their strategic investment decisions.

4.30

1.6 The Clean Energy Package The “Clean Energy Package for All Europeans” introduced in 2016 updated EU’s energy policy framework to facilitate the transition away from fossil fuel towards cleaner energy and to deliver on the EU’s Paris Agreement commitments for reducing greenhouse gas emissions. The package includes 8 legislative acts and a number of non legislative initiatives aimed at facilitating the clean energy transition.

4.31

The Clean Energy Package updated the rules that govern the functioning of the internal electricity market and the transmission and distribution grids. Notably, the package introduces a new Electricity Directive, Directive (EU) 2019/944, and a new Electricity Regulation, Regulation (EU) 2019/943.

4.32

Regarding the TSO main unbundling principles, the Clean Energy Package did not bring significant change to those provided in the Third Energy Package. The reference to “unbundling requirements” has been included in the first Article of the Directive 2019/944 which sets the common rules for the internal market in electricity.

4.33

an absolute right: the exercise of this right may be restricted if those restrictions correspond to the objectives of general interest pursued by the EU and that the restrictions do not amount to a disproportionate interference with the rights which impairs the very substance of the rights guaranteed. Further, Article 345 does not exempt Member States systems of property ownership from the TFEU’s fundamental rules. 168 The Parliament voted for the deletion of the ISO option for gas and electricity. In the case of electricity, it has retained only ownership unbundling. In the case of gas, it has adopted an alternative unbundling option preserving vertical integration of the network similar to ITO but including a trustee which provides for stronger separation between the parent company and the TSO.

123

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.34

However, some provisions have been amended as far as the tasks of the National Regulatory Authorities are concerned. Indeed, Article 40(2) provides for the possibility for the Member States to include in their national laws that TSO responsibilities may be assigned to a TSO other than the one which owns the transmission system.

1.7 Ownership unbundling under EU competition rules 4.35

It is important to understand the distinction between the sector specific rules (e.g., the unbundling rules) and the competition rules. The purpose of the sectorspecific rules is to ensure that a given sector is no longer based on a monopolylike structure. The competition rules alone cannot achieve this to a sufficient level. However, once the sector has undergone structural changes the competition rules alone should, in principle, be sufficient to regulate and control anticompetitive behavioural practices. In the meantime the competition rules serve to support the objectives behind the unbundling rules and can, through the commitments procedure, attain the same result as the ownership unbundling rules.

4.36

For example, the Commission adopted two decisions, E.ON and RWE, during negotiations on the Third Energy Package, accepting commitments by these vertically integrated companies to sell parts of their networks to alleviate competition concerns under what is now Article 102 of the Treaty on the Functioning of the European Union (“TFEU”), which prohibits the abuse of a dominant market position.

4.37

On 26 November 2008, the Commission obtained a commitment from E.ON that it would divest its extra-high voltage network in Germany. The Commission had concerns that E.ON had favoured its production affiliate for providing balancing services while passing the resulting costs on to final consumers, and preventing other power producers from exporting balancing energy into its transmission zone.169

4.38

On 18 March 2009, the Commission accepted commitments from RWE that it would divest its entire Western German high-pressure gas transmission network. This was accepted as a remedy to the Commission’s concerns that RWE may have abused its dominant position to restrict its competitors’ access to its gas transmission network. The Commission’s suspicions related in particular to a possible refusal to supply gas transmission services to other companies.170 169 See IP/08/1774, Brussels, 26th November 2008. 170 See IP/09/410, Brussels, 18th March 2009.

124

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

In April 2013, the Commission accepted commitments offered by the Czech electricity incumbent, ČEZ. The Commission had reached the preliminary view that ČEZ may have hindered entry into the Czech market for the generation and wholesale supply of electricity, in particular through pre-emptive reservations of transmission system network capacity which it did not need at that moment. ČEZ offered to divest 800-1000 MW of its generation capacity by selling one of its Czech generation assets, which would allow the purchaser to establish itself on the Czech market for the generation and wholesale supply of electricity. The commitments were accepted by the Commission, who held that the new entrant could then gradually develop its generation asset portfolio to compete effectively with ČEZ.

4.39

On 4 February 2010, the Italian energy company ENI offered to divest its shares in three international transport pipelines: the TAG, the TENP and the Transitgas pipelines. The Commission accepted the remedies which responded to its concerns that ENI may have abused its dominant position on the Italian gas supply markets and the transport markets by refusing to grant competitors access to available capacity on the transport network (capacity hoarding), by granting access in an impractical manner (capacity degradation) and by strategically limiting investment (strategic underinvestment) in ENI’s international transmission pipeline system. This was found to be in breach of the EU antitrust rules on the abuse of a dominant market position.171

4.40

In addition, the Commission has extracted behavioural commitments which strongly support the unbundling objectives. In October 2009, the Swedish TSO Svenska Kraftnät offered commitments to settle an antitrust procedure opened by the Commission. The Commission was concerned that Svenska Kraftnät might have breached the rules prohibiting the abuse of a dominant market position by limiting the export transmission capacity available on electricity interconnectors situated along Sweden’s borders. The objective was to relieve internal congestion on its network, which appeared to favour consumers in Sweden over those in other EU and EEA Member States by reserving domestically produced electricity for domestic consumption. To alleviate these concerns, Svenska Kraftnät offered to subdivide the Swedish transmission system into two or more bidding zones and to manage the congestion transmission system without limiting trading capacity on interconnectors. The Commission adopted a decision in April 2010 holding that apart from the amended implementation period for the bidding zones and clarification relating to the procedure applied in the interim period, the commitments were adequate to meet the above competition concerns.

4.41

171 See MEMO/10/29, Brussels, 4th February 2010.

125

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.42

Similarly, in 10 December 2015, the Commission extracted behavioural commitments from Bulgarian Energy Holding (BEH), the state owned Bulgarian energy incombant, suspected of having abused its dominant position. Following the market test, BEH committed to set up a power exchange with the assistance of an independent third party with expertise in the area, and transfer control of the ownership of the new power exchange to the Bulgarian Ministry of Finance. Furthermore, BEH committed to offer minimum stipulated volumes of electricity on the Bulgarian power exchange,for a period of five years, in order to ensure that sufficient volumes would be made available in the market.172

4.43

On 17 April 2018, in the Greek Lignite Case,173 the Commission approved remedies submitted by Greece, which provide that the Public Power Corporation will divest certain lignite assets, removing the privileges created by special access rights granted to it. In fact, in its decision of March 2008, the Commission found that Greece had infringed competition rules by giving the state-owned electricity incumbent, PPC, privileged access rights to lignite, and called on Greece to propose measures to correct the anti-competitive effects of that infringement. Due to appeals at both the General Court and European Court of Justice, such corrective measures have not been implemented so far. In addition, to ensure that the purchaser of Divestment Business would have enough lignite supply to operate the units, Greece committed to carry out an appropriate procedure to grant mining, exploration and exploitation rights for part of certain lignite deposits that remained at the State’s disposal.

4.44

On 7 December 2018, TenneT committed to make available to the market the maximum capacity compatible with the safe operation of the interconnector between Western Denmark and Germany. The entity committed also to guarantee a minimum hourly capacity of 1300 MW on the interconnector, around 75% of its technical capacity.

4.45

On 24 May 2018, the Commission requested behavioural commitments from Gazprom, which significantly affect the way Gazprom operates in the european gas market. Notably, Gazprom cannot leverage its dominance in gas supply and act on any advantages concerning gas infrastructure.174

172 See AT.39767, Brussels, 10th December 2015. 173 See COMP/38700, Brussels, 15th February 2018. 174 See AT.39816, Brussels, 24th May 2018.

126

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The entity also committed to facilitate gas flows to and from Central and Eastern Europe that are still isolated from other Member Stated due to the lack of interconnectors. Last, the entity committed to remove any contractual restrictions placed on customers to re-sell gas cross-border.

4.46

In a recent March 2020 case, the Commission has made commitments offered by Transgaz legally binding under EU antitrust rules.175 The company will make available to the market significant firm capacities for natural gas exports from Romania to neighbouring Member States, in particular Hungary and Bulgaria. The company committed also to ensure that its tariff proposals to the Romanian national energy regulator will not discriminate between export and domestic tariffs in order to avoid interconnection tariffs that would make exports commercially unviable. The commitments will remain in force until 31 December 2026.

4.47

2.

The unbundling options under the Clean Energy Package

2.1 Background Under the Second Directives, the supplier and network operator could be part of the same vertically integrated undertaking. Some level of independence was allegedly guaranteed through the rules on legal, functional and accounting unbundling. The Clean Energy Package, in continuity with the Third Directives, aims to ensure the structural independence of network operation from supply and generation activities.

4.48

The Clean Energy package has not repelled the Gas Regulation and the Third Gas Directive, which continue to apply. Therefore, references to those acts will be made regarding the gas sector, alongside the Clean Energy Package.

4.49

175 See Case AT.40335, Brussels, 06.03.2020. Press release : https://ec.europa.eu/commission/presscorner/detail/en/ip_20_407

127

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

2.2 Unbundling under the Clean Energy Package No control Only minority shareholding Generator/ Supplier

Dividends allowed No voting rights

TSO Network Ownership

No appointment of administrators

2.2.1 Ownership Unbundling 4.50

The above diagram shows how ownership unbundling should be implemented: the supplier and TSO owning the network are part of two different groups. Under ownership unbundling, the vertically integrated undertaking has the obligation to divest its controlling shares in the TSO, so that it does not maintain control over it nor has any influence over it. In practice this means that the same company cannot exercise control over a supply undertaking and, at the same time, have influence over a TSO or transmission system through majority shareholding, voting rights or the right to appoint administrators. This provision also applies vice versa, that is, control over a TSO precludes the possibility of influencing a supply undertaking.

4.51

The vertically integrated undertaking can have minority shareholdings in a TSO and/or receive dividends. Some restrictions however apply to minority shareholding held by the same company in both a TSO and a supplier, to prevent influence being exercised.

4.52

In order to promote investments, the network operator has to be the network owner. The requirement for the owner of the transmission system to “act as a transmission system operator” seems to imply that the company owning the TSO has to run the network itself and cannot lease it. Regulatory oversight is light under the ownership unbundling option as the TSO should have no incentive to discriminate, but rather have every incentive to invest: the more grid investment that it makes (that is accepted by the regulator as being covered by the regulated tariff ), the more profit it will make. An example of the limited regulatory oversight linked to ownership unbundling is that under this option 128

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

national energy regulators are not granted the power, under EU law, to formally approve investment planning. The rules on ownership unbundling are set out in Article 43 of Directive 2019/944.176

4.53

2.2.2 Independent System Operator (ISO) If a Member State does not wish to carry out ownership unbundling, it can unbundle under the ISO and ITO options provided that on entry into force of the Third Directives (i.e., on 3 September 2009), the company was vertically integrated. The following describes the ISO option.

4.54

Vertically integrated undertaking Generator/Supplier

Legal & Functional Unbundling

Network leased to network operator

ISO

Network ownership

The above diagram shows how the ISO option should be implemented: the supplier and network can remain in the same group, but the network is leased to the network operator which has to be in a different group (Article 44 of Directive 2019/944). The ISO option therefore allows the vertically integrated company to retain ownership of its network assets, but requires that the transmission network itself is managed by an ISO which should be fully independent from supply interests and perform all the functions of a network operator. The owner must, however, still be legally and functionally unbundled from the vertically integrated undertaking.

4.55

To avoid to the maximum extent possible any interference by the vertically integrated undertaking on investments, the ISO model also confers all decisionmaking powers relating to investments and network developments on the ISO. For this reason it is generally referred to as an “ISO+” model also in order to contrast it with a “pure” ISO model, (i.e., where the network owner has a major

4.56

176 Article 9 of the Third Gas Directive sets out the same principles for gas.

129

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

say on investments). In addition, to ensure that the operator remains and acts truly independently of the vertically integrated company, permanent regulatory monitoring must be put in place. For instance, under this option the national energy regulators have the power to formally approve investment planning.

2.2.3 Independent Transmission Operator (ITO) 4.57

If neither ownership unbundling nor the ISO model is chosen, Member States can choose the ITO model, provided that on 3 September 2009 the company was vertically integrated. Vertically integrated undertaking / Supplier Autonomy/Supervisory body /Independent Management / Compliance officer / Investments ITO Network ownership

4.58

The above chart shows how the ITO option can be implemented: the supplier and network operator can remain in the same group but the network operator owns the network and must comply with rules ensuring its independence. The ITO option therefore allows for vertical integration to be preserved but provides strong rules aimed at safeguarding autonomy and the managerial independence of the transmission company, notably with the objective of ensuring that adequate investments are made. It is fundamentally different from the ISO option because network operation is not structurally unbundled from supply activities, and network ownership remains with the same entity as the operator. The individuals managing the company on a day-to-day basis are not directly appointed by the vertically integrated company and the majority of the management has to comply with strict independence rules, especially in terms of cooling off periods for being appointed (3 years) and returning to (4 years) the vertically integrated undertaking. Strict rules on the autonomy of the ITO are provided for and a Compliance Officer with significant standing, presence and role has to be appointed. More importantly this option provides to strong oversight over investments by the national energy regulator aimed at ensuring that the absence of structural separation and the possible remaining conflict of interest does not succeed in distorting investments. 130

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

A comparison of the ISO and ITO tables above show that the ITO option is very similar to legal and functional unbundling. This is not surprising as by permitting vertical integration, the ITO model falls short of producing structural unbundling, which is achieved by ownership unbundling and the use of an ISO. As a result, given the lack of effective unbundling achieved under the Second Energy Package, which relied on legal and accounting unbundling, it may be argued that the ITO option does not succeed in achieving effective unbundling and guaranteeing independence from supply interests.

4.59

A 2014 Commission Report on the ITO model concluded that it was too early to draw definite conclusions on whether the ITO model has led to effective unbundling and the actual independence of the ITOs in practice. It highlighted that compliance checks are still ongoing to ensure the correct implementation of the existing unbundling requirements under the Third Directives into Member States’ national law. A majority of network users responded that most requirements related to the ITO model seem to work in practice and are usually sufficient for ensuring effective separation of the transmission business from generation and supply activities in the day-to-day business.

4.60

An important test will be whether the vertically integrated undertaking is able to legally consolidate an ITO’s accounts. Under accountancy rules, the concept of consolidation of accounts is very similar to the concept of control: logically a company can only consolidate the results of a company if it can have a significant influence over its policy. Consolidation of accounts therefore means that the vertically integrated undertaking can influence the activity of its consolidated subsidiaries and favourise its own overall commercial interests. This is precisely what effective unbundling aims at preventing in relation to the interaction between production and supply interests on the one hand and network operation and investments on the other.

4.61

The Commission has also noted that the positive effects of unbundling in facilitating cross-border trade (as well as security of supply) can also be realised where the network is operated by an ITO. Moreover, although the ITO model has appeared to be burdensome for both the national authorities and the TSOs involved, it does not mean that the ITO model is not at all effective in separating transmission and generation. The Commission concluded that the ITO model is working well, but could nevertheless be improved, for example, by strengthening the independence of the Supervisory Board and harmonising the timeframe for network development plans at national European level.

4.62

131

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

2.2.4 General Principles on the Unbundling Options 4.63

In principle the three unbundling options are on an equal footing: Member States were free to choose between the options. This “choice” is, however, qualified by a number of elements.

4.64

First, in the legal drafting of the directives, the ISO and ITO options are presented as alternative ways to comply with unbundling rules allowing Member States to derogate from Article 43 of Directive 2019/944.177 From a legal standpoint, ISO and ITO are therefore derogations from the principle of ownership unbundling. This could justify a restrictive interpretation of their scope of application.

4.65

Second, it is not possible to revert from ownership unbundling back to the ITO or ISO option: the ISO and ITO options can only be chosen for a TSO if, on entry into force of the Third Directives (i.e., on 3 September 2009), the transmission system belonged to a vertically integrated undertaking.178 For Member States having several TSOs, only the TSO(s) that were vertically integrated on the entry into force of the Third Directives may choose the ISO or ITO options.

4.66

Third, a vertically integrated undertaking can always choose ownership unbundling. This is expressly stated in Article 43 (10) of Directive 2019/944. In other words, the fact that a Member State has opted for the ISO or ITO options cannot prevent a vertically integrated undertaking from divesting its network operations. A Member State with several TSOs has the freedom to opt for several options.

177 Article 43(7) of Directive 2019/944: Where on 3 September 2009, the transmission system belongs to a vertically integrated undertaking a Member State may decide not to apply paragraph 1. In such case, the Member State concerned shall either: (a) designate an independent system operator in accordance with Article 44 (Article 14 of the Third Gas Directive for gas); or (b) comply with Section 3 (Chapter IV of the Third Gas Directive for gas). 178 Article 43 (7) of Directive 2019/944 and Article 9(8) of the Third Gas Directive cited at footnote above. A vertically integrated undertaking is in substance a group of companies active in both network operation and production or supply. The concept is identical to the one used in the previous legislation. It is precisely defined in Article 2(21) of the Electricity Directive 2004 as an electricity undertaking or a group of electricity undertakings where the same person or the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings perform at least one of the functions of transmission or distribution, and at least one of the functions of generation or supply of electricity (Article 2.20 of the Gas Directive is identical). See Chapter 5 on Unbundling of DSOs.

132

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

2.2.5 ITO+: “Unbundling à la carte” – a fourth unbundling option A careful reading of Directive 2019/944 shows that Member States are not necessarily limited to the above three unbundling options. Under Article 43(8) of the Directive:179

4.67

“Where, on 3 September 2009, the transmission system belongs to a vertically integrated undertaking and there are arrangements in place which guarantee more effective independence of the transmission system operator than the provisions of [ITO], a Member State may decide not to apply paragraph 1 [on ownership unbundling].”

This fourth option for complying with the unbundling rules, the so-called ITO+ option, does not provide any precise obligations for vertically integrated undertakings and TSOs. It gives freedom to Member States to maintain their own systems of unbundling; a sort of “unbundling à la carte”.

4.68

This provision has three important limitations. First, the structure of the TSO and the regulatory framework should guarantee more effective independence of the transmission system operator than the ITO option.180 Second, this structure and regulatory framework should have been in place on entry into force of the Third Directives, i.e., on 3 September 2009. Third, the transmission system must have been part of a vertically integrated undertaking on 3 September 2009. This provision was not in the Commission’s proposal and was added by the Council, during the adoption process of the Third Directives. It could have rendered the very precise regulatory framework imposed through the ISO and ITO options meaningless by permitting any other system providing for the same degree of independence as the ITO to be accepted. However, the requirement that the structure should have been in place on the entry into force of the Third Directives has meant that Article 9(9) of these directives, incorporated in Article 43(8) of Directive 2019/944, has had a limited application. In fact, amongst the only countries which have had national systems in place providing for more independence than the ITO system are Scotland, Ireland and Northern Ireland. In those cases, the Member States have demonstrated that they comply with the conditions of Article 43(8).181

4.69

179 Article 9(9) of the Third Gas Directive lays out the same principle for gas. 180 In the opinion of the national authority. 181 In three decisions involving Scotland (https://www.ofgem.gov.uk/ofgem-publications/59304/sptl-certification-summary.pdf ), Ireland (https://ec.europa.eu/energy/sites/ener/files/documents/2013_060_ie_ en.pdf ) and Northern Ireland (https://ec.europa.eu/energy/sites/ener/files/documents/2013_059_uk_ en.pdf ), the Commission concluded that more effective independence than the ITO model was provided by the separation of ownership and operation of transmission networks, as well as the ring-fencing of legal

133

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.70

However, there is a price to pay for this flexibility. Contrary to the other unbundling options, under the certification procedure for ISO+, the Commission has a binding role in verifying that the arrangements in place clearly guarantee more effective independence of the TSO than the provisions of ITO. It is clear that the national regulatory authority will have to comply with the Commission decision.182

2.2.6 Implementation by the Member States 4.71

When the Third Energy Package was launched, given that compliance with the unbundling rules would lead to the restructuring of vertically integrated undertakings, Member States benefitted from additional time to implement the rules on unbundling. The Third Energy Package Directives should have been transposed by Member States 18 months following their entry into force, i.e., by 3 March 2011. However, for the rules on unbundling of TSOs, 30 months following the entry into force of the Directives was allowed for the application of the rules i.e., by 3 March 2012.183 Further, the time allowed for the application of some parts of ownership unbundling could be further extended to 42 months after the entry into force of the directives, i.e., by 3 March 2013. Finally, the certification procedure in relation to third countries provided for in Article 11 of the Third Electricity Directive and Article 11 of the Third Gas Directive184 should have been transposed within 42 months of the entry into force of the Directives, i.e., by 3 March 2013.

4.72

All options, including the ISO and ITO ones, were able to benefit from this extra time because these options are alternative ways of complying with ownership unbundling. Member States remained free to apply the ISO and ITO options at the end of the derogation period, provided that the TSO was vertically integrated on entry into force of the directives. The situation is different for ITO+, because this option is only available where the relevant regulatory arrangements were already in place at the time of the entry into force of the Directives.

4.73

Following the expiry of the transposition deadline on 3 March 2011, the Commission has systematically assessed all the national transposition measures notientities from the vertically integrated undertaking. In the Decision relating to the Irish TSO, Eirgrid, the Commission required monitoring by the national regulatory authority and assessment of compliance with various criteria within a reasonable time period. 182 Article 9(10) of the Third Electricity Directive and Third Gas Directive combined with Articles 3(6) of the Electricity and Gas Regulations. 183 See paragraph 1 and 4 of Article 9 of the Third Electricity Directive and Article 9 of the Third Gas Directive. 184 Directive 2009/944, Article 53.

134

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

fied by the Member States in order to verify whether they fully transpose the Third Energy Package Directives, i.e., whether they contain rules corresponding to all Directives’ provisions. However, none of the Member States had achieved full transposition of the Directives by the deadline. In 2011 the Commission opened 38 infringement proceedings against 19 Member States for not transposing, or not fully transposing, the Directives. During 2012 and 2013, the Commission was able to terminate many of these infringement procedures as the efforts of Member States to transpose the Directives gained momentum. In 2012, the Commission referred several Member States to the European courts,185 although in 12 of these cases, the Member States took appropriate measures to transpose the legislation after the referrals, therefore avoiding a judgment under Article 260(3) TFEU.186

4.74

As of July 2013, in relation to electricity, 16 Member States had implemented ownership unbundling, 6 Member States had implemented the ITO framework, and 1 Member State had implemented the ISO framework. In relation to gas, 11 Member States had implemented ownership unbundling, 18 Member States had implemented the ITO framework and 1 Member State had implemented the ISO framework.

4.75

In October 2014 the Commission released an analysis of the progress which had been made to date towards completing the Internal Energy Market.187 The Commission firstly focused on ensuring full transposition of the Electricity and Gas Directives within the national laws of the Member States (the “non-transposition” check), before secondly checking for incorrect transposition or bad application of the Third Energy Package rules (“non-conformity” check).

4.76

As regards non-transposition, as of 13 October 2014, national legislation fully transposing the Directives was in place in all but two Member States. However, during 2014 the Commission filed infringement proceedings for partial trans-

4.77

185 The commission referred the following Member States to the European courts: Poland, Slovenia, Bulgaria, Finland, Estonia, the UK, Romania (in relation to both the Electricity and Gas Directives) and Ireland (in relation to the Electricity Directive). The Member States who took the necessary transposition steps following referral were: the UK, Bulgaria, Finland, Poland, Slovenia and Estonia (in relation to both Directives). In addition the Commission also used EU Pilot cases against Spain and Romania in 2012. 186 Article 260(3) TFEU allows the Commission, at the first stage of referral, to ask the European Court of Justice to impose financial penalties on Member States in procedures for non-transposition. 187 See Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Progress towards completing the Internal Energy Market COM (2014) 634 final. See also Commission Staff Working Document: Enforcement of the Third Internal Energy Market Package, SWD (2014) 315 final.

135

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

position of the Electricity and/or Gas Directives against two Member States, one of which has recently adopted further transposition measures.188

4.78

The Commission launched EU Pilot cases against several Member States in order to understand and evaluate the potential non-conformity problems. In some instances, these EU Pilot cases were already sufficient to persuade the Member States to correct their legislation or practices. However, where this was not successful, the Commission opened infringement procedures against the Member State concerned. For example, the Commission launched two infringement procedures in 2012 to address national import and export restrictions relating to electricity and gas.189

4.79

Since 2012, the Commission started a total of 41 infringement proceedings.190 10 of these proceedings were closed without resulting in a formal notice.

2.2.7 Exemptions granted by the Commission 4.80

Under Article 63 of Regulation 2019/943, exemptions from the unbundling rules, third part access provisions and tariff regulation provisions can be granted in the case of a new interconnector, which means an interconnector not completed by 4 August 2003,191 the date of entry into force of the regulation. Regarding the gas sector, exemptions from the unbundling rules, third part access provisions and tariff regulation provisions can be granted in the case of a new infrastructure, under Article 36 of the Third Gas Directive.192 The rationale behind the exemptions is that some investments (including investments in major infrastructure such as interconnectors, storage facilities and LNG terminals) by entities other than incumbent TSOs may be substantial and subject to large amounts of risk, so should be exempted from the regulatory regime, to avoid 188 These are the cases against Romania (as regards both the Electricity and Gas Directives) and Ireland (as regards the Electricity Directive). 189 An infringement procedure was opened in 2012 against Spain for violation of the Electricity Regulation (EC) No 714/2009 and was closed in 2013 due to compliance. In 2012 the Commission also opened an infringement procedure against Romania concerning restrictions for the export of gas. 190 See, for electricity: https://ec.europa.eu/atwork/applying-eu-law/infringementsproceedings/infringement _decisions/index.cfm?lang_code=EN&typeOfSearch=false&active_only=0&noncom=0&r_dossier =&decision_date_from=&decision_date_to=&DG=ENER&title=2009%2F72%2FEC&submit=Sear ch. For gas : https://ec.europa.eu/atwork/applying-eu-law/infringements-proceedings/infringment_decisions/ index.cfm?lang_code=EN&typeOfSearch=false&active_only=0&noncom=0&r_dossier=&decision_ date_from=&decision_date_to=&DG=ENER&title=2009%2F73%2FEC&submit=Search 191 Article 2(5) of Regulation 2019/943. 192 ‘New infrastructure’ means an infrastructure not completed by 4 August 2003, as stated by the Recital 33 of the Third Gas Directive.

136

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

discouraging new investments due to the level of uncertainty and possibility of state. By excluding third party access, tariff regulation and the unbundling rules from the equation, investors can control the investment without regulatory intervention. The third party access and tariff regulation exemptions permit underwriting by long-term capacity contracts without regulatory interference. Exemption decisions attempt to strike a balance between promoting open access to infrastructure and ensuring that investments which give rise to high levels of risk are made (where spreading the costs of these high levels of risk between all infrastructure users is not feasible). In order to apply for an exemption, investors are required to create a market test corresponding to the criteria set by the relevant national regulatory authority, in order to provide a clear understanding of the level of commercial demand for capacity; the greater the demand for capacity by third parties, the lower the expectation of an exemption. This market test should enable investors to gauge the project size as well as allowing the national regulatory authorities and Commission to evaluate whether the request is proportionate. Even where exemption is granted from the unbundling rules, the independence conditions still apply.193 Commission Decisions in exemption cases must be followed by the national regulatory authority in question.194 Dambořice In the first exemption decision of June 2011 adopted under the Third Energy Package, the Commission granted an exemption Article 36 of the Gas Directive, even though it had not yet been transposed with the Third Energy Package by the Czech legislator.195 The relevant national authority had granted a 15 year exemption from the obligation to provide negotiated third party access to a planned underground gas storage facility for 90% of the capacity. The Commission held that the planned new underground gas storage facility in question did qualify as a major gas facility within the meaning of Article 36 of the Third Gas Directive, but required the exemption to be withdrawn as the notified decision had not sufficiently demonstrated that the risk involved in building and operating the storage facility was sufficiently high. 193 For example, in 2011 the Commission granted an exemption from ownership unbundling in relation to the Gazelle pipeline, on the condition that the pipeline operator would be certified as an ITO (Commission Decision of 20 May 2011, C((2011) 3424). 194 The Commission previously could only issue an Opinion. The significance of being able to issue a Decision is that individuals are able to challenge it before the European courts. 195 Draft Commission Decision on the exemption of an Underground Gas Storage Facility in DamboYice , Czech Republic, from the internal market rules on third party access. This Decision is on appeal to the General Court.

137

4.81

4.82

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.83

4.84

Porto Empedocle In its May 2012 Porto Empedocle decision, the Commission agreed with the Italian authorities that exemption of 100% of the capacity of an LNG terminal for 25 years from third party access and tariff regulation obligations could be granted on the condition that 20% of the re-gasification capacity was made available to all interested parties through a public procedure.196 Although the new LNG terminal would enhance competition, the Commission capped the access rights of companies with a dominant position to 5% of the terminal’s total capacity. It was held that the construction or operation should begin take place within 2-5 years following the granting of the exemption, in order to avoid the risk of losing the Commission’s approval.197 The Trans-Adriatic Pipeline The Trans-Adriatic Pipeline (“TAP”) is a major new project aimed at facilitating the transportation of gas from the Azerbaijian gas field, Shah Deniz, to Europe.198 It is planned to be approximately 800 km long and stretch from the Greek-Turkish border, through Albania and along the Adriatic Sea, to Italy, where it will enter the Italian gas transmission network. In May 2013, the Commission accepted exemption from the third party access requirement for 100% of the pipeline capacity, but required expansion capacity to be made available on a regulated basis, and that 5% of the initial capacity (and 10% of existing built capacity) be made available as ‘short-term’ products.199 The reverse flow was not covered by the exemption,200 due to the requirements to maintain security of supply.201 National regulators are required to monitor the capacity demand and order capacity expansion as soon as appropriate levels are reached.

196 Draft Commission Decision on the exemption of LNG Terminal in Porto Empedocle, Italy, from the internal market rules on third party access and of tariffs according to Article 36 of Directive 2009/73/EC. 197 Unless the delay is beyond the control of the project developers. These sunset provisions are designed to incentivise investors who have obtained an exemption to build the infrastructure within a reasonable period of time. 198 The TAP is one of two potential direct access paths to Europe from notable gas reserves in the Caspian, Middle East region and the Eastern Mediterranean Basin. This so-called Southern Gas Corridor for the supply of gas to Europe from the Caspian and Middle Eastern regions is one of the EU s priorities. 199 Commission Decision of 16.05.2013 on the exemption of the Trans Adriatic Pipeline from the requirements on third party access, tariff regulation and ownership unbundling laid down in Articles 9, 32, 41(6), 41(8) and 41(10) of Directive 2009/73/EC, Brussels, 16.5.2013, C(2013) 2949 final. 200 Reverse flow, otherwise known as backhauling, is the transportation of gas in the reverse direction to the pipeline’s main flow. This is not usually a physical movement but is rather carried out by swap arrangements. 201 This requirement is found in Regulation 994/2010 of 20 October 2010 concerning measures to safeguard security of gas supply, which was repealed by Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010.

138

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

While the TAP is exempted from ownership unbundling obligations, each Member State it passes through must still certify it based on the ITO model before commencement of the project. In addition, the exemption will be lost after three years if the construction has not started, and after six years if operation has not commenced. In December 2014, the relevant Italian and Greek national authorities notified decisions to prolong the exemptions granted to the TAP project. In March 2015, Commission granted a prolongation of the exemption.202 ElecLink In a July 2014 decision ElecLink, the Commission examined a joint decision by the relevant British and French regulatory authorities to exempt a new interconnector linking the British and French electricity markets through the Channel Tunnel from its obligations to implement full ownership unbundling,203 to partially exempt it from normal third party access rules for 20 years, and to also partially exempt it from normal congestion revenue rules for 25 years.204 Toscana LNG Terminal While the Commission was of the opinion that the project met the criteria of Article 17(1) of the Electricity Regulation205 on new interconnectors, and that the exemptions could be granted it required amendments to be made to the joint decision, including adding sunset clauses. The Commission observed, however, that it should first be established that it cannot meet the Article 9 requirements by applying for certification under the ownership unbundling model.206 The Commission added that “… only if, based on the assessment conducted by the [national regulatory authorities] in the context of certification for ownership unbundling, it is concluded that ElecLink … does not meet the requirements of Article 9 of the Electricity Directive, ElecLink … [it] may apply for certification under the ITO model set out in … the Electricity Directive”. The Commission added that “the independent system operator model described in Articles 13 and 14 of the Electricity Directive presents an alternative to the ITO model in this case as it could facilitate the integrated operation of the ElecLink interconnector and the national transmission systems. Therefore this option should also be open to ElecLink…” 207 202 See C(2015) 1852 final. 203 Article 260(3) TFEU allows the Commission, at the first stage of referral, to ask the European Court of Justice to impose financial penalties on Member States in procedures for non-transposition. 204 Commission Decision of 28.7.2014 on the exemption of ElecLink Limited under Article 17 of Regulation (EC) No. 714/2009 for an electricity interconnector between France and Great Britain, Brussels, 28/7/2014, C(2014) 5475 final. For an update on the decision see, 10th June 2016, Brussels, C(2016)5285. 205 Article 63 of Directive 2019/944. 206 Article 43 of Directive 2019/944. 207 Paras 135 to 139.

139

4.85

4.86

4.87

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.88

In a January 2015 decision, the Commission applied Article 22 of the second Gas Directive208 (the equivalent to Article 36 in the third Gas Directive) in order to allow a removal of the exemption from third party access and tariff provisions granted for an LNG terminal in Italy.209 The Commission had permitted this exemption granted by the Italian Ministry for Economic Development on the condition that sunset provisions were introduced, which the national authority duly complied with in 2009. In December 2012, the LNG terminal’s owner requested a removal of the exemption, asking the Ministry to acknowledge that the LNG terminal was an essential infrastructure which was indispensable for ensuring appropriate security, value for money, and competition in energy supplies. The Commission accepted this, observing that the full integration of a previously exempted infrastructure into the regulated system (via irrevocable withdrawal of an exemption) is, in principle, beneficial for the effective functioning of the internal gas market, although in certain cases, it could lead to undesirable results (for example, an abusive circumvention or violation of regulatory rules).

4.89

In a December 2016 decision,210 the Commission granted an exemption from Article 16(6) of the Electricity Regulation and Article 9 of the Electricity Directive,211 regarding a high voltage underground cable connection between Italy and France. The Commission permitted the 10 year exemption from the obligation to implement ownership unbundling and from the the use of revenues resulting from the allocation of interconnection capacity, as the Commission recognised the risks attached to the investment in the two interconnectors were sufficient to justify an exemption. Specifically, risks might have originated from changes in flows caused by changes elsewhere in the system, as the use of the planned interconnector would depend on relative prices in Italy and France and on network developments by the French and Italian TSOs. On the other hand, the interconnector generated positive effects on competition as the new capacity would be available to all market participants and would be allocated according to the EU rules for cross border capacity allocation. The enhancement of competition pertained also to the fact that none of the stakeholders of the project had so far a significant presence in the electricity markets of both Italy and France.

208 Brussels, 16.01.2015, ENER/B2/EL/el D(2015) 133688. 209 Draft Commission Decision on waiver of the exemption from third party access and tariff provisions granted for an LNG terminal to OLT Offshore LNG Toscana S.p.A pursuant to Article 22 of Directive 2003/55/ EC. 210 See Brussels, 9.12.2016, C(2016) 8592 final. 211 Articles 19 and 43 of Directive 2019/944.

140

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

In July 2018, an exemption was obtained for the Interconnector Greece-Bulgaria (“IGB”) project, from the requirements regarding third party access, tariff regulation and ownership unbundling.212 IGB is a major new infrastructure aiming to facilitate the transportation of all the southern corridor sources, including liquefied natural gas (LNG), to the Bulgarian and South Eastern European Markets and will reduce the isolation of the Bulgarian market. The Regulatory Authorities granted an exemption from the provisions of Article 43 for a period of 25 years starting from the commercial operation, subject to detailed conditions. These conditions are mainly the requirement to implement functional unbundling together with the submission of a compliance programme, approved jointly by the Regulatory Authorities, setting out measures taken to ensure the exclusion of discriminatory conduct and that no commercially sensitive information is communicated to its shareholders.

4.90

2.2.8 Derogations set out in the Directives Cyprus benefit from express derogations from the unbundling rules regarding electricity213 whereas regarding gas, Cyprus, Luxembourg and Malta benefit from derogations.214 These derogations tend to be given to “energy islands”, otherwise known as “isolated electricity systems”.

4.91

These derogations are dealt with in Chapter 11.

2.2.9 Application of the unbundling principles across the gas and electricity sectors Under the Directives, the three unbundling options apply in the same manner to both the electricity and gas sectors. In addition, Article 43(3) of Directive 2019/944215 mandates that the ownership unbundling provisions apply across the gas and electricity markets, in order to prevent undue influence arising from vertical relations between gas and electricity markets. In this regard, the provisions prohibit influence being held by an entity over an electricity supplier and a gas TSO, or a gas supplier and an electricity TSO.216

212 213 214 215 216

See Brussels, 25.7.2018 C(2018) 5058 final. Article 64 (2) of Regulation 2019/943. Article 49(6) of the Third Gas Directive. Article 9(3) of the Third Gas Directive. This rule only applies to the core requirements of ownership unbundling under the Third Gas Directive and Article 43(3) of Directive 2019/944 . It does not apply to the ancillary rules provided for in subparagraphs (c) and (d).

141

4.92

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.93

In this respect the Council and Parliament followed the Commission’s view which considered that although the gas and electricity sectors differ significantly, the fundamental conflict of interest between supply and generation activities on the one hand, and network operation and development on the other, applies equally to both sectors and justifies the same solutions.

4.94

Although this approach was accepted by the Council, in the course of the legislative procedure, the Parliament called for more stringent unbundling rules for electricity, voting in its First Reading217 in favour of a single ownership unbundling option for electricity, and a choice between ownership unbundling and an ITO option for gas. At Parliament, the arguments against ownership unbundling for gas were (i) the importance of owning the network to negotiate long-term supply agreements with upstream gas producers, (ii) there is reduced scope for discrimination by the TSO in the gas sector because there is no (or less) network congestion, and (iii) there is only limited risk that a TSO will deter investments in major new infrastructure, given that their livelihood depends on the ability to import gas. These factors played an important role in the Parliament’s thinking, combined with the fact that progress towards ownership unbundling is more advanced in the EU’s electricity sector than in the gas sector.

4.95

The Commission’s view was, however, that: (i) the key to concluding long-term supply agreements with upstream gas producers is not ownership of the network, but rather the existence of a strong customer base, (ii) gas TSOs have a greater degree of control in defining the direction of flows and the capacity utilisation in the system than in electricity and therefore can easily engage in discrimination, and (iii) the regulatory framework permits temporary derogations from the ownership unbundling rules for the construction of new infrastructure in order to encourage investment by supply and production companies. The more stringent regime proposed for electricity were not implemented.

3. 4.96

Level Playing Field – Intra EU Acquisitions

During the negotiations for the Third Energy Package the existence of several unbundling models raised the issue of a “level playing field” between electricity and gas companies. To what extent could a vertically integrated company in 217 The EU legislative process can be summarised as follows; the Parliament gives a first opinion on the Commission proposal ( first reading ), after which the Council reaches a conclusion ( common position ). Where this differs from the Parliament s opinion, the latter has a second reading, giving its position on the Council s common position. Where the Council cannot accept the Parliaments second reading opinion, a conciliation procedure is established to permit the emergence of a common view.

142

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Member State A, having opted for the ITO model, acquire an ownership unbundled network or a supplier in Member State B which had opted for ownership unbundling? The acquired unbundled network operator or supplier would become vertically integrated through the acquisition. An agreement on this difficult issue could only be reached at the Energy Council on 10 October 2008, four months after overall agreement was found on the unbundling issues at the Energy Council of June 2008. The compromise agreed between Member States and untouched in the negotiation with Parliament is twofold. There is, first, an absolute prohibition against vertical integration of TSOs in Member States which have opted for ownership unbundling; and second, a more general provision allowing Member States to ensure a level playing field within their territory.

4.97

3.1 Acquisition of rights within an ownership unbundled TSO Article 43(11) of Directive 2019/944 and Article 9(12) of Third Gas Directive expressly state that the independence of a network owner in a Member State which has opted for ownership unbundling should be preserved.

4.98

Article 43(11) of Directive 2019/944 “Undertakings performing any of the functions of generation or supply shall not in any event be able to directly or indirectly take control over or exercise any right over unbundled transmission system operators in Member States which apply paragraph 1.”

As a consequence a vertically integrated undertaking in Member State A must comply with the rules on ownership unbundling when acquiring rights in a TSO in Member State B which has opted for ownership unbundling. This means that a vertically integrated supplier or ITO in Member State A cannot directly or indirectly exercise control, or any “right”, over a TSO from a Member State that has opted for ownership unbundling.

4.99

The concept of “right” under Article 43(11) has the same meaning than under Article 43(11) of Directive 2019/944 and Article 9(2) of the Third Gas Directive and refers to the definition of ownership unbundling under the Directives. This effectively means that the ownership unbundling rules in relation to the independence of the ownership unbundled TSOs therefore do not apply on a Member State basis but over the whole of the EU.

4.100

143

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.101

In practice the situations described in Chart I (below) are prohibited under Article 43(11): a supplier or ITO in Member State A cannot have or acquire control, have a majority shareholding, exercise voting rights or appoint any administrator in a TSO in Member State B which applies ownership unbundling. The same rule applies where the ITO or the vertically integrated undertaking is controlled by a holding company: the holding company cannot have or acquire control, have a majority shareholding, exercise voting rights, or appoint any administrator in a TSO in Member State B which applies ownership unbundling (Chart II). This is because the holding company should be considered as part of an “undertaking… performing any of the functions of generation or supply” within the meaning of Article 43(11).

Supplier or ITO in Member State A

Control or majority shareholding or exercise of voting rights or appointment of administrator

TSO in Member State B applying ownership unbundling

Chart I. Situations that are prohibited where TSO and supplier are parent and subsidiary. Holding company (located anywhere)

Control

Supplier or ITO in Member State A

Control or majority shareholding or exercise of voting rights or appointment of aministrator

TSO in Member State B applying ownership unbundling

Chart II. Situations that are prohibited where there is a holding company. 144

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

3.2 General provision on level playing field Article 65 of Directive 2019/944 and Article 47 of the Third Gas Directive allow Member States to adopt measures in order to ensure a level playing field:

4.102

Article 43 – Level playing field (Electricity Directive) “1. Measures that the Member States may take pursuant to this Directive in order to ensure a level playing field shall be compatible with the Treaty, in particular Article 36 thereof, and with Union law. 2. The measures referred to in paragraph 1 shall be proportionate, non‑discriminatory and transparent. Those measures may be put into effect only following the notification to and approval by the Commission. 3. The Commission shall act on the notification referred to in paragraph 2 within two months of the receipt of the notification. That period shall begin on the day following receipt of the complete information. In the event that the Commission has not acted within that two‑month period, it shall be deemed not to have raised objections to the notified measures”.

The measures adopted by Member States (i) must be compatible with the TFEU and EU law, as well as proportionate, non-discriminatory and transparent and (ii) can only be put into effect after they have been notified and approved by the Commission.218

4.103

Given that acquisitions of ownership unbundled TSOs are already dealt with under Article 43(11), in practice Article 65 of Directive 2019/944 and Article 47 of the Third Gas Directive are likely to apply to the acquisition of rights in a generator or supplier of a Member State which has opted for ownership unbundling by a vertically integrated undertaking from another Member State which has opted for the ITO model.

4.104

These provisions, which have resulted from politically charged discussions, appear to provide the Commission with an additional possibility of checking compliance with EU law, even though this possibility already exists under the general Treaty provisions. Furthermore, even in the absence of these provisions,

4.105

218 Strangely, the corresponding Recital only refers to the Commission being consulted on the compatibility of the measures with the Treaty and Union law (Recital 21 of the Directive 2019/944 and Recital 19 of the Third Gas Directive).

145

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.106

Member States would arguably still be able to seek compliance with ownership unbundling rules within their territories based on the general unbundling rules.

4.107

In practice, a Member State seeking to prohibit the acquisition of an ownership unbundled TSO by an ITO or ISO will also need to comply with the EU rules on the free movement of capital and establishment and EU merger control rules.

4.

Designation of TSO and the certification procedure

4.108

Under the Second Energy Package, TSOs must be designated as such by Member States in order to ensure transparency. The Third Energy Package added an additional certification procedure: before a body can be approved and designated as a TSO by the Member State, the company in question must be certified by the national regulatory authority. The aim of this certification procedure is to ensure that the unbundling conditions (whether under ownership unbundling, ISO, ITO or ITO+) are complied with. The Commission had proposed being given the competence to approve or oppose the regulator’s decision to grant certification. However, in the course of the negotiations with the Council, the Commission’s role was reduced so that under the adopted Third Energy Package, the regulators only have to take “utmost account” of the Commission’s opinion.

4.109

Failure by a TSO to obtain its certification cannot lead to a situation where there is no TSO, because the network will always need to be operated. In such circumstances the network would be operated while infringing EU law, which would need to be remedied by the Member State in question. Furthermore, there is little scope for the selection of a TSO under the certification process. Under both the ownership unbundling, in both the Directive 2019/944 and the Third Gas Directive, the TSO can only be the network owner because this is a requirement of Article 43(1)(a).219 Under ITO, the TSO is always the owner of the network and a subsidiary of the vertically integrated undertaking because these are requirements of the ITO option.

4.110

To some extent, a kind of selection process for an ISO is in theory, possible. In practice, however, this would be limited to the selection of the corporate person controlling the ISO undertaking, in particular its financial capabilities and network investment commitments under Article 44(2)(b) and (c) of Directive 2019/944 and Article 14 (2)(b) and (c) of the Third Gas Directive. This is be219 Article 9(1)(a) concerning gas.

146

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

cause in practice the staff of the undertaking already acting as a TSO cannot be replaced without raising considerable human resources issues. Certification is therefore not a matter of selecting a TSO between competing companies, but rather of ensuring compliance with unbundling rules. The certification process normally involves ex ante intervention and preventing the implementation of financial operations that would lead to the TSO failing to comply with the relevant unbundling rules.

4.111

4.1 Approval and designation of the TSO The obligation to approve and designate the TSO lies, as in the Second Energy Package, on the Member States. This is not exclusively reserved for the national regulator and can be carried out by, for example, ministries. This contrasts with certification, which falls within the regulator’s exclusive competence. A TSO can only be approved and designated as a TSO when it has been certified under the certification procedure described above. The designation of TSOs must be notified to the Commission and published in the Official Journal of the European Union.

4.112

Article 52(2) Designation and certification of transmission system operators “2. Undertakings which have been certified by the regulatory authority as having complied with the requirements of Article 43 pursuant to the certification procedure below,, shall be approved and designated as transmission system operators by Member States. The designation of transmission system operators shall be notified to the Commission and published in the Official Journal of the European Union”.

4.2 General rules on certification The same certification procedure applies for ownership unbundled TSOs, ISOs220 and ITOs.221 This procedure is laid down in Article 52 of Directive 2019/944 and in Article 51 of Regulation (EU) 2019/943 (as well as in Article 10 of Third Gas Directive and Article 3 of the Gas Regulation).

220 Article 44(3) of the Directive 2019/944 and Article 14(3) of the Third Gas Directive. 221 Article Article 47(10) of Directive 2019/944 of the Third Gas Directive.

147

4.113

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Article 52 Designation and certification of transmission system operators (Directive 2019/944) “1. Before an undertaking is approved and designated as transmission system operator, it shall be certified according to the procedures laid down in paras 4, 5 and 6 of this Article and in Article 51 of Regulation (EU) 2019/943. (…) 3. Transmission system operators shall notify to the regulatory authority any planned transaction which may require a reassessment of their compliance with the requirements of Article 43. 4. Regulatory authorities shall monitor the continuing compliance of transmission system operators with the requirements of Article 43. They shall open a certification procedure to ensure such compliance: (a) upon notification by the transmission system operator pursuant to paragraph 3; (b) on their own initiative where they have knowledge that a planned change in rights or influence over transmission system owners or transmission system operators may lead to an infringement of Article 43, or where they have reason to believe that such an infringement may have occurred; or (c) upon a reasoned request from the Commission. 5. The regulatory authorities shall adopt a decision on the certification of a transmission system operator within a period of four months from the date of the notification by the transmission system operator or from the date of the Commission request. After expiry of that period, the certification shall be deemed to be granted. The explicit or tacit decision of the regulatory authority shall become effective only after the conclusion of the procedure set out in paragraph 6. 6. The explicit or tacit decision on the certification of a transmission system operator shall be notified without delay to the Commission by the regulatory authority, together with all the relevant information with respect to that decision. The Commission shall act in accordance with the procedure laid down Article 51 of Regulation (EU) 2019/943. 148

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg 7. The regulatory authorities and the Commission may request from transmission system operators and undertakings performing any of the functions of generation or supply any information relevant for the fulfilment of their tasks under this Article. 8.1Regulatory authorities and the Commission shall preserve the confidentiality of commercially sensitive information”.

Article 51 Certification of transmission system operators (Regulation 2019/943) “1. The Commission shall examine any notification of a decision on the certification of a transmission system operator as laid down in Article 52(6) of Directive (EU) 2019/944as soon as it is received. Within two months of the day of receipt of such notification, the Commission shall deliver its opinion to the relevant national regulatory authority as to its compatibility with Article 43 and either Article 52(2) or Article 53 of Directive (EU) 2019/944.

When preparing the opinion referred to in the first subparagraph, the Commission may request the Agency to provide its opinion on the national regulatory authority’s decision. In such a case, the two‑month period referred to in the first subparagraph shall be extended by two further months.



In the absence of an opinion by the Commission within the periods referred to in the first and second subparagraphs, the Commission shall be deemed not to raise objections to the regulatory authority’s decision.

2. Within two months of receiving an opinion of the Commission, the national regulatory authority shall adopt its final decision regarding the certification of the transmission system operator, taking the utmost account of that opinion. The regulatory authority’s decision and the Commission’s opinion shall be published together. 3. At any time during the procedure, regulatory authorities and/or the Commission may request from a transmission system operator and/or an undertaking performing any of the functions of generation or supply any information relevant to the fulfilment of their tasks under this Article.

149

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg 4. Regulatory authorities and the Commission shall preserve the confidentiality of commercially sensitive information. 5. Where the Commission has received notification of the certification of a transmission system operator under Article 43(9) of Directive (EU) 2019/944,the Commission shall take a decision relating to certification. The regulatory authority shall comply with the Commission decision”.

4.2.1 Launch and timing of the procedure 4.114

Under the ownership unbundling option, the regulator should check that the owner of the network complies with the rules of ownership unbundling under Article 43 of Directive 2019/944.222 Under the ISO and ITO options, the specific unbundling rules set out under these options must be complied with.

4.115

These rules have to be applied for the first certification and any time a reassessment of the compliance of the TSO with the unbundling rules is required. The regulatory authorities have the obligation to open a certification procedure upon notification by the transmission system or upon a reasoned request from the Commission.

4.116

It is primarily the TSOs’ responsibility to notify to the regulatory authority of any planned transaction which may require a reassessment of their compliance with the requirements under the ownership unbundling, ISO, ITO or ITO+ options. A network operator not complying with this obligation could be fined pursuant to Article 58(3)(d) of Directive 2019/944.223 The reference to “planned transaction” highlights that the control should normally be ex ante.

4.117

It is also the responsibility of the national regulatory authority to monitor the continuing compliance of the TSO(s) with the unbundling rules, and to open a certification procedure on its own initiative where it has knowledge that a planned change in rights or influence over the TSO may lead to an infringement of the unbundling rules, or where the authority has reason to believe that such an infringement may have occurred.

222 Article 9 of the Third Gas Directive. 223 41(4)(d) of the Third Gas Directive.

150

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.2.2 Procedure and timing Strict deadlines are imposed throughout the process. The national regulatory authority must adopt its certification decision within four months from the date of the notification by the TSO or from the date of a Commission request. After that period expires, the certification shall be deemed to be granted. This decision whether it is reached by explicit of tacit means, has to be notified without delay to the Commission by the regulatory authority. It should be accompanied by all the relevant information.224

4.118

Within two months of the day of receipt of the notification, the Commission shall deliver its opinion to the relevant national regulatory authority on its compatibility with the ownership unbundling, ISO, ITO or ITO+ options.

4.119

For the purpose of preparing this opinion, the Commission may request ACER to provide its opinion on the national regulatory authority’s decision. Where this request is made, the two‑month period is extended by two further months. In the absence of an opinion by the Commission within the two or four month period, it shall be deemed not to raise objections to the regulatory authority’s decision.

4.120

Within two months of receiving the Commission’s opinion, the regulatory authority must adopt its final decision. For this purpose, it must take “utmost ac‑ count” of the Commission’s opinion. The legal strength of such an obligation is uncertain and guidance may eventually be needed from the European Court of Justice. However, it would appear that that in practice the regulator can only depart from the Commission’s opinion when it thoroughly justifies any divergence of views. As regards decisions concerning an ITO+, the rule is that “the regula‑ tory authority shall comply with the Commission decision”. The regulatory authority’s decision and the Commission’s opinion have to be published together.

4.121

The national regulatory authorities and/or the Commission can request any information pertaining to the certification process from a TSO and/or an undertaking performing any of the functions of generation or supply at any time during the procedure. In this regard, the Commission and regulators are under a strict duty to preserve the confidentiality of commercially sensitive information.

4.122

Under Articles 3(5) of both the Electricity and Gas Regulations, the Commission had been able to adopt detailed Guidelines under the comitology proce-

4.123

224 Article 52(5) of Directive 2019/944 and Article 10(5) of the Third Gas Directive.

151

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

dure. Harmonised rules on gas congestion management procedures, capacity allocation and balancing were adopted in 2013. Harmonised rules on electricity followed in 2015, on capacity allocation and congestion management, forward capacity allocation, balancing, emergency and restoration, demand connection, requirements for generators, high-voltage direct current and system operation.

4.3 Certification in case of control of an EU transmission system operator by a company from a non-EU country 4.3.1 Introduction 4.124

Where certification is requested because a company from a non-EU country wishes to acquire an EU TSO, the rules and procedure of Article 53 of Directive 2019/944 on certification in relation to third countries apply. Article 53 Certification in relation to third countries (Directive 2019/944) “1. Where certification is requested by a transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries, the regulatory authority shall notify the Commission.

The regulatory authority shall also notify to the Commission without delay any circumstances that would result in a person or persons from a third country or third countries acquiring control of a transmission system or a transmission system operator.

2. The transmission system operator shall notify to the regulatory authority any circumstances that would result in a person or persons from a third country or third countries acquiring control of the transmission system or the transmission system operator. 3. The regulatory authority shall adopt a draft decision on the certification of a transmission system operator within four months from the date of notification by the transmission system operator. It shall refuse the certification if it has not been demonstrated:

152

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg (a) that the entity concerned complies with the requirements of Article 43; and (b) to the regulatory authority or to another competent authority designated by the Member State that granting certification will not put at risk the security of energy supply of the Member State and the Community. In considering that question the regulatory authority or other competent authority so designated shall take into account: (i) the rights and obligations of the Community with respect to that third country arising under international law, including any agreement concluded with one or more third countries to which the Community is a party and which addresses the issues of security of energy supply; (ii) the rights and obligations of the Member State with respect to that third country arising under agreements concluded with it, insofar as they are in compliance with Community law; and (iii) other specific facts and circumstances of the case and the third country concerned. 4. The regulatory authority shall notify the decision to the Commission without delay, together with all the relevant information with respect to that decision. 5. Member States shall provide for the regulatory authority or the designated competent authority referred to in point (b) of paragraph 3, before the regulatory authority adopts a decision on the certification, to request an opinion from the Commission on whether: (a) the entity concerned complies with the requirements of Article 43; and (b) granting certification will not put at risk the security of energy supply to the Community. 6. The Commission shall examine the request referred to in paragraph 5 as soon as it is received. Within a period of two months after receiving the request, it shall deliver its opinion to the national regulatory authority or, if the request was made by the designated competent authority, to that authority. In preparing the opinion, the Commission may request the views of the Agency, the Member State concerned, and interested parties. In the event that the Com153

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg mission makes such a request, the two‑month period shall be extended by two months.

In the absence of an opinion by the Commission within the period referred to in the first and second subparagraphs, the Commission shall be deemed not to raise objections to the decision of the regulatory authority.

7. When assessing whether the control by a person or persons from a third country or third countries will put at risk the security of energy supply to the Community, the Commission shall take into account: (a) the specific facts of the case and the third country or third countries concerned; and (b) the rights and obligations of the Community with respect to that third country or third countries arising under international law, including an agreement concluded with one or more third countries to which the Community is a party and which addresses the issues of security of supply. 8. Theregulatory authority shall, within a period of two months after the expiry of the period referred to in paragraph 6, adopt its final decision on the certification. In adopting its final decision the regulatory authority shall take utmost account of the Commission’s opinion. In any event Member States shall have the right to refuse certification where granting certification puts at risk the Member State’s security of energy supply or the security of energy supply of another Member State. Where the Member State has designated another competent authority to assess point (b) of paragraph 3, it may require the regulatory authority to adopt its final decision in accordance with the assessment of that competent authority.

The regulatory authority’s final decision and the Commission’s opinion shall be published together. Where the final decision diverges from the Commission’s opinion, the Member State concerned shall provide and publish, together with that decision, the reasoning underlying such decision.

9. Nothing in this Article shall affect the right of Member States to exercise, in compliance with Community law, national legal controls to protect legitimate public security interests. 10. This Article, with exception of point (a) of paragraph 3 thereof, shall also apply to Member States which are subject to a derogation under Article 66.” 154

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The concept of control is identical to the one used in the EU Merger Regulation (the “EUMR”)225 and should be interpreted accordingly.

4.125

The original Commission proposal, endorsed by Parliament, prohibited investors from third countries from acquiring control of EU transmission networks unless this was authorised under an international agreement; however, the Council negotiations led to the removal of this general proposed prohibition, which was replaced by a requirement that such acquisitions should be notified to the Commission and rejected if either: (i) the TSO being acquired does not comply with the unbundling rules, or (ii) if the transaction puts at risk the security of energy supply of the Member State concerned or of the EU.

4.126

While the Commission has to be consulted by the national regulatory authority, the latter is only under the duty to take “utmost account” of the Commission’s opinion, even when assessing compliance with unbundling rules and the EU’s security of supply. The rational for this is twofold.

4.127

First, the rules on unbundling should be fully respected throughout the Community by both EU and non‑EU undertakings. In the case of acquisitions by non-EU companies of an EU TSO, particular difficulties can arise in ensuring that the unbundling rules will be respected, particularly where the purchaser is a vertically integrated company.

4.128

Second, the acquisition of networks by foreign companies could potentially threaten the EU’s security of energy supply. Although the provision applies indifferently to all non EU States, countries that provide the EU with a significant proportion of their gas supplies (and have a very strong position with respect to certain regions or countries within the EU) would raise particularly important energy security issues. For example if the acquirer both owns the EU pipes necessary for supply and was also an important supplier, it could abuse its ownership of the pipes to prevent alternative sources of supply from emerging.

4.129

The security of supply rationale for the clause is expressed in Recital 22 of the Third Gas Directive, as well as the former Electricity Directive:

4.130

“The security of energy supply is an essential element of public security and is therefore inherently connected to the efficient functioning of the internal market in gas and the integration of the isolated gas markets of Member States. Gas can reach

4.131

225 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EU Merger Regulation), OJ L 24, 29.1.2004, p. 1.

155

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

the citizens of the Union only through the network. Functioning open gas markets and, in particular, the networks and other assets associated with gas supply are essential for public security, for the competitiveness of the economy and for the well being of the citizens of the Union. Persons from third countries should therefore only be allowed to control a transmission system or a transmission system operator if they comply with the requirements of effective separation that apply inside the Community. Without prejudice to the international obligations of the Community, the Community considers that the gas transmission system sector is of high importance to the Community and therefore additional safeguards are necessary regarding the preservation of the security of supply of energy to the Community to avoid any threats to public order and public security in the Community and the welfare of the citizens of the Union. The security of supply of energy to the Community requires, in particular, an assessment of the independence of network operation, the level of the Community’s and individual Member States’ dependence on energy supply from third countries, and the treatment of both domestic and foreign trade and investment in energy in a particular third country. Security of supply should therefore be assessed in the light of the factual circumstances of each case as well as the rights and obligations arising under international law, in particular the international agreements between the Community and the third country concerned. Where appropriate the Commission is encouraged to submit recommendations to negotiate relevant agreements with third countries addressing the security of supply of energy to the Community or to include the necessary issues in other negotiations with those third countries”.

4.132

This Recital stresses the close link between the internal market rules and security of supply issues, and hints that networks are “strategic assets”. The references to “public order”, “public security” and “welfare of citizens” refers to exceptions in international trade law which may be invoked to justify the non-application of trade principles such as “most favoured nation” and “national treatment”. The clause also encourages the conclusion of agreements with third countries to ensure that network investments from third countries would qualify under the criteria of Article 11 the Third Gas Directive (and Article 53 of Directive 2019/944) relating to security of supply.

4.3.2 Substance and Procedure 4.133

TSOs are under an obligation to notify any circumstances to the national regulatory authority that would result in a non-EU third country entity acquiring control over it. The regulatory authority must adopt a draft decision on TSO certification within four months from the date of notification. 156

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The regulatory authority must notify the Commission: (i) if certification is requested by a TSO which is controlled by a third country entity; or (ii) of any circumstances arising that would result in a third country entity acquiring control of a TSO.

4.134

The regulatory authority must refuse the certification if it has not been demonstrated that:

4.135

(a)

the company seeking to acquire the EU TSO complies with the requirements of unbundling rules. This applies equally to ownership unbundling, ISO, ITO and ITO+; and

(b)

granting certification will not put the security of energy supply of the Member State and the EU at risk.

Article 53(3)(b) of Directive 2019/944 and 11(3)(b) of the Third Gas Directive provide the following rules on this security of supply test.

4.136

First, contrary to the assessment of unbundling rules, which can only be done by the regulatory authority, the security of supply test can be performed by “anoth‑ er competent authority designated by the Member State”. This means in practice that the relevant Member State can keep control over this politically sensitive assessment.

4.137

Second, the designated competent authority must, in making its assessment, take into account “the rights and obligations of the Community with respect to that third country arising under international law, including any agreement con‑ cluded with one or more third countries to which the Community is a party and which addresses the issues of security of energy supply”. It should also take into account “the rights and obligations of the Member State with respect to that third country arising under agreements concluded with it, insofar as they are in compliance with Community law”,226 as well as the “other specific facts and cir‑ cumstances of the case and the third country concerned”.227

4.138

In practice this means that an international agreement concluded between the EU and a third country could set out the conditions for authorisation of the acquisition of control by a third country of EU TSOs.228 The conditions may re-

4.139

226 Article 53(3)(b)(i) and (ii) of Directive 2019/944 and 11(3)(b)(i) and (ii) of the Third Gas Directive. 227 Article 53(3)(b)(iii) of Directive 2019/944 and 11(3)(b)(iii) of the Third Gas Directive. 228 Under EU law, international agreements between the EU and third countries override the Third Energy

157

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

late to identical treatment being granted to EU companies in the third country (i.e., EU companies being authorised to acquire the third country’s network) or to require to open the third country’s energy market to allow access to EU producers and suppliers.229 It is the Commission’s role to negotiate these agreements and to make appropriate recommendations to the Council.230 This means that in practice, security of supply test should be dealt with in international agreements between the EU and third countries.

4.140

The assessment of any threat to EU and the Member State’s security of supply relies on a factual assessment of the situation, which means that particular account should be taken of “the level of the Community’s and individual Member States’ dependence on energy supply from (the third country concerned)”.231

4.141

The national regulatory authority must notify its decision to the Commission without delay, together with all the relevant information. Within two months, the Commission will provide an opinion on whether (a) the entity concerned complies with the relevant unbundling rules, and (b) whether granting certification will put the security of energy supply to the EU at risk.232

4.142

In preparing the opinion, the Commission may request the views of ACER, the Member State concerned, and interested parties. In the event that the Commission makes such a request, the two-month period is extended by two months. In the absence of an opinion by the Commission within the two or four month period, the Commission shall be deemed not to have raised objections to the regulatory authority’s decision.

4.143

Within a further period of two months the national regulatory authority then adopts its final decision on the certification. In adopting its final decision, the national regulatory authority must take “utmost account” of the Commission’s opinion.

229 230 231 232

Package s Directives. Some Member States for instance, especially those in Eastern and central Europe, have existing agreements with Russia setting out the conditions applying to Russian investment on their territory. These agreements can be taken into account but only to the extent that they comply with EU law. This is expressly referred to in Recital 22 of the Third Gas Directive: The security of supply of energy to the Community requires, in particular (& ) an assessment of the treatment of both domestic and foreign trade and investment in energy in a particular third country. Recital 25 of the Third Electricity Directive and Recital 22 of the Third Gas Directive refers to the fact that the Commission is encouraged to submit such recommendations to negotiate relevant agreements with third countries . Recital 22 of the Third Gas Directive. Article 53(6) of Directive 2019/944 and Article 11(6) of the Third Gas Directive.

158

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The national regulatory authority’s final decision and the Commission’s opinion must be published together. If the final decision of the national regulatory authority diverges from the Commission’s opinion, the Member State concerned must provide and publish, together with that decision, the reasoning underlying such decision (this last requirement being absent from the Article 52 procedure above concerning the general certification procedure). Directive 2019/944 clarifies in Articles 53(10) that the procedure also applies to Member States that benefit from a derogation from the rules on unbundling.233 For these Member States, only the issue of security of energy supply needs to be addressed during certification, not unbundling.

4.144

A difficult situation would arise if a transaction puts a Member State’s security of energy supply at risk, but is nevertheless on balance, beneficial for the EU’s security of supply. In such circumstances the Member State would need to take utmost account of the Commission’s opinion and to balance both national and EU energy security concerns. In such a situation, both Directive 2019/944 and the Third Gas Directive clearly give precedence to national interests in a situation where the transaction threatens national energy security: “In any event Member States shall have the right to refuse certification where granting certifi‑ cation puts at risk the Member State’s security of energy supply or the security of supply of another Member State”.234 However, this would not justify granting certification when the transaction improves national energy security, but threatens the EU’s energy security as a whole. In this situation, the national regulatory authority has a clear duty to refuse certification. A further political safety net provision, contained in Article 53(9), indicates that, in any event, Member States shall have the right “to exercise, in compliance with Community law, na‑ tional legal controls to protect legitimate public security interests”.

4.145

This is a recognition in compliance with existing EU Treaty principles, that Member States may derogate from Article 53 of Directive 2019/944 when this is justified by the protection of a legitimate public security interest. This could potentially allow a Member State to grant certification in a situation which is detrimental for EU security of supply. However, the Member State would need to demonstrate that this would be necessary to protect legitimate public security interests, which should only be possible in very exceptional circumstances.

4.146

233 See Chapter 11 on Derogations and exemptions. 234 Article 53(8) of Directive 2019/944 and Article 11(8) of the Third Gas Package Directive.

159

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.4 Commission Control of Certification By National Authorities 4.147

National regulatory authorities certify whether a conflict of interest exists in relation to a TSO, and more generally, whether the unbundling rules in Article 43 of Directive 2019/944. While the objective pursued by the Directive (as well as the Third Gas Directive) is the removal of any conflict of interest between generators or producers, suppliers and TSOs, it would not be in line with this objective if TSO certification were to be refused in a case where it is clearly demonstrated that there is no incentive for a TSO shareholder to influence the TSO’s decision making in order to favour his generation/production/supply interest to the detriment of other network users.235 This was found to be the case in various cases of national TSO certification, including Società Gasgotti Italia S.p.A.,236 Red Electrica de España,237 Enagas,238 Swedegas,239 50 Hertz Transmission,240 the three UK National Grid TSOs,241 TIGF242 and National Grid Electricity System Ltd.243 In reaching its decisions in these cases, the national authorities and the Commission took several elements into account, including: the value, nature, size, market share, and geographic location of the activities in question.

5.

The unbundling options under under the Clean Energy Package in detail

5.1 Ownership unbundling Transmission system owner as a TSO

4.148

Article 43(1) of the Directive 2019/944 provides for the following main rules on ownership unbundling: 235 Recital 69 of Directive 2019/944 and Recital 9 of the Third Gas Directive. 236 Commission Opinion of 23 January 2013 on the certification of Società Gasgotti Italia S.p.A. (047 2012 IT). 237 Commission Opinion of 24 May 2012 on the certification of Red Electrica de España S.A.U. (021 2012 ES). 238 Commission Opinion of 15 June 2012 on the certification of ENAGAS S;A; (024 2012 ES). 239 Commission Opinion of 30 April 2012 on the certification of Swedegas AB (018 2012 SE). 240 Commission Opinion of 6 September 2012 on the certification of 50 Hertz Transmission GmbH (027 2012 - DE). 241 Commission Opinion of 19 April 2012 on the certification of National Grid Electricity Transmission plc (009 2012 UK), National Grid Gas plc (010 2012 UK), and National Grid Interconnector Ltd (011 2012 UK). 242 Commission’s Opinion on CRE’s draft certification decision for TIGFC(2014) 3837. 243 Commission Opinion of 25 September on the Certification of National Grid Electricity System Operator Limited.

160

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg “1. Member States shall ensure that …: (a) each undertaking which owns a transmission system acts as a transmission system operator”

This means that compliance with ownership unbundling results in the same undertaking being the owner of the transmission system and the TSO.

4.149

This raises the question of what happens when several TSOs create a joint venture which acts as a TSO in two or more Member States. If the networks continue to be owned by the parent companies and the parent companies do not have control of the joint venture, it is doubtful that this would be in compliance with paragraph 1(a) above. Paragraph 5 of Article 43 clarifies that ownership unbundled TSOs which create a joint venture acting as a TSO in two or more Member States can keep ownership of their network without contravening the requirement of paragraph 1(a) outlined above.

4.150

5.1.1 Application of unbundling rules to companies controlling the TSO or supplier Article 43(1)(b) provides the following definition of ownership unbundling applicable in the case of a company controlling a TSO or a supplier. Article 43(1)(b) “1. Member States shall ensure that (...) (b) the same person or persons are not entitled neither: (i) directly or indirectly to exercise control over an undertaking performing any of the functions of generation or supply, and directly or indirectly to exercise control or exercise any right over a transmission system operator or over a transmission system; nor (ii) directly or indirectly to exercise control over a transmission system operator or over a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of generation or supply;” 161

4.151

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.152

Article 43(1)(b)(i) sets out the essence of ownership unbundling: the same person is not entitled to exercise control over an undertaking performing any of the functions of production or supply, and to exercise control or exercise any right over a TSO or a transmission system.

4.153

Article 43(1)(b)(ii) provides the same rule covering the alternative situation of a person exercising control over a TSO, and also exercising control or any right over an undertaking performing any production or supply functions. In other words, a company can control either an undertaking performing any of the functions of production or supply, or a TSO, but not both. It cannot also have any “right” in a supplier when it controls a TSO, or any “right” in a TSO when it controls a supplier.

4.154

Article 43(2) defines the concept of control or “rights” as referred to in Article 43(1)(b). These concepts merit further consideration.

5.1.2 The concept of control 4.155

4.156

The definition of the term “control” in Article 43(1)(b)(ii) of Directive 2019/944 is identical to the one in the EUMR and should be interpreted accordingly.244 Under Article 3(2) of the EUMR, control shall be constituted by “rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking”. The key concept in this regard is the concept of “decisive influence”. The EUMR clarifies that decisive influence can arise in particular from: 1.

“ownership or the right to use all or part of the assets of an undertaking; or

2.

rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking”.

In line with the concept of control under the EUMR, the reference to control includes both direct and indirect control, through an intermediate subsidiary for example. The concept of “person” is also in substance very similar to the one under the EUMR, covering both private individual and companies. Typically, this will be either the company controlling production supply or the network operation activity, or a parent company having subsidiaries acting as suppliers or network operators. 244 Recital 56 of Directive 2019/944.

162

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The EUMR clarifies that “control” is acquired by persons or undertakings which: 1.

“are holders of the rights or entitled to rights under the contracts concerned”; or

2.

“while not being holders of such rights or entitled to rights under such contracts, have the power to exercise the rights deriving therefrom”.245

The reference to persons in the plural form is to address the situation where several persons have joint control.246

4.157

4.158

5.1.3 The concept of “rights” Article 43(2) of Directive 2019/944 provides the following definition of “rights” as referred to in Article 43(1):247 Article 43 “2. The rights referred to in points (b) and (c) of paragraph 1 shall include, in particular: (a) the power to exercise voting rights; (b) the power to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking; or (c) the holding of a majority share.”248

245 Article 3(3) EUMR. 246 For further guidance on these concepts, please refer to the Commission s Interpretation Notes on the EUMR: Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings of 10 July 2007, OJ C95 of 16.04.2008. Further explanations are also provided in Chapter 5 on Unbundling of DSOs. 247 The Commission’s original proposal had provided for even stronger unbundling rules by excluding the right to receive dividends and the holding of any share in the definition of rights. By contrast, the Council s Common Position of January 2009 only referred to the powers to exercise voting rights and to appoint board members. The prohibition on retaining majority ownership of shares was inserted in the final text following the negotiation between the Council and the Parliament. 248 There is some uncertainty as to whether this includes any majority share: i.e., the biggest share than any other shareholder, or whether this is limited to absolute majority, i.e., more than 50%. The reference to majority should clearly point to the first interpretation.

163

4.159

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.160

If these principles on voting rights and board member appointments are applied to the unbundling rules, the result is that a shareholding can only result in financial rights, i.e., the right to receive dividends, but cannot confer any right to take part in the decision making process of the company or to exercise any influence on the company.

4.161

The right to receive dividends will therefore in practice be limited to the unusual situations where shares are split between the “political” right of decision making and the financial right to receive dividends. Compliance with the rule would then mean that a formerly vertically integrated company retains only the financial right, while entrusting the “political” right to a fully independent trust or fund. This is a difficult situation to accept as it means accepting investments and financial risk without the right to participate in the decision making process. However, it is a precondition to preserving a financial interest in the TSO or supplier. Thus, a company owning a TSO can have a non-majority share in a supplier providing, inter alia, that it does not directly or indirectly exercise any voting rights as regards its shareholding.

5.1.4 The rule in practice 4.162

In taking action in order to comply with the ownership unbundling option, there is a distinction between the following two situations: 1. where there is a parent company (e.g. a holding company) holding an interest in, and/or having any influence on, both a TSO and a supply company; and 2.

where there is a direct capital link between a supplier and a TSO.

4.163

In these two situations, the requirements of Article 43(1)(b) of the Directive can be complied with as follows. (a) Holding company situation

4.164

In the case of a parent company, such as a holding company directly or indirectly controlling a supplier, the parent company can keep a direct or indirect shareholding in a network operator or in a network system, provided the following cumulative conditions are complied with:

164

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

1.

the parent company does not directly or indirectly have any form of control over the network operator or the network system,

2.

this shareholding is not a majority one,

3.

the parent company does not directly or indirectly exercise any voting rights as regards its shareholding in the network operator or the network system, and

4.

the parent company does not directly or indirectly exercise the power to appoint bodies legally representing the network operator or the network system such as members of the supervisory board, or the administrative board.

The same rule applies to a parent company directly or indirectly controlling a TSO or a network system. The parent company can keep a direct or indirect shareholding in a supplier, provided the following cumulative conditions are complied with: –

the parent company does not directly or indirectly have any form of control over the supplier

–

this shareholding is not a majority share,

–

the parent company does not directly or indirectly exercise any voting rights as regards its shareholding in the supplier, and

–

the parent company does not directly or indirectly exercise the power to appoint bodies legally representing the supplier such as members of the supervisory board, or the administrative board.

This can be illustrated by the following charts. Charts I and II show permitted situations under the ownership unbundling provisions of Directive 2019/944; Charts III and IV show prohibited situations under the same provisions.

165

4.165

4.166

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Situations that are permitted where there is a holding company

Holding

Non controlling minority shareholding and/or dividends

Control

Supplier

TSO

Chart I

Holding

Non controlling minority shareholding and/or dividends

Control

TSO

Supplier

Chart II

166

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Situations that are prohibited where there is a holding company

Holding Control or majority shareholding or exercise of voting rights or appointment of administrator

Control

Supplier

TSO

Chart III.

Holding Control or majority shareholding or exercise of voting rights or appointment of administrator

Control

TSO

Supplier

Chart IV. (b) TSO and supplier as parent and subsidiary (direct capital link situation) When there is no joint parent company involved, the “person” referred to in Article 43(1)(b) is the company or individual directly or indirectly controlling the TSO or supply undertaking. This person should not directly or indirectly hold any of the rights listed in Article 43(2) of the Directive.

167

4.167

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.168

4.169

4.170

A producer or supplier may therefore retain a direct or indirect minority shareholding in a network operator or in a network system, provided the following cumulative conditions are complied with: 1.

the supplier does not directly or indirectly have any form of control over the network operator or the network system;

2.

this shareholding is not a majority share;

3.

the supplier does not directly or indirectly exercise any voting rights as regards its shareholding; and

4.

the supplier does not directly or indirectly exercise the power to appoint bodies legally representing the network operator or the network system such as members of the supervisory board, or the administrative board.

The same rule applies to a TSO having a direct or indirect shareholding in a producer or supplier. The following cumulative conditions should then be complied with: 1. the network operator does not directly or indirectly have any form of control over the supplier; 2.

this shareholding is not a majority share;

3.

the network operator does not directly or indirectly exercise any voting rights as regards its shareholding; and

4.

the network operator does not directly or indirectly exercise the power to appoint bodies legally representing the supplier such as members of the supervisory board, or the administrative board.

This can be illustrated as follows: Charts V and VI show the situations that are allowed; Charts VII and VIII show the situations that are prohibited under the rules on ownership unbundling of the directives.

168

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Situations that are allowed where TSO and supplier are parent and subsidiary

Supplier

Non controlling minority shareholding and/or dividends

TSO

Chart V

TSO

Non controlling minority shareholding and/or dividends

Supplier

Chart VI

169

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Situations that are prohibited where TSO and supplier are mother and subsidiary

Supplier

Control or majority shareholding or exercise of voting rights or appointment of administrator

TSO

Chart VII.

TSO

Control or majority shareholding or exercise of voting rights or appointment of administrator

Supplier

Chart VIII. Application of the unbundling rules to non-controlling companies Article 43(1)(c) of Directive 2019/944 “1. Member States shall ensure that : (c) the same person or persons are not entitled to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, of a transmission system operator or a transmission system, and 170

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of generation or supply”.

Article 43(1)(c) of the Directive provides that where a person only has a minority stake in both a TSO and a supplier without holding any form of control over either, that same person is not entitled to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, members of a TSO or a transmission system. In addition, that same person is also not entitled to directly or indirectly exercise any right over an undertaking performing any of the functions of generation or supply.249

4.171

This rule therefore adds a specific requirement to Article 43(1)(b) in relation to parent companies or other entities that do not have any controlling interest in a transmission network operator or a supplier. It aims at preventing a parent company from influencing a supplier. As a consequence, a parent company (or other entity) that holds a majority share, or has the power to appoint board members or exercise voting rights in a supplier, cannot appoint TSO board members.

4.172

This rule has been criticised for placing undue limitations on minority shareholdings of financial institutions, thereby limiting access to bank financing for energy TSOs and suppliers. However, it was felt that the rule was needed to avoid any undue influence on TSOs. The restriction is limited to the appointment of TSO administrators. A financial investor may therefore still have a noncontrolling minority share in a TSO, as well as a non-controlling minority share in a supplier and appoint supplier board members.

4.173

Chart IX below shows prohibited situations in relation to the above paragraphs under the ownership unbundling rules.

249 The provision also refers to control but then it does not add anything to the provision under subparagraph (b).

171

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Situations that are prohibited in the absence of control of both a TSO and a supplier

Holding Majority shareholding or exercise of voting rights or appointment of administrator

Appointment of administrators

TSO

Supplier

Chart IX Application of unbundling rules to board members Article 43(1)(d) of Directive 2019/944 “1. Member States shall ensure that: (…) (d) the same person is not entitled to be a member of the supervisory board, the administrative board or bodies legally representing the undertaking, of both an undertaking performing any of the functions of generation or supply and a transmission system operator or a transmission system.”

4.174

Article 43(1)(d) addresses conflicts of interest for board members, by prohibiting the same person from being a member of the board of both a supply company and a TSO. It is irrelevant for the purposes of the prohibition whether or not the administrator was appointed by the same person. The rule aims at avoiding: scenarios in which (i) a legal person (an individual or company) is placed in a direct conflict of interest, and (ii) the legal person has access to business secrets from both a supplier and a TSO.

172

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Application of unbundling rules to public entities Article 43(5) of Directive 2019/944 “For the implementation of this Article, where the person referred to in points (b), (c) and (d) of paragraph 1 is the Member State or another public body, two separate public bodies exercising control over a transmission system operator or over a transmission system on the one hand, and over an undertaking performing any of the functions of generation or supply on the other, shall be deemed not to be the same person or persons.”

In line with Article 345 TFEU, which stipulates that Member States have sole competence in the area of property ownership,250 the rules on unbundling must respect the principle of non‑discrimination between public and private sectors.251 Ownership unbundling therefore applies to both private and public entities.

4.175

However, state-owned companies are not required to sell their network to a privately owned company in order for them to comply with the ownership unbundling requirements within the meaning of the Directive. For instance, to comply with this requirement, any public entity or the State could transfer the rights to another publicly-owned independent legal person.

4.176

Difficulties can however arise from the fact that two public entities could be considered as the same person under the EUMR and 43(1) of Directive 2019/944. Article 43(5) of the Directive clarifies that where the person exercising control over, or having rights in, a TSO and a supplier is the Member State or another public body, “two separate public bodies exercising control over a transmission system operator on the one hand, and over an undertaking performing any of the functions of generation or supply on the other, shall be deemed not to be the same person or persons”.

4.177

Recital 20 of the Third Gas Directive and Recital 23 of the Third Electricity Directive further add that “provided that the Member State in question is able to demonstrate that the requirement is complied with, two separate public bodies should be able to control production and supply activities on the one hand and transmission activities on the other.”

4.178

250 Article 345 TFEU: The Treaties shall in no way prejudice the rules in Member States governing the system of property ownership. 251 Recital 23 of the Third Electricity Directive and 20 of the Third Gas Directive.

173

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.179

The situation resulting from these provisions in practice is as follows. First, a Member State can comply with ownership unbundling by organising its ownership of supply and TSO undertakings via two distinct and separate public bodies. Second, the Member State should be able to demonstrate, in practice through the certification procedure, that this scheme complies with the ownership unbundling requirement; this means in particular that the two distinct persons should not be under the direct/indirect control of the same person. For example, a ministry could control the supply branch and an independent agency could be set up to control the TSO. Provided the agency is ultimately independent from the Government this scheme could comply with the ownership unbundling rules.

4.180

Another example would be a situation where two different ministries are each in control of the supply and TSO activities. This situation could in theory comply with ownership unbundling because the two ministries may be seen as two distinct entities for the purpose of the ownership unbundling rules. In practice, however, compliance could be made difficult by the fact that the two ministers are normally under the authority of the Government and/or the Prime Minister and thereby ultimately under the control of one and the same person. This situation would not comply with the ownership unbundling requirements. In order to render such a situation compliant with the ownership unbundling requirements, the Member State would need to demonstrate that strong legal safeguards prevent the Government, the Prime Minister or any other single entity from indirectly influencing both the TSO and the supply branch in violation of the rules provided for in Article 43(1) of Directive 2019/944.252 252 For example, in 2012, the Commission also received a notification from the Swedish regulator for energy Energimarknadsinspektionen (“EI”), of a draft decision on the certification of “Affärsverket svenska kraft‑ nät” (“Svenska Kraftnät”) as an electricity TSO. The Commission noted that from the draft decision it appears that Svenska Kraftnät was fully owned by the Swedish State, which also wholly owns Vattenfall AB, a company active in the generation and supply of electricity. While Svenska Kraftnät was within the area of competence of the Swedish Ministry of Enterprise, Energy and Communications, Vattenfall AB falls within the area of competence of the Ministry of Finance. The Commission was satisfied that two separate Ministries controlling, on the one hand transmission of electricity, and on the other hand activities of generation and supply of electricity, can under certain circumstances constitute bodies with a sufficient degree of separation as required under Article 9(6) Third Electricity Directive. According to the Commission it was clear that the Ministry of Enterprise, Energy and Communications, can take decisions independently with regard to Svenska Kraftnät’s transmission activities, without being influenced or controlled by the Ministry of Finance (or by any public authority), taking into account the interests of the Swedish State as shareholder in Vattenfall AB. However, the Commission invited EI to verify whether the Ministry of Enterprise, Energy and Communications, could indeed act in an independently or not, particularly in relation to non-day-today decisions concerning transmission activities carried out by Svenska Kraftnät, without being influenced or controlled by the Ministry of Finance or by any overarching public authority taking into account the interests of the Swedish State in Vattenfall AB, and to clarify this in the final decision. Further, in the same year the Commission also held in relation to the Danish TSO, Energinet.dk, “that two separate Ministries

174

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Application of the unbundling rules across the gas and electricity sectors Article 43(3) of Directive 2019/944 “For the purpose of point (b) of paragraph 1, the notion “undertaking performing any of the functions of generation or supply” shall include “undertaking performing any of the functions of production and supply” within the meaning of (the Gas Directive), and the terms “transmission system operator” and “transmission system” shall include “transmission system operator” and “transmission system” within the meaning of that Directive.”

Article 9(3) Third Energy Package Gas Directive “For the purpose of point (b) of paragraph 1, the notion “undertaking performing any of the functions of generation or supply” shall include “undertaking performing any of the functions of production and supply” within the meaning of (the Electricity Directive), and the terms “transmission system operator” and “transmission system” shall include “transmission system operator” and “transmission system” within the meaning of that Directive.”

In order to avoid undue influence arising from vertical relationships between gas and electricity markets, ownership unbundling applies across the gas and electricity markets, prohibiting joint influence over an electricity supplier and a gas transmission system operator, or a gas supplier and an electricity transmission system operator.253 This prohibition on cross-sector relations only applies to the core requirements of ownership unbundling (Article 43(3) of Directive 2019/944)254 and does not apply to non-controlling companies and administrators. This approach is logical; an electricity company often relies on gas supplies for its power plants, and if a generator owns the gas grid, it could make nondiscriminatory access to gas supplies difficult for its competitors. Similarly, gas controlling, on the one hand transmission of electricity and gas, and on the other hand activities of produc‑ tion, generation and supply of electricity and gas, can under certain circumstances constitute bodies with a sufficient degree of separation as requires by Article 9(6) Electricity Directive”. Energienet.dk, is fully owned by the Danish State. The Danish State also owns 76.49% of the shares in DONG Energy A/S, which is active in the production, generation and supply of electricity and gas. Energienet.dk s ownership is administered by the Danish Minister for Climate, Energy and Building, and DONG Energy A/S’s ownership is administered by the Danish Minister of Finance. 253 See Articles 43(3) of Directive 2019/944 and 9(3) of the third Gas Directive. 254 9(3) of the Third Gas Directive for gas.

175

4.181

4.182

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

companies increasingly compete in electricity markets; owning the electricity grid would give potentially give rise to discrimination.

4.183

In practice, this means that Charts I to VIII above apply regardless of whether a gas or electricity TSO is involved, and regardless of whether the supplier is a gas or electricity supplier.

4.184

It is to be noted that, both the Third Gas and Electricity Directives contained within their Article 9(4) a specific extention of time regarding the transposition of part of the ownership unbundling rules, until 3 March 2013.255 Indeed, the rules in Article 9(3)(a) of both Third Directives concerning the obligation for the network owner to act as a network operator, and Article 9(3)(d) of both Third Energy Package Directives on the application of unbundling rules to board members had to implemented by 3 March 2012.

4.185

However, the core rules on ownership unbundling contained in Article 9(3) (b) (ownership unbundling rules where there is “control”) and Article 9(3)(c) (ownership unbundling rules in the absence of control), only had to be implemented by 3 March 2013. This further time extension was granted because these provisions concern structural requirements, which needed time-consuming industry restructuring to take place. This time extension only applied if the TSO was not part of a vertically integrated undertaking from 3 March 2012. This means that after 3 March 2012, the TSO could not have been under the control of an undertaking active in supply in order for this additional extension to apply. As a consequence of this, an undertaking active in supply could continue to hold a minority shareholding, exercise voting rights, and appoint administrators in a TSO provided that it did not retain control. This allows a vertically integrated undertaking to progressively divest its TSO shares.

4.186

Under the Clean Energy Package, this transition is assumed to have already taken place. Therefore, no extention period has been granted (except for the exemptions regarding the new interconnectors explained above).

255 Article 9(4) of both Third Directives ; “Member States may allow for derogations from points (b) and (c) of paragraph 1 until 3 March 2013, provided that transmission system operators are not part of a vertically integrated undertaking.”

176

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Independent System Operator (ISO) Article 44 of Directive 2019/944 and Article 14 of the Third Gas Directive “1. Where the transmission system belongs to a vertically integrated undertaking on 3 September 2009, Member States may decide not to apply Article 9(1) and designate an independent system operator (…).”

As indicated above, Member States may decide not to apply the rules on ownership unbundling and instead designate an ISO. This is subject to the condition that the transmission system belongs to a vertically integrated undertaking at the time of the entry into force of the Directives. There are a number of specific rules in relation to the appointment and tasks of an ISO. There are also specific rules for the TSO, relating to its tasks and unbundling requirements, where an ISO is appointed. There are also provisions for strong regulatory oversight. Appointment of the ISO Article 44 of Directive 2019/944 “1. Where the transmission system belongs to a vertically integrated undertaking on 3 September 2009, Member States may decide not to apply Article 43(1)and designate an independent system operator upon a proposal from the transmission system owner. Such designation shall be subject to approval by the Commission. 2. The Member State may approve and designate an independent system operator only where: (a) the candidate operator has demonstrated that it complies with the requirements of Article 43(1)(b), (c) and (d); (b) the candidate operator has demonstrated that it has at its disposal the required financial, technical, physical and human resources to carry out its tasks under Article 40; (c) the candidate operator has undertaken to comply with a ten‑year network development plan monitored by the regulatory authority; 177

4.187

4.188

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg (d) the transmission system owner has demonstrated its ability to comply with its obligations under paragraph 5. To that end, it shall provide all the draft contractual arrangements with the candidate undertaking and any other relevant entity; and (e) the candidate operator has demonstrated its ability to comply with its obligations under Regulation (EU) 2019/943, including the cooperation of transmission system operators at European and regional level. 3. Undertakings which have been certified by the regulatory authority as having complied with the requirements of Article 53 and paragraph 2 of this Article shall be approved and designated as independent system operators by Member States. The certification procedure in either Article 52 of this Directive and Article 51 of Regulation (EU) 2019/943 or in Article 53 of this Directive shall be applicable.”

Article 14 of the Third Gas Directive “1. Where on 3 September 2009 the transmission system belonged to a vertically integrated undertaking, a Member State may decide not to apply Article 9(1) and to designate an independent system operator upon a proposal from the transmission system owner.

As regards the part of the transmission system connecting a Member State with a third country between the border of that Member State and the first connection point with that Member State’s network, where on 23 May 2019 the transmission system belongs to a vertically integrated undertaking, that Member State may decide not to apply Article 9(1) and to designate an independent system operator upon a proposal from the transmission system owner.



The designation of an independent system operator shall be subject to approval by the Commission.

2. The Member State may approve and designate an independent system operator only where: (a) the candidate operator has demonstrated that it complies with the requirements of Article 9(1)(b), (c) and (d);

178

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg (b) the candidate operator has demonstrated that it has at its disposal the required financial, technical, physical and human resources to carry out its tasks under Article 13; (c) the candidate operator has undertaken to comply with a ten-year network development plan monitored by the regulatory authority; (d) the transmission system owner has demonstrated its ability to comply with its obligations under paragraph 5. To that end, it shall provide all the draft contractual arrangements with the candidate undertaking and any other relevant entity; and (e) the candidate operator has demonstrated its ability to comply with its obligations under Regulation (EC) No 715/2009 including the cooperation of transmission system operators at European and regional level. 3. Undertakings which have been certified by the regulatory authority as having complied with the requirements of Article 11 and of paragraph 2 of this Article shall be approved and designated as independent system operators by Member States. The certification procedure in either Article 10 of this Directive and Article 3 of Regulation (EC) No 715/2009 or in Article 11 of this Directive shall be applicable.”

Because the ISO will run the network on behalf of its owner, the network owner is given a key role designating the ISO, and is explicitly provided with a right of proposal.256 The process of designation of the ISO is in substance identical to the designation of an ownership unbundled TSO.

4.189

Thus, before it can be approved and designated as an ISO by the Member State, the ISO proposed by the network owner must be certified by the regulatory authority. The certification procedure is identical to the one for ownership unbundled TSOs.257 Where certification is requested for an ISO controlled by a person from a non-EU country, the procedure in relation to third countries is also applicable.258 Although the last sentence of Article 13(1) of the Third Electricity Directive and Article 14(1) of the Third Gas Directive refers to “approval

4.190

256 Article 44(1) of Directive 2019/944 and Article 14(1) of the Third Gas Directive. 257 I.e., the procedure set out in Articles 51 of Regulation 2019/943 and 52 of Directive 2019/944, as well as Articles 10 of the Third Gas Directive and Article 3 of the Gas Regulation fully applies. 258 The procedure is under Article 53 of Directive 2019/944 and Article 11 of theThird Gas Directive.

179

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

by the Commission” in designating the ISO, there is arguably ultimately only an obligation for the national regulator to take utmost account of the Commission’s opinion.

4.191

As the ISO is not the network owner, it is subject to certain requirements and commitments in relation to investments, which are listed in Article 13(2) of the Third Electricity Directive and Article 14 of the Third Gas Directive. The ISO can only be certified if it complies with these requirements.

4.192

Further, there are a number of rules which are designed to ensure that the ISO is independent. First, the candidate operator should be fully independent from any production and supply activities. To this effect, it should demonstrate that it complies with the rules on ownership unbundling. Second, the ISO should be autonomous: the candidate operator should demonstrate that it has the required financial, technical, physical and human resources at its disposal in order to carry out its tasks as a TSO in compliance with Directive 2019/944 and the Third Gas Directive,259 and in compliance with regulations, including the rules on cooperation of TSOs at European and regional level.

4.193

Third, in relation to financing, the candidate operator should undertake to comply with a ten year network development plan under the monitoring of the regulatory authority. In practice, the ISO may be created out of the legally unbundled subsidiary of the vertically integrated undertaking in charge of network management (with network ownership remaining in a subsidiary of the vertically integrated undertaking). Tasks of the ISO Article 44(4) of Directive 2019/944 “4. Each independent system operator shall be responsible for granting and managing third-party access, including the collection of access charges, congestion charges, and payments under the inter‑transmission system operator compensation mechanism in compliance with Article 49 of Regulation (EU) 2019/943, as well as for operating, maintaining and developing the transmission system, and for ensuring the long‑term ability of the system to meet reasonable demand through investment planning. When developing the transmission system, the independent system operator shall be responsible for planning (including authorisation procedure), construction and commissioning of the new infrastruc259 See in particular Article 40and Article 13 of the third Gas Directive.

180

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg ture. For this purpose, the independent system operator shall act as a transmission system operator in accordance with this Chapter. The transmission system owner shall not be responsible for granting and managing third-party access, nor for investment planning.”

Article 14(4) of the Third Gas Directive “4. Each independent system operator shall be responsible for granting and managing third-party access, including the collection of access charges and congestion charges, for operating, maintaining and developing the transmission system, as well as for ensuring the long-term ability of the system to meet reasonable demand through investment planning. When developing the transmission system the independent system operator shall be responsible for planning (including authorisation procedure), construction and commissioning of the new infrastructure. For this purpose, the independent system operator shall act as a transmission system operator in accordance with this Chapter. The transmission system owner shall not be responsible for granting and managing third-party access, nor for investment planning.”

The above directives clearly state “the independent system operator shall act as a transmission system operator”.260 This means that an ISO should be considered as a TSO and all the obligations applicable to TSOs are ipso facto applicable to an ISO. In particular each ISO is responsible for operating the system i.e., granting and managing third-party access, including the collection of access charges, congestion charges, and payments under the inter‑transmission system operator compensation mechanism in compliance with the Gas and Electricity Regulations.

4.194

The ISO must also be given all the powers and responsibility necessary for the development of the transmissions system. For example, it must have full responsibility for ensuring the long‑term ability of the system to meet reasonable demand through investment planning. The above directives expressly state that when developing the transmission system, the ISO is responsible for planning (including obtaining authorisation), and for the construction and commissioning of new infrastructure. The ISO is also generally responsible for maintaining the transmission system. These tasks cannot be subcontracted to the vertically integrated undertaking owning the network.

4.195

260 Article 44(4) of Directive 2019/944 and Article 14 of Third Gas Directive.

181

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The transmission system owner Article 44(5) of Directive 2019/944 and Article 14(5) of the Third Gas Directive “5. Where an independent system operator has been designated, the transmission system owner shall: (a) provide all the relevant cooperation and support to the independent system operator for the fulfilment of its tasks, including in particular all relevant information; (b) finance the investments decided by the independent system operator and approved by the regulatory authority, or give its agreement to financing by any interested party including the independent system operator. The relevant financing arrangements shall be subject to approval by the regulatory authority. Prior to such approval, the regulatory authority shall consult the transmission system owner together with the other interested parties; (c) provide for the coverage of liability relating to the network assets, excluding the liability relating to the tasks of the independent system operator; and (d) provide guarantees to facilitate financing any network expansions with the exception of those investments where, pursuant to point (b), it has given its agreement to financing by any interested party including the independent system operator.”

4.196

Article 44(5) of Directive 2019/944 and Article 14(5) of the Third Gas Directivelay down obligations which apply to network owners.

4.197

The above directives are clear that the transmission system owner may have no responsibility and no prerogatives regarding granting and managing third-party access. Equally, it may have no responsibility or prerogatives with respect to investment planning, which is the exclusive responsibility of the ISO.

4.198

In principle, the network owner has an obligation to finance the investments decided upon by the ISO provided they are approved by the regulatory authority. One important exception to this obligation is the option for the network owner to agree to have new parts of the network financed by an interested third party (which can include the ISO) instead of financing the new developments 182

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

itself. As a consequence, the network owner may not own the new parts of the network that it has not financed. In that way, the obligation of the network owner to finance can be perceived rather as a “right” to finance. The relevant financing arrangements are subject to approval by the regulatory authority. Prior to such approval, the regulatory authority shall consult the TSO together with the other interested parties. The network owner is also under the obligation to provide financial guarantees to facilitate the financing of the network expansion, with the exception of the investments which will be financed by another party. In addition, the network owner is also under the obligation to cooperate as necessary with the ISO for the fulfilment of its tasks, including in particular providing all relevant information concerning the network.

4.199

Finally, the network owner is also under an obligation to provide coverage for liabilities relating to the network assets. This excludes liabilities relating to the TSO’s tasks. In practice, this means that the network owner must cover liability for the condition of the network, among other things, but not for its management. The regulatory authority must review and approve the arrangements between the ISO and the network owner within the scope of its monitoring role under Article 59(5) Directive 2019/944 and of Article 41 of the Third Gas Directive. Its main role will be to ensure that all possible liabilities are covered.

4.200

The national competition authorities monitor the TSO’s compliance with its obligations to act in close cooperation with the regulatory authorities. Because the rules in Articles Article 44(6) of Directive 2019/944 and 14(6) of the Third Gas Directive are distinct from the competition rules, in practice this is likely to require the national competition authorities to be granted specific competences going beyond the enforcement of the competition rules.

4.201

As part of the certification procedure, the TSO has the duty to demonstrate its ability to comply with the above obligations. In order to do this, it is obliged to provide to the regulator all the draft contractual arrangements with the candidate ISO and any other relevant entity.

4.202

183

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Specific duties of the regulatory authority Article 59(5) of Directive 2019/944 “In addition to the duties conferred upon it under paragraphs 1 and 3 of this Article, when an independent system operator has been designated under Article 44, the regulatory authority shall: (a) monitor the transmission system owner’s and the independent system operator’s compliance with their obligations under this Article, and issue penalties for non‑compliance in accordance with point (d) of paragraph 3; (b) monitor the relations and communications between the independent system operator and the transmission system owner so as to ensure compliance of the independent system operator with its obligations, and in particular approve contracts and act as a dispute settlement authority between the independent system operator and the transmission system owner in respect of any complaint submitted by either party pursuant to paragraph 60(2); (c) without prejudice to the procedure under point (c) of Article 44(2), for the first ten-year network development plan, approve the investments planning and the multi‑annual network development plan presented every two years by the independent system operator; (d) ensure that network access tariffs collected by the independent system operator include remuneration for the network owner or network owners, which provides for adequate remuneration of the network assets and of any new investments made therein, provided they are economically and efficiently incurred; (e) have the powers to carry out inspections, including unannounced inspections, at the premises of transmission system owner and independent system operator; and (f ) monitor the use of congestion charges collected by the independent system operator in accordance with Article 19(2) of Regulation (EU) 2019/943.”

184

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Article 41(3) Third Gas Directive “3. In addition to the duties conferred upon it under paragraph 1 of this Article, when an independent system operator has been designated under Article 14, the regulatory authority shall: (a) monitor the transmission system owner’s and the independent system operator’s compliance with their obligations under this Article, and issue penalties for non compliance in accordance with paragraph 4(d); (b) monitor the relations and communications between the independent system operator and the transmission system owner so as to ensure compliance of the independent system operator with its obligations, and in particular approve contracts and act as a dispute settlement authority between the independent system operator and the transmission system owner in respect of any complaint submitted by either party pursuant to paragraph 11; (c) without prejudice to the procedure under Article 14(2)(c), for the first tenyear network development plan, approve the investments planning and the multi-annual network development plan presented annually by the independent system operator; (d) ensure that network access tariffs collected by the independent system operator include remuneration for the network owner or network owners, which provides for adequate remuneration of the network assets and of any new investments made therein, provided they are economically and efficiently incurred; and (e) have the powers to carry out inspections, including unannounced inspections, at the premises of transmission system owner and independent system operator.”

Where an ISO is designated, Article 59(5) of Directive 2019/944 and Article 41 of the Third Gas Directive provide for specific duties to be granted to regulatory authorities. These duties and powers are additional, and not alternative, duties to the general duties conferred on the regulatory authorities in relation to TSOs.261 In practice this means that: (i) all the obligations applying to ownership unbundled TSOs also apply to ISOs, and (ii) regulatory oversight is stronger over an ISO than over an ownership unbundled TSO. 261 Under Article 59(1) of Directive 2019/944 and Article 41 of the Third Gas Directive.

185

4.203

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.204

The regulator shall generally monitor TSO and ISO compliance with their obligations under the Directives and issue penalties for non‑compliance in accordance with the general rules on penalties.262 The regulator must also actively control the relationship between the ISO and the network owner, and in particular: 1.

approve any contracts between the ISO and the transmission system owner;

2.

generally monitor of the relations and communications between the ISO and the transmission system owner;

3.

act as a dispute settlement authority between the ISO and the transmission system owner;263

4.

ensure that the network access tariffs collected by the ISO include remuneration for the network owner. This remuneration must provide for adequate remuneration of the network assets and of any new investments made therein, provided they are economically and efficiently incurred. In practice, this means that the investments taken into consideration for the remuneration have been approved by the regulatory authority.

4.205

As regards investments, the regulator has the power to approve the investment planning and the multi‑annual network development plan presented annually by the ISO. This is in addition to the approval of the first ten year network development plan under the certification procedure in compliance with Article 44(2) (c) of Directive 2019/944 and 14(2)(c) of the Third Gas Directive.

4.206

As for the ITO, the regulator is granted the power to carry out inspections, including unannounced inspections, at the premises of the transmission system owner and ISO.

4.207

Finally, the regulator shall monitor the use of congestion charges collected by the electricity ISO in accordance with the rules under Article 16(6) of Regulation 2019/943.

262 The general rules on penalties are found under Article 59(3)(d) of Directive 2019/944 and Article 41 of the Third Gas Directive. 263 This applies in particular to complaints submitted by either party pursuant to Article 59(5) of Directive 2019/944 and Article 41 of the Third Gas Directive.

186

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Unbundling of transmission system owners Article 45 of Directive 2019/944 and Article 15 of the Third Gas Directive “1. A transmission system owner, where an independent system operator has been appointed, which is part of a vertically integrated undertaking shall be independent at least in terms of its legal form, organisation and decision making from other activities not relating to transmission. 2. In order to ensure the independence of the transmission system owner referred to in paragraph 1, the following minimum criteria shall apply: (a) persons responsible for the management of the transmission system owner shall not participate in company structures of the integrated electricity undertaking responsible, directly or indirectly, for (b) appropriate measures shall be taken to ensure that the professional interests of persons responsible for the management of the transmission system owner are taken into account in a manner that ensures that they are capable of acting independently; and (c) the transmission system owner shall establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded, and ensure that observance of it is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet those objectives. An annual report, setting out the measures taken, shall be submitted by the person or body responsible for monitoring the compliance programme to the regulatory authority and shall be published. […]”

The transmission system owner has a limited role to play in relation to the network. The network owner should therefore benefit from a certain degree of independence from the production and supply branches. For this purpose, the Clean Energy Package, as well as the Third Directives, require legal and functional unbundling of the transmission system owners from their supply branches.

187

4.208

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.209

The rules on legal unbundling that the network owner must follow in relation to the supply branches require network ownership by a separate company which should be responsible for all the decisions granted to the “transmission system owner” under the Clean Energy Package. Functional unbundling rules must ensure this entity is independent in terms of its “organisation and decision making from other activities not relating to transmission”.

4.210

To ensure the transmission system owner’s independence, the Directives provide for the following additional criteria which must be satisfied by Member States when transposing the Directives into national law:

4.211

1.

the persons responsible for the management of the transmission system owner cannot participate in the company structures of the integrated electricity undertaking directly or indirectly responsible for the day‑to‑day operation of the generation, distribution and supply of electricity;

2.

appropriate measures should be taken to ensure that the professional interests of persons responsible for the management of the transmission system owner are taken into account in a manner that ensures that they are capable of acting independently; and

3.

the transmission system owner must establish a compliance programme which sets out the measures taken to ensure that any discriminatory conduct is excluded, and set out the specific obligations of employees to meet those objectives. An annual report shall be submitted by the person or body responsible for monitoring the compliance programme to the regulatory authority and shall be published.264

These rules are very similar to the rules on legal and functional unbundling applying to DSOs under the Second Energy Package and maintained in the Third and Clean Energy Packages, and should be interpreted accordingly.

264 Article 45(2) (a), (b), (c) of the Directive 2019/944 and Articles 15(2), (a), (b), (d) of the Third Gas Directive.

188

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

These rules are likely to be similar to the rules contained in the Commission’s interpretative document on unbundling under the Second Directives, which outlines the Commission’s interpretation of the rules on legal and functional unbundling.265 Contrary to the Commission’s interpretative document, guidelines adopted under the comitology procedure would be binding.

4.212

The Independent Transmission Operator (ITO) Under the ITO model, the TSO may remain part of an integrated undertaking. However, the Clean Energy Package lays down detailed rules designed to ensure effective unbundling.266 The rules on ITO can be summarised as follows. 1.

the ITO can only apply to undertakings that were already vertically integrated at the time of the entry into force of the Directive;

2.

the ITO shall have effective decision-making powers regarding the operation, maintenance and development of the transmission system;

3.

the transmission company must have all the financial resources and assets, and human and material resources, to run the grid autonomously and independently from the parent company;

4.

an independent management committee of the ITO should be in charge of the grid’s day-to-day operation. It cannot be directly appointed by the parent company but must be appointed by the “ITO Supervisory Body”. Its appointment and revocation is subject to regulatory oversight. The management should comply with ex ante and ex post cooling off periods prohibiting them, for specified periods, from (three years for the majority of the board, six months for the minority), or returning (for four years) after termination of employment to the parent company;

5.

a supervisory body, appointed by the vertically integrated undertaking and possibly other shareholders in proportion of their shareholding within the ITO, is in charge of preserving the financial interest of the

265 Note of the Directorate General for Energy and Transport of the European Commission on unbundling, Appendix 13, Section 4.2.2. Whilst this document is not formally binding on the Commission, as the College of Commissioners never formally discussed or approved it, it provides a good reflection of the Commission s approach on the issue. The rules provided for as regards legal and functional unbundling of DSOs in the Interpretative note on the Third Directives are in substance identical. 266 See Chapter VI of the Directive 2019/944 (Articles 46 to 51) and Chapter IV of the Third Gas Directive (Articles 17 to 23).

189

4.213

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

shareholders. It cannot be involved in the day-to-day management of the ITO. All of its members should be subject to regulatory oversight as regards termination of office. Strong ex-ante and ex-post cooling off periods and regulatory oversight applies to half minus one of the members of the board (review of appointment, cooling off periods of three years ex ante and four years ex post); 6.

a compliance officer with wide-ranging powers must be appointed to ensure non-discrimination in practice;

7.

if the vertically integrated company refuses to invest in network projects that the regulator considers necessary, the regulator can force the ITO to invest, or impose tendering of the investments to third investors, or even impose a capital increase of the ITO to allow for third party investors to acquire shares of the ITO. Member States may choose which of these powers they grant to the regulator;

8.

the regulator has the power to ensure that the ITO meets its obligations, including the power to impose severe fines of up to 10% of the TSO or even of the vertically integrated undertaking’s turnover, for failing to do so;

9.

as is the case with other options, the TSO has to be certified by the national regulator taking utmost account of the Commission’s position.

Overall structure of ITO ITO autonomy: Rules on assets, equipment, staff and identity (Article 17) Article 46 of Directive 2019/944 (below) and Article 17 of the Third Gas Directive “1. Transmission system operators shall be equipped with all human, technical, physical and financial resources necessary for fulfilling their obligations under this Directive and carrying out the activity of electricity transmission, in particular: (a) assets that are necessary for the activity of electricity transmission, including the transmission system, shall be owned by the transmission system operator;

190

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg (b) personnel, necessary for the activity of electricity transmission, including the performance of all corporate tasks, shall be employed by the transmission system operator; (c) leasing of personnel and rendering of services, to and from any other parts of the vertically integrated undertaking shall be prohibited. A transmission system operator may, however, render services to the vertically integrated undertaking as long as: (i) the provision of those services does not discriminate between system users, is available to all system users on the same terms and conditions and does not restrict, distort or prevent competition in generation or supply; and (ii) the terms and conditions of the provision of those services are approved by the regulatory authority; (d) without prejudice to the decisions of the Supervisory Body under Article 49, appropriate financial resources for future investment projects and/or for the replacement of existing assets shall be made available to the transmission system operator in due time by the vertically integrated undertaking following an appropriate request from the transmission system operator. 2. The activity of electricity transmission shall include at least the following tasks in addition to those listed in Article 40: (a) the representation of the transmission system operator and contacts to third parties and the regulatory authorities; (b) the representation of the transmission system operator within the European Network of Transmission System Operators for Electricity (ENTSO for Electricity); (c) granting and managing third-party access on a non‑discriminatory basis between system users or classes of system users; (d) the collection of all the transmission system related charges including access charges, balancing charges for ancillary services such as purchasing of services (balancing costs, energy for losses);

191

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg (e) the operation, maintenance and development of a secure, efficient and economic transmission system; (f ) investment planning ensuring the long‑term ability of the system to meet reasonable demand and guaranteeing security of supply; (g) the setting up of appropriate joint ventures, including with one or more transmission system operators, power exchanges, and the other relevant actors pursuing the objectives to develop the creation of regional markets or to facilitate the liberalisation process; and (h) all corporate services, including legal services, accountancy and IT services. 3. Transmission system operators shall be organised in a legal form as referred to in in Annex I to Directive (EU) 2017/1132 of the European Parliament and of the Council.267 4. The transmission system operator shall not, in its corporate identity, communication, branding and premises, create confusion in respect of the separate identity of the vertically integrated undertaking or any part thereof. 5. The transmission system operator shall not share IT systems or equipment, physical premises and security access systems with any part of the vertically integrated undertaking nor use the same consultants or external contractors for IT systems or equipment, and security access systems. 6. The accounts of transmission system operators shall be audited by an auditor other than the one auditing the vertically integrated undertaking or any part thereof ”.

4.214

The Clean Package Directives (as well as the amended Third Gas Directive) impose a general obligation on the ITO to be fully autonomous. They also provide specific rules regarding the assets, the personnel and the financial resources that are necessary for the activity of electricity or gas transmission. The assets must be legally owned by the ITO. This primarily concerns the network which therefore cannot be leased to the ITO by the vertically integrated undertaking (Article 46(1)(a)). 267 Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (OJ L 169, 30.6.2017, p. 46).

192

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

It is also made clear that the personnel necessary for the activity of electricity or gas transmission must be directly employed by the ITO. This includes in particular the corporate tasks of the ITO which must be understood as referring to all of the company’s core activities such as management, and the core of the network operation business. Article 46)(2)(h) of the Directive268 also refers to corporate services, including legal services, accountancy and IT services. In practice, this means that the ITO must directly employ the personnel necessary for its core day-to-day activities, including legal, accountancy or IT competences, or for example the maintenance of the system. Provided that the ITO has the personnel needed for its day-to-day activities, it may however, in specific circumstances, additionally subcontract legal, IT, or accountancy services, as well as, for example, a specific workforce needed for the development or repair of the network. This rule does not include ancillary activities that do not directly concern the activity of gas or electricity transmission and are not corporate services, such as office cleaning or office security. In relation to these ancillary activities, the leasing of personnel and subcontracting of services is not prohibited.

4.215

As the ITO cannot be dependent on the vertically integrated undertaking, the leasing of personnel and subcontracting of services from the vertically integrated undertaking and any part thereof to the ITO is prohibited. However, the provision of services from the ITO to the vertically integrated undertaking is permitted, provided this provision is not discriminatory in relation to other system users, does not restrict competition in generation or supply, and is approved by the regulatory authority.269 Additionally, the TSO cannot share IT systems or equipment, physical premises or security access systems with any part of the vertically integrated undertaking. It also cannot use the same consultants or external contractors for IT systems or equipment, security access systems or auditing.270

4.216

As regards financing, Article 46 of Directive 2019/944 provides for a general rule that: “appropriate financial resources for future investment projects and/or for the replacement of existing assets shall be made available to the transmission system operator in due time by the vertically integrated undertaking following an appropriate request from the transmission system operator”. These resources have to be approved by the supervisory body in compliance with Article 49. The ITO must inform the regulatory authority of these financial resources.271

4.217

268 269 270 271

Article 17(2)(h) of the Third Gas Directive. Paragraph 1(c). Paragraphs 5 and 6. Article 47(8).

193

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.218

In addition the TSO may not create confusion between its corporate identity, communication, branding and premises with the separate identity of the vertically integrated undertaking. This is part of a general obligation to avoid creating any confusion for the consumers between the TSO and the supply company.272

4.219

The concept of “confusion” refers to any “likelihood of confusion on the part of the public” under trade mark law and should be interpreted in compliance with the relevant provisions of EU legislation.273 In practice, this means that the vertically integrated undertaking’s trademarks, in particular that of its supply branch, may not resemble the ITO’s trade mark. Arguably, the requirement also means that the ITO’s premises of should not be in the same location as the vertically integrated, and in particular the supply branch. A similar rule was inserted by the Third Energy Package, maintained in the Clean Energy Package, in the provisions on legal and functional unbundling of DSOs.274 TSO independence Article 47 of Directive 2019/944 ( below) and Article 18 of the Third Gas Directive “1. Without prejudice to the decisions of the Supervisory Body under Article 49, the transmission system operator shall have: (a) effective decision‑making rights, independent from the vertically integrated undertaking, with respect to assets necessary to operate, maintain or develop the transmission system; and (b) the power to raise money on the capital market in particular through borrowing and capital increase. 2. The transmission system operator shall at all times act so as to ensure it has the resources it needs in order to carry out the activity of transmission properly and efficiently and develop and maintain an efficient, secure and economic transmission system.

272 Paragraph 4. 273 Regulation (EU) 2017/1001 of the European Parliament and of the Council of 14 June 2017 on the European Union trade mark, OJ L 154, 16/6/2017, p. 1-99 and Directive (EU) 2014/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks OJ L 336, 23/12/2015, p. 1-26. 274 See Chapter 5.

194

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg 3. Subsidiaries of the vertically integrated undertaking performing functions of generation or supply shall not have any direct or indirect shareholding in the transmission system operator. The transmission system operator shall neither have any direct or indirect shareholding in any subsidiary of the vertically integrated undertaking performing functions of generation or supply, nor receive dividends or any other financial benefit from that subsidiary. 4. The overall management structure and the corporate statutes of the transmission system operator shall ensure effective independence of the transmission system operator in compliance with this Chapter. The vertically integrated undertaking shall not determine, directly or indirectly, the competitive behaviour of the transmission system operator in relation to the day to day activities of the transmission system operator and management of the network, or in relation to activities necessary for the preparation of the ten‑year network development plan developed pursuant to Article 51. 5. In fulfilling their tasks in Article 40 and Article 46(2) of this Directive, and in complying with Articles 16, 18, 19 and 50 of Regulation (EU) 2019/943, transmission system operators shall not discriminate against different persons or entities and shall not restrict, distort or prevent competition in generation or supply. 6. Any commercial and financial relations between the vertically integrated undertaking and the transmission system operator, including loans from the transmission system operator to the vertically integrated undertaking, shall comply with market conditions. The transmission system operator shall keep detailed records of such commercial and financial relations and make them available to the regulatory authority upon request. 7. The transmission system operator shall submit for approval by the regulatory authority all commercial and financial agreements with the vertically integrated undertaking. 8. The transmission system operator shall inform the regulatory authority of the financial resources, referred to in point (d) of Article 46(1), available for future investment projects and/or for the replacement of existing assets. 9. The vertically integrated undertaking shall refrain from any action impeding or prejudicing the transmission system operator from complying with its obligations in this Chapter and shall not require the transmission system operator to seek permission from the vertically integrated undertaking in fulfilling those obligations. 195

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg 10. An undertaking which has been certified by the regulatory authority as being in compliance with the requirements of this Chapter shall be approved and designated as a transmission system operator by the Member State concerned. The certification procedure in either Article 52 of this Directive and Article 51 of Regulation (EU) 2019/943 or in Article 53of this Directive shall apply”.

4.220

Article 47 provides that the ITO must have effective decision‑making rights which are independent from the vertically integrated undertaking, with respect to assets necessary to operate, maintain or develop the transmission system. This provides for a general requirement of independence as regards network ownership and operation.

4.221

In particular, the vertically integrated undertaking cannot directly or indirectly determine the TSO’s competitive behaviour in relation to its day-to-day activities and network management, nor in relation to activities necessary for preparing the ten year network development plan.

4.222

This principle of “effective decision-making rights” is buttressed by the following rules: 1.

the ITO must have the power to raise money on the capital markets;

2.

there may be no direct or indirect corporate or financial relations between the parts of vertically integrated undertaking performing functions of generation or supply, and the ITO;

3.

no direct or indirect shareholding can exist between the ITO and the parts of vertically integrated undertaking performing functions of generation or supply, and they cannot receive dividends from each other;275

4.

in order to avoid any preferential treatment, all commercial and financial relations between the vertically integrated undertaking and the ITO must comply with market conditions, the details of which must be available to the regulatory authority upon request. All commercial and financial relations with the vertically integrated undertaking that give rise to a formal agreement, oral or written, must be submitted for approval to the regulatory authority; and

275 In practice this means that the supply branch and the ITO can be under a common parent company but cannot be direct or indirect subsidiaries one of each other.

196

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

5.

the vertically integrated undertaking must refrain from any action impeding the TSO from complying with its obligations and shall not require the TSO to seek permission from the vertically integrated undertaking in fulfilling those obligations.

The overall management structure and the corporate statutes of the ISO must provide for the decision making structure and the rules ensuring effective independence of the TSO in compliance with these provisions.

4.223

From a procedural viewpoint, only an ITO complying with the rules of the Directives can be certified, and therefore approved and designated as a TSO by the Member State concerned. The certification procedures of Article 52 or Article 53 of the Directive and Article 51 of Regulation (EU) 2019/943276 are fully applicable to the ITO option.

4.224

The rules on independence are generally without prejudice to the role and decisions of the supervisory body under Article 49. In practice this means that, first, as a corporate entity the ITO has to be independent from its vertically integrated parent company; but secondly, this does not prevent the vertically integrated parent company from exercising its prerogatives as a shareholder through the appointment of members of the supervisory body and the role of the supervisory body of preserving the financial interest of the mother company as precisely defined in Article 49. Direct instructions from the CEO of the vertically integrated undertaking or of its supply branch to the CEO of the ITO would clearly infringe Article 47 and should lead to heavy fines being imposed on the vertically integrated undertaking. Control of the management by the supervisory body does not infringe Article 48 provided it remains within the limits of Article 49.

4.225

Under Article 43(8) of the Directive,277 a Member State can derogate from the rules of ITO under Chapter VI where, on on 3 September 2009, the transmission system belonged to a vertically integrated undertaking and there were arrangements in place guaranteeing more effective independence of the TSO than the provisions of Chapter VI. This is known as the “ITO+” option. Under the certification procedure, the Commission has a binding role in verifying that the arrangements in place clearly guarantee more effective independence of the TSO than the provisions of Chapter VI, and the relevant regulatory authority has to comply with the Commission decisions.

4.226

276 Articles 10 and 11 for gas. 277 Article 9(9) of the Third Gas Directive.

197

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Independence of the staff and the management of the transmission system operator Article 48 of Directive 2019/944 (below) and Article 19 of the Third Gas Directive “1. Decisions regarding the appointment and renewal, working conditions including remuneration, and termination of the term of office of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator shall be taken by the Supervisory Body of the transmission system operator appointed in accordance with Article 49. 2. The identity and the conditions governing the term, the duration and the termination of office of the persons nominated by the Supervisory Body for appointment or renewal as persons responsible for the executive management and/or as members of the administrative bodies of the transmission system operator, and the reasons for any proposed decision terminating such term of office, shall be notified to the regulatory authority. Those conditions and the decisions referred to in paragraph 1 shall become binding only if the regulatory authority has raised no objections within three weeks of notification.

The regulatory authority may object to the decisions referred to in paragraph 1 where: (a) doubts arise as to the professional independence of a nominated person responsible for the management and/or member of the administrative bodies; or (b) in the case of premature termination of a term of office, doubts exist regarding the justification of such premature termination.

3. No professional position or responsibility, interest or business relationship, directly or indirectly, with the vertically integrated undertaking or any part of it or its controlling shareholders other than the transmission system operator shall be exercised for a period of three years before the appointment of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator who are subject to this paragraph.

198

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg 4. The persons responsible for the management and/or members of the administrative bodies, and employees of the transmission system operator shall have no other professional position or responsibility, interest or business relationship, directly or indirectly, with any other part of the vertically integrated undertaking or with its controlling shareholders. 5. The persons responsible for the management and/or members of the administrative bodies, and employees of the transmission system operator shall hold no interest in or receive any financial benefit, directly or indirectly, from any part of the vertically integrated undertaking other than the transmission system operator. Their remuneration shall not depend on activities or results of the vertically integrated undertaking other than those of the transmission system operator. 6. Effective rights of appeal to the regulatory authority shall be guaranteed for any complaints by the persons responsible for the management and/or members of the administrative bodies of the transmission system operator against premature terminations of their term of office. 7. After termination of their term of office in the transmission system operator, the persons responsible for its management and/or members of its administrative bodies shall have no professional position or responsibility, interest or business relationship with any part of the vertically integrated undertaking other than the transmission system operator, or with its controlling shareholders for a period of not less than four years. 8. Paragraph 3 shall apply to the majority of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator.

The persons responsible for the management and/or members of the administrative bodies of the transmission system operator who are not subject to paragraph 3 shall have exercised no management or other relevant activity in the vertically integrated undertaking for a period of at least six months before their appointment.



The first subparagraph of this paragraph and paragraphs 4 to 7 shall be applicable to all the persons belonging to the executive management and to those directly reporting to them on matters related to the operation, maintenance or development of the network.”

199

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.227

Article 48 of the Directive provides rules on the independence of an ITO’s management. The management of the ITO is referred to as “the persons responsible for the management and/or members of the administrative bodies” of the ITO. In practice, this includes any person having the power of decision within the ITO over management issues that can affect the company’s commercial behaviour. Depending on the form of the companies and its statutes, this will normally be the President, the Director General, and/or Chief Executive Officer, as well as any member of a board with decision-making competences (other than the supervisory body under the Directives).

4.228

The supervisory body is in charge of taking all decisions regarding the appointment and renewal, working conditions (including remuneration), and termination of the management’s term of office. These decisions must be notified to the relevant regulatory authority and can become binding only if the regulatory authority has raised no objections within three weeks of notification. In practice the regulatory authority shall ensure that the management of the ITO is professionally independent and that its working conditions can ensure such independence. It may object to any such decision if it believes there may be a lack of professional independence on the management’s part or as to the justification for the revocation.

4.229

In addition to the control of the regulatory authority, the Directive provides some rules aimed at ensuring that any conflict of interest is avoided in relation to both the management and the employees of the ITO. These rules include the following:278 1.

The management cannot directly or indirectly have any professional position or responsibility, interest or business relationship, with the vertically integrated undertaking or any part of it for a period of three years before its appointment. There is a derogation from this rule for the TSO’s management, which may stay in place before the undertaking is restructured in compliance with the ITO requirements (provided it has not worked for other parts of the vertically integrated undertaking for the last three years).

2.

The ITO’s management and employees may have no other professional position or responsibility, interest or business relationship, directly or indirectly, with any other part of the vertically integrated undertaking. This rule prevents, for example, the management and employees from holding shares in the vertically integrated undertaking.

278

Article 19 of the Third Gas Directive.

200

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

3.

The ITO’s management and employees may hold no interest in or receive any financial benefit, directly or indirectly, from any part of the vertically integrated undertaking other than the ITO. In addition, its remuneration shall not depend on activities or results of the vertically integrated undertaking other than those of the TSO. This last rule prevents, for example, the granting of stock options to the management based on the shares of the vertically integrated undertaking.

Following termination of their term of office in the ITO, the management may have no professional position or responsibility, interest or business relationship with any part of the vertically integrated undertaking for a period of not less than four years. There is a derogation to this rule for the ITO which allows the management to stay in a non-managerial position at the ITO. This rule also applies to all the persons belonging to the executive management and to those directly reporting to them on matters related to the operation, maintenance or development of the network.

4.230

The rule in Article 48(3) prohibiting any professional position/responsibility/ interest/business relationship being held by the TSO with the vertically integrated undertaking, any part of it or its controlling shareholders only applies to the majority of the management (including all the persons belonging to the executive management and to those directly reporting to them on matters related to the operation, maintenance or development of the network). Where management functions are exercised by a board or a college, this rule applies to half plus one of the members of the board or of the college. If one person has essentially all the executive powers within the ITO, the majority rule implies that this rule applies to him or her. The members of the management team who are not subject to Article 48(3) should not have exercised management or other relevant activity in the vertically integrated undertaking for a period of at least six months before their appointment.

4.231

Supervisory Body Article 49 of Directive 2019/944 (below) and Article 20 of the Third Gas Directive “1. The transmission system operator shall have a Supervisory Body which shall be in charge of taking decisions which may have a significant impact on the value of the assets of the shareholders within the transmission system operator, in particular decisions regarding the approval of the annual and longer-term financial 201

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg plans, the level of indebtedness of the transmission system operator and the amount of dividends distributed to shareholders. The decisions falling under the remit of the Supervisory Body shall exclude those that are related to the day to day activities of the transmission system operator and management of the network, and to activities necessary for the preparation of the ten‑year network development plan developed pursuant to Article 51. 2. The Supervisory Body shall be composed of members representing the vertically integrated undertaking, members representing third party shareholders and, where the relevant legislation of a Member State so provides, members representing other interested parties such as employees of the transmission system operator. 3. The first subparagraph of Article 48(2) and Article 48(3) to (7) shall apply to at least half of the members of the Supervisory Body minus one. Point (b) of the second subparagraph of Article 48(2) shall apply to all the members of the Supervisory Body.”

4.232

The presence of a supervisory body is a key requirement under the ITO option. In addition to taking the decisions concerning the appointment of management, the supervisory body also takes all the decisions which may have a significant impact on the value of the shareholders’ assets in the ITO. This includes decisions on the approval of annual and longer-term financial plans, the level of indebtedness of the TSO, and the amount of dividends distributed to shareholders. However, the supervisory body cannot interfere in the day-to-day activities of the TSO, the management of the network, or with the preparation of the 10‑year network development plan under Article 51. In many cases the company law of Member States will need to be adapted so as to comply with these specificities of the supervisory body.

4.233

The members of the supervisory body are appointed by the ITO’s shareholders in proportion to their shareholding, and represent these shareholders within the board. This primarily includes the vertically integrated undertaking, but can also concern third party shareholders and, where the relevant legislation of a Member State so provides, members representing other interested parties such as TSO employees.

202

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

In order to guarantee some independence of the supervisory body’s members, the “independence rules” which apply to management also apply to the supervisory body. However, the only rule applying to all members of the supervisory board is the one allowing the regulatory authority to object to the revocation of the members of the Supervisory body if it has any doubt as to the justification for their revocation. The other rules only apply to half of the members of the Supervisory Body minus one (the “Minority Members”). These rules are as follows: 1.

The identity and the conditions governing the term, the duration and the termination of office of the supervisory body’s Minority Members, and the reasons for any proposed decision terminating such term of office, must be notified to the regulatory authority, which can object to them within three weeks of notification. The regulatory authority shall ensure that the supervisory body’s Minority Members are professionally independent, that such independence is ensured by their working conditions, and that any revocation is only for reasons relating to professional failure: It may object to any such decision if it has any doubt as to the professional independence of the Minority Members or as to the justification for their revocation.

2.

The Minority Members of the supervisory body cannot exercise any professional position or responsibility, interest or business relationship, directly or indirectly, with the vertically integrated undertaking or any part of it for a period of three years before their appointment. A derogation to this rule concerns the transmission system operator itself: the Minority Members can always come from the management or the employees of the TSO even though it was a legally and functionally unbundled subsidiary of the vertically integrated undertaking under the Second Directives or an ITO under the Clean Package and the Third Gas Directive (provided they have not worked for other parts of the vertically integrated undertaking for the last three years);

3.

The Minority Members of the supervisory body of the ITO shall have no other professional position or responsibility, interest or business relationship, directly or indirectly, with any other part of the vertically integrated undertaking;

203

4.234

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.

The Minority Members of the supervisory body of the ITO shall hold no interest in or receive any financial benefit, directly or indirectly, from any part of the vertically integrated undertaking other than the ITO. In addition, their remuneration shall not depend on activities or results of the vertically integrated undertaking other than those of the transmission system operator; and

5.

After termination of their term of office in the ITO, the Minority Members of the supervisory body shall have no professional position or responsibility, interest or business relationship with any part of the vertically integrated undertaking for a period of not less than four years. A derogation to this rule concerns the ITO itself: the Minority Members can always take a position within the management or as employees of the ITO.

Compliance programme and compliance officer Article 50 of Directive 2019/944 and Article 21 of the Third Gas Directive “1. Member States shall ensure that transmission system operators establish and implement a compliance programme which sets out the measures taken in order to ensure that discriminatory conduct is excluded, and ensure that the compliance with that programme is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet those objectives. It shall be subject to approval by the regulatory authority. Without prejudice to the powers of the national regulator, compliance with the program shall be independently monitored by a compliance officer. 2. The compliance officer shall be appointed by the Supervisory Body, subject to the approval by the regulatory authority. The regulatory authority may refuse the approval of the compliance officer only for reasons of lack of independence or professional capacity. The compliance officer may be a natural or legal person. Article 48(2) to (8) shall apply to the compliance officer. 3. The compliance officer shall be in charge of: (a) monitoring the implementation of the compliance programme;

204

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg (b) elaborating an annual report, setting out the measures taken in order to implement the compliance programme and submitting it to the regulatory authority; (c) reporting to the Supervisory Body and issuing recommendations on the compliance programme and its implementation; (d) notifying the regulatory authority on any substantial breaches with regard to the implementation of the compliance programme; and

reporting to the regulatory authority on any commercial and financial relations between the vertically integrated undertaking and the transmission system operator.

4. The compliance officer shall submit the proposed decisions on the investment plan or on individual investments in the network to the regulatory authority. This shall occur at the latest when the management and/or the competent administrative body of the transmission system operator submits them to the Supervisory Body. 5. Where the vertically integrated undertaking, in the general assembly or through the vote of the members of the Supervisory Body it has appointed, has prevented the adoption of a decision with the effect of preventing or delaying investments, which under the ten-year network development plan was to be executed in the following three years, the compliance officer shall report this to the regulatory authority, which then shall act in accordance with Article 51. 6. The conditions governing the mandate or the employment conditions of the compliance officer, including the duration of its mandate, shall be subject to approval by the regulatory authority. Those conditions shall ensure the independence of the compliance officer, including by providing him with all the resources necessary for fulfilling his duties. During his mandate, the compliance officer shall have no other professional position, responsibility or interest, directly or indirectly, in or with any part of the vertically integrated undertaking or with its controlling shareholders. 7. The compliance officer shall report regularly, either orally or in writing, to the regulatory authority and shall have the right to report regularly, either orally or in writing, to the Supervisory Body of the transmission system operator.

205

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg 8. The compliance officer may attend all meetings of the management or administrative bodies of the transmission system operator, and those of the Supervisory Body and the general assembly. The compliance officer shall attend all meetings that address the following matters: (a) conditions for access to the network, as laid down in Regulation (EU) 2019/943, in particular regarding tariffs, third party access services, capacity allocation and congestion management, transparency, ancillary services and secondary markets; (b) projects undertaken in order to operate, maintain and develop the transmission system, including interconnection and connection investments; (c) energy purchases or sales necessary for the operation of the transmission system. 9. The compliance officer shall monitor the compliance of the transmission system operator with Article 41. 10. The compliance officer shall have access to all relevant data and to the offices of the transmission system operator and to all the information necessary for the fulfilment of his task. 11. The compliance officer shall have access to the offices of the transmission system operator without prior announcement 12. After prior approval by the regulatory authority, the Supervisory Body may dismiss the compliance officer. It shall dismiss the compliance officer for reasons of lack of independence or professional capacity upon request of the regulatory authority.”

4.235

The ITO is under an obligation to establish and implement a compliance programme setting out the measures taken in order to ensure that discriminatory conduct is excluded. The compliance programme is normally approved by the regulatory authority. However, under Article 6(10) of the ACER Regulation, ACER must approve the compliance programme of a joint undertaking of vertically integrated transmission system operators. The supervisory body should appoint a compliance officer, subject to the approval by the regulatory authority. The compliance officer is specifically in charge of ensuring compliance with the compliance programme, but also has a general role as regards guaranteeing 206

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

that the ITO is independent in practice and does not pursue discriminatory conducts. The compliance programme and the compliance officer are subject to detailed rules under Article 50 the Directive279 which can be summarised as follows.

4.236

The compliance officer, which can be an individual or a company or another entity such as a certification body, is appointed by the supervisory body, subject to the approval by the regulatory authority which can oppose appointment only for reasons of lack of independence or professional capacity. The supervisory body may dismiss the compliance officer only after prior approval by the regulatory authority; it shall dismiss it if requested by the regulator for reasons of lack of independence or professional capacity.

4.237

The compliance officer is subject to the same independence rules as the management of the ITO (ex ante and ex post cooling off period, etc.). The conditions governing the mandate or the employment conditions of the compliance officer, including the duration of its mandate, shall ensure its independence and are subject to approval by the regulatory authority.

4.238

The compliance officer is in charge of monitoring the implementation of the compliance programme, reporting annually to the regulatory authority on its implementation, and issuing recommendations on the compliance programme and its implementation to the supervisory body. It is under the duty to notify the regulatory authority on any substantial breaches with regard to the implementation of the compliance programme. It also reports to the regulatory authority on any commercial and financial relations between the vertically integrated undertaking and the transmission system operator.

4.239

It is generally in charge of monitoring and reporting to the regulatory authority on decisions of the ITO on network investments. This is especially important: due to its understanding of the ITO, and by attending all the meeting of the management and supervisory boards, the compliance officer should be able to form an idea as to whether an investment proposed by the management to the supervisory body is rejected not on its merits but because of a conflict of interest involving the vertically integrated undertaking. If it feels that the Supervisory body is attempting to block a sound investment decision, it should immediately report this to the regulatory authority.

4.240

279 Article 21 for gas.

207

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

4.241

The compliance officer can attend all meetings of the management or administrative bodies of the transmission system operator, and those of the Supervisory Body and the general assembly. It shall have access to all relevant data and to the offices of the transmission system operator and to all the information necessary for the fulfilment of his task. Network development and powers to make investment decisions Article 51 of Directive 2019/944(below) and Article 22 of the Third Gas Directive “1. At least every two years, transmission system operators shall submit to the regulatory authority a ten‑year network development plan based on existing and forecast supply and demand after having consulted all the relevant stakeholders. That network development plan shall contain efficient measures in order to guarantee the adequacy of the system and the security of supply. The transmission system operator shall publish the ten-year network development plan on its website. 2. The ten‑year network development plan shall in particular: (a) indicate to market participants the main transmission infrastructure that needs to be built or upgraded over the next ten years; (b) contain all the investments already decided and identify new investments which have to be executed in the next three years; and (c) provide for a time frame for all investment projects. 3. When elaborating the ten‑year network development plan, the transmission system operator shall make reasonable assumptions about the evolution of the generation, supply, consumption and exchanges with other countries, taking into account investment plans for regional and Union‑wide networks. 4. The regulatory authority shall consult all actual or potential system users on the ten‑year network development plan in an open and transparent manner. Persons or undertakings claiming to be potential system users may be required to substantiate such claims. The regulatory authority shall publish the result of the consultation process, in particular possible needs for investments.

208

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg 5. The regulatory authority shall examine whether the ten‑year network development plan covers all investment needs identified during the consultation process, and whether it is consistent with the non‑binding Union‑wide ten‑year network development plan (‘Union-wide network development plan’) referred to in point (b) of Article 30(1) of Regulation (EU) 2019/943.

If any doubt arises as to the consistency with the Union‑wide network development plan, the regulatory authority shall consult ACER. The regulatory authority may require the transmission system operator to amend its ten‑year network development plan.

6. The regulatory authority shall monitor and evaluate the implementation of the ten‑year network development plan. 7. In circumstances where the transmission system operator, other than for overriding reasons beyond its control, does not execute an investment, which, under the ten-year network development plan, was to be executed in the following three years, Member States shall ensure that the regulatory authority is required to take at least one of the following measures to ensure that the investment in question is made if such investment is still relevant on the basis of the most recent ten-year network development plan: (a) to require the transmission system operator to execute the investments in question; (b) to organise a tender procedure open to any investors for the investment in question; or (c) to oblige the transmission system operator to accept a capital increase to finance the necessary investments and allow independent investors to participate in the capital.

Where the regulatory authority has made use of its powers under point (b) of paragraph 7, it may oblige the transmission system operator to agree to one or more of the following: (a) financing by any third party; (b) construction by any third party;

209

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg (c) building the new assets concerned itself; (d) operating the new asset concerned itself.

The transmission system operator shall provide the investors with all information needed to realise the investment, shall connect new assets to the transmission network and shall generally make its best efforts to facilitate the implementation of the investment project.



The relevant financial arrangements shall be subject to approval by the regulatory authority.

8. Where the regulatory authority has made use of its powers under paragraph 7, the relevant tariff regulations shall cover the costs of the investments in question.”

4.242

As indicated above, although the ITO option arguably does not result in structural independence, this is compensated for by significant regulatory control on investments. The objective is to ensure that the necessary investments are made under the ITO option despite the remaining link with the supply branch.

4.243

First, the ITO is under the obligation to submit annually to the regulatory authority a ten year network development plan. This ten year network development plan should strictly follow the procedure set out in Article 51.

4.244

The ten year network development plan should in particular: (a) indicate to market participants the main transmission infrastructure that needs to be built or upgraded over the next ten years;

4.245

(b)

contain all the investments already decided and identify new investments which have to be executed in the next three years; and

(c)

provide for a time frame for all investment projects. (paragraph 2).

The network development plan shall take into account the evolution of the generation, supply, consumption and exchanges with other countries, as well as investment plans at regional and Community wide levels. The regulatory authority shall consult all actual or potential system users on the ten year network development plan. The result of the consultation process is to be published.

210

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

The regulatory authority shall examine whether the ten year network development plan covers all investment needs identified during the consultation process, and whether it is consistent with the nonbinding Community wide ten year network development plan developed under the Gas and Electricity Regulations. It may consult the Agency. In the end, the regulatory authority may require the transmission system operator to amend its ten year network development plan.

4.246

Secondly, if the ITO does not execute an investment, which, under the ten year network development plan, was to be executed in the following three years, the Member States shall ensure that the regulatory authority is required to take at least one of the following measures:

4.247

(a)

to oblige the transmission system operator to execute the investments in question;

(b)

to organise a tender procedure open to any investors for the investment in question; or

(c)

to oblige the transmission system operator to accept a capital increase to finance the necessary investments and allow independent investors to participate in the capital.

The wording of the provision clearly indicates that there is an obligation on the regulatory authority to apply one of these measures with the strong objective to ensure that the investment in question is made . It would also seem that Member States do not have an obligation to give all three competences to the regulatory authorities. It should be noted however that only option (a), which provides for an obligation to execute the investments can ensure that the investment is made as requested by the Directive. Measures (b) and (c) can only be effective if the market provides the relevant financing, which will not always be the case. It remains therefore to be seen whether a Member State complies with Article 22 if it only grants to the regulatory authority the powers under measures (a) and/ or (b) and this does not lead to the investments being made.

211

4.248

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Decision making powers regarding the connection of new power plant, storage facilities, LNG regasification facilities and industrial customers to the transmission system Article 42 of Directive 2019/944 Decision-making powers regarding the connection of new generating installations and energy storage facilities to the transmission system “1. The transmission system operator shall establish and publish transparent and efficient procedures for non-discriminatory connection of new generating installations and energy storage facilities to the transmission system. Those procedures shall be subject to the approval of regulatory authorities. 2. The transmission system operator shall not be entitled to refuse the connection of a new generating installation or energy storage facilityon the grounds of possible future limitations to available network capacities, such as congestion in distant parts of the transmission system. The transmission system operator shall supply necessary information. 3. The first subparagraph shall be without prejudice to the possibility for transmission system operators to limit the guaranteed connection capacity or to offer connections subject to operational limitations, in order to ensure economic efficiency regarding new generating installations or energy storage facilities, provided that such limitations have been approved by the regulatory authority. The regulatory authority shall ensure that any limitations in guaranteed connection capacity or operational limitations are introduced on the basis of transparent and non-discriminatory procedures and do not create undue barriers to market entry. Where the generating installation or energy storage facility bears the costs related to ensuring unlimited connection, no limitation shall apply. 4. The transmission system operator shall not be entitled to refuse a new connection point, on the ground that it will lead to additional costs linked with necessary capacity increase of system elements in the closeup range to the connection point.”

212

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Article 23 of the Third Gas Directive Decision making powers regarding the connection of storage facilities, LNG regasification facilities and industrial customers to the transmission system “1. The transmission system operator shall establish and publish transparent and efficient procedures and tariffs for non-discriminatory connection of storage facilities, LNG regasification facilities and industrial customers to the transmission system. Those procedures shall be subject to approval by the regulatory authority. 2. The transmission system operator shall not be entitled to refuse the connection of a new storage facility, LNG regasification facility or industrial customer on the grounds of possible future limitations to available network capacities or additional costs linked with necessary capacity increase. The transmission system operator shall ensure sufficient entry and exit capacity for the new connection.”

Article 42 additionally provides some specific rules concerning connection to the transmission system of new power plant, storage facilities, LNG regasification facilities, and industrial customers. The objective is to ensure that ITO do not discriminate against producers that are competing with the supply branch of their mother vertically integrated undertaking as regards network connection.

4.249

The main requirement is that the TSO cannot refuse to connect to the grid new power plants, new storage facilities, new LNG regasification facilities or gas industrial customers on the grounds of possible future limitations to available network capacities or additional costs linked with the necessary capacity increase. In other words, network capacity limitations do not by themselves justify a refusal to connect. To this rule of substance is added a procedural rule which imposes in particular transparency requirements: ITOs have to draft and publish the rules and tariffs which are applicable to the connection of new power plants, new storage facilities, new LNG regasification facilities or gas industrial customers. These rules must ensure non-discriminatory conditions for connection and be approved by the regulatory authority.

4.250

213

4.251

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

Specific duties of the regulatory authority

4.252

Where an ITO is designated, Article 59(6) of Directive 2019/944 and Article 41 of the Third Gas Directive provide for specific duties and powers to be granted to regulatory authorities.

4.253

The Directives are clear that these duties and powers are additional and not alternative to the duties and powers conferred on the regulatory authorities as regards TSOs under Article 59(6) of Directive 2019/944 and Article 41 of the Third Gas Directive. They clearly indicate that the list is a minimum set of duties but that Member States can grant more powers to regulatory authorities.

4.254

These specific duties mainly concern increased powers to control the behaviour of the ITO and sanction any discriminatory behaviour. This is justified by the added risk of discriminatory behaviour arising from the remaining structural links with the supply branch of the group.

4.255

As regards control, the regulatory authorities are granted the following added competences: (a)

to monitor communications between the TSO and the vertically integrated undertaking so as to ensure compliance of the TSO with its obligations;

(b)

to monitor commercial and financial relations between the vertically integrated undertaking and the TSO;

(c)

to approve all commercial and financial agreements between the vertically integrated undertaking and the TSO on the condition that they comply with market conditions;280

(d)

to request justification from the vertically integrated undertaking when notified by the compliance officer of a decisions on investment plans or individual investments, in particular as regards absence of discriminatory behaviour to the advantage of the vertically integrated undertaking; and

280 It is understood that points (a) and (b) above aim to prevent the vertically integrated undertaking from favouring the transmission system operator, and vice versa, as regards commercial and financial relations. All commercial and financial relations have to be monitored. When the relations give rise to a formal agreement the regulator must ensure that this complies with market conditions.

214

Chapter 4 Unbundling of Transmission System Operators Emmanuel Cabau, revised and updated by Lena Sandberg

(e)

to carry out inspections, including unannounced ones, on the premises of the vertically integrated undertaking and the TSO (paragraph g). This power is very wide and should be interpreted by analogy with the identical power granted to the Commission under competition rules. The rights of defence of the vertically integrated undertaking and the TSO will of course have to be fully respected within this process.

The second set of powers concerns sanctions.

4.256

The first power is the ability to impose penalties. Although this is a general power under Article 59(3) of Directive 2019/944 and Article 41 of the Third Gas Directive for a TSO’s non-compliance with its obligations, the specific provision for ITOs clarifies that any discriminatory behaviour in favour of the vertically integrated undertaking should be treated as non-compliance and result in penalties. In addition, where an ITO is involved, penalties are calculated by reference to the turnover of the vertically integrated undertaking, and not just by reference to the TSO’s turnover.

4.257

The second power is the ability to appoint another TSO to carry on all or some of the ITO’s functions. This can only intervene in case of a persistent breach by the ITO of its obligations “ in particular in case of repeated discriminatory behaviour to the benefit of the vertically integrated undertaking”. This extreme measure seems more likely to be used as a deterrent than to be actually applied. It would seem in particular raise complicated financial and social issues as regards the financial balance and workforce of the ITO.

4.258

One final power concerns the ITO’s duty to act as a dispute settlement authority between the vertically integrated undertaking and the TSO in relation to any complaint submitted pursuant to Article 60(2) of Directive 2019/944 and Article 41 of the Third Gas Directive.

4.259

215

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

Chapter 5 Unbundling of Distribution System Operators

1.

Introduction

Whilst the general rationale for unbundling is common to both TSOs and DSOs and is explained under the Chapter on TSO unbundling, there are some differences between TSOs and DSOs in this respect. For instance, congestion often exists at transmission level, but is rare or non-existent at distribution level and, therefore, the need for rules or mechanisms to guarantee non-discriminatory capacity allocation is arguably stronger at TSO level. Furthermore, the threat of a lack of investment and the need for adequate incentives or obligations in this respect may be seen as a more prominent issue at transmission level where investments are not directly driven by the need to bring gas or electricity to consumers and lack of investments can be detrimental to both security of supply and the formation of a single internal market. The risk of discriminatory behaviour as regards connection of competitors’ generation capacities also mainly arises at transmission level to which major generation facilities are connected (although, with the onset of increasing levels of generation from renewable energy sources (“RES”) connected at the distribution level, this will plays a more significant role in future).

5.1

On the other hand, DSOs are in contact with final consumers, which gives them a strong possibility to influence the consumer’s choice of supplier. Where DSOs are both suppliers and network operators, the inherent conflict of interest gives them just as much incentive to discriminate against competitors seeking access to “their” network to supply “their” customers as is the case with TSOs, and they have equally good possibilities for such actions. Discrimination concerning the connection of distributed generation,281 in particular as regards small renew-

5.2

281 Distributed generation refers to small generation capacities that are directly connected to the distribution

217

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

able production capacities, can also originate from a DSO vertically integrated with a producer. The opportunity for this sort of discrimination also became increasingly important given the steep increase of distributed energy generation from small scale renewable energy sources connected to the distribution grid over the last decade. On balance, therefore, the need for effective unbundling of TSOs and DSOs is similar. The Third Package

5.3

The Third Energy Package pursued the general objectives of improving competition, security of supply and sustainability in the internal energy market. One of its improvements to competition was the deepening of the unbundling of energy suppliers from network operators, both TSOs and DSOs. With regard to DSO unbundling in particular, the intervention aimed mainly at ensuring non-discriminatory and transparent third party access to distribution networks through the unbundling of vertically integrated distribution undertakings.

5.4

The Third Package maintained, in principle, the rules on legal, management and accounting unbundling for vertically integrated DSOs already contained in the Second Package. These rules were as follows: –

first, DSOs must be established as legally separate companies from the generation (i.e., production) and supply branch;

–

secondly, DSOs must be separated in terms of their “organisation and decision making” from the generation (i.e., production) and supply branch;

–

thirdly, DSOs must keep separate accounts for their distribution activities with a view to avoiding discrimination, cross-subsidisation and distortion of competition;

–

fourthly, because for small distribution companies the economies of scale may not exist to justify all the rules on unbundling, Member States may derogate from the first two (legal and management) of the three above rules for DSOs serving fewer than 100,000 connected customers or serving small isolated systems.

system.

218

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

The Third Package reinforced these rules in four important respects.

5.5

First, the distribution system operator must have at its own disposal the necessary resources to run the grid, including human, technical, physical and financial resources. It must not, therefore, have to call on its parent company for these resources or assets, which might give the vertically integrated company an opportunity to influence the behaviour of its network company.

5.6

Second, a compliance officer has to be appointed by the DSO with the express role of preparing and enforcing the compliance programme already provided for under the Second Directives. The compliance officer must be fully independent and have access to all the necessary information of the distribution system operator to fulfil his or her task.

5.7

Third, a specific rule is created to avoid that a vertically integrated supplier takes advantage of vertical integration with a DSO to influence customers in its favour to the detriment of its competitors.

5.8

Lastly, the EU regulatory framework concerning the implementation of unbundling rules by distribution companies is considerably strengthened with the attribution of the specific task and powers to regulatory authority – including financial sanctions – to ensure compliance of distribution system operators with their obligations under unbundling rules.282

5.9

The evaluation of the Third Package as regards electricity, carried out before the adoption of the new electricity market design, showed that “the Third Package has positively contributed to competition and performance of the internal electric‑ ity market, delivering tangible market benefits that have translated into added net social welfare”. The evaluation further concluded that “the reinforced un‑ bundling rules had a positive effect on competition and helped to limit problems of market foreclosure”. For DSOs specifically, the conclusion of the evaluation was that “there [was] no evidence that the intervention within the boundaries of the unbundling requirements, did not achieve the objective of promoting competi‑ tion in the market”. Therefore, the Commission took the view that there was no need to deepen or change the rules on DSOs unbundling.

5.10

282 Art. 59(1) b of the Recast Electricity Directive and 41(1) b of the Third Gas Directive. See Chapter 6.

219

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.11

The current unbundling rules have thus largely remain unchanged from those in force before the adoption of the Recast Electricity Directive (Directive (EU) 2019/944). Notably, the core of the unbundling rules between, on the one hand, DSOs and, on the other hand, generation and supply remain almost completely unchanged in the Recast Electricity Directive. Article 26 of the Third Electricity Directive has been basically entirely recuperated under the new Article 35.

5.12

However, the commitment to decarbonize the economy and the accompanying increase in the importance of renewable and intermittent energy sources lead to significant changes in the organisation and operation of the electricity grid and market. Most notably, electricity produced from these sources is often produced in a decentralized way and is fed directly into local distribution grids. New levels of distribution grid expansion and management are therefore needed to integrate locally produced renewable energy. In parallel to the rise of renewables, the digitalisation of energy markets and increased used of (smart-)metering enables an increasing level of flexibility from both production and consumption (including ‘demand response’). The market design rules of the Third Package were not fit to regulate the electricity market in the light of these major evolutions and prevented network operators from operating more innovatively and efficiently.

5.13

As a consequence, the electricity market design as a whole, and the tasks entrusted to the DSOs in particular, needed to evolve. Under the Recast Electricity Directive, DSOs are notably entrusted with the use of flexibility to manage their distribution networks and are under the obligation to submit a network development plan to the national regulatory authority at least once every two years (see Article 32). Member States also have the possibility to involve DSOs in electricity market data management (see Articles 23 and 34). Furthermore, previous unbundling rules, whose efficacy had been established by the aforementioned assessment, needed to be extended to preserve the DSOs’ role as neutral market facilitators. Therefore, new prohibitions and obligations have been adopted, most notably under Articles 32, 33 and 36, respectively on the use of flexibility services by DSOs as well as the integration of electro-mobility and energy storage solutions on the grid by DSOs.

220

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

2.

Definition of a vertically integrated company

The unbundling requirements of the Second and Third Directives remain applicable where the distribution system operator is part of a vertically integrated undertaking.283 Article 2 (53) of the Recast Electricity Directive and Article 2 (20) of the Gas Directive define a vertically integrated undertaking as follows:

5.14

Article 2 (53) electricity “vertically integrated undertaking” means an electricity undertaking or a group of electricity undertakings where the same person or the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings perform at least one of the functions of transmission or distribution, and at least one of the functions of generation or supply of electricity.”284

Article 2 (20) gas “vertically integrated undertaking” means a natural gas undertaking or a group of natural gas undertakings where the same person or the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings perform at least one of the functions of transmission, distribution, LNG or storage, and at least one of the functions of production or supply of natural gas.”285

Thus, the unbundling requirements are applicable where: (i)

the activities of generation or supply, together with distribution or transmission, are carried out within a single company, normally as a series of different departments within the same, unified, legal structure; or

(ii)

a holding company controls a number of subsidiary companies, some of which are active in the generation and supply business whilst others are network companies.

283 Article 26(1) of the Gas Directive and Article 35 of the Recast Electricity Directive. 284 This definition is word for word the same as that in the Third Electricity Directive. 285 Although not drafted in the same way, the definition is identical to the definition under the Second Package: “Vertically integrated undertaking means a natural gas undertaking or a group of undertakings whose mutual relationships are defined in Article 3(3) of Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings and where the undertaking/group concerned is performing at least one of the functions of transmission, distribution, LNG or storage, and at least one of the functions of production or supply of natural gas.”

221

5.15

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.16

The first of these two categories of vertically integrated undertakings poses no particular difficulties of interpretation: the company in question evidently operates in both distribution and generation or sales. The distribution assets must therefore be separated into a new subsidiary company.

5.17

The second category, where separate network companies already exist, does, however, pose a potential difficulty. Unbundling is only necessary where the holding company actually controls a distribution company. Thus, if a distribution company exists, and its shares are held diversely, the fact that a generation company holds 10% of the shares, giving it no ability to direct the activities of the network company, does not mean that the Directives’ requirements on unbundling (and in particular those on management unbundling) are applicable.

5.18

The test applied by the Directives to determine whether a holding company which is active in generation or sales actually controls a distribution business has been borrowed from the Merger Regulation.286 The fact that the concept of control is identical between these two legal texts is stated explicitly by Recital 10 of the Gas Directive. Although it is no longer expressly stated in the Recast Electricity Directive (contrary to the previous Directive which explicitly stated it under its Recital 13), the history of this notion and the fact that the definition’s wording is completely identical to the version of the previous Directive leaves little doubt that it remains the same notion.

5.19

It is notable that this definition only refers only to “and at least one of the func‑ tions of generation or supply of electricity” rather than “and at least one of the functions of generation or supply of electricity, aggregation, demand response and energy storage”.287 This means that if the activity of distribution and aggregation or energy storage are carried out inside a single legal entity, such an undertaking would not qualify as a ‘vertically integrated undertaking’. This means that the requirements of article 35 (see hereunder) do not apply to such an undertaking and that only the specific unbundling rules (discussed section 6) apply. 286 Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24, 29.1.2004, p. 1. This Regulation gives the power to the Commission to vet large­scale mergers. In this context the definition of ‘control’ is vital – it is imperative to determine whether one company has gained “control” over another – i.e. whether a merger has taken place. 287 Indeed, the definition of ‘electricity undertaking’ has been amended in the Recast Electricity Directive to become: “‘electricity undertaking’ means a natural or legal person who carries out at least one of the follow‑ ing functions: generation, transmission, distribution, aggregation, demand response, energy storage, supply or purchase of electricity, and who is responsible for the commercial, technical or maintenance tasks related to those functions, but does not include final customers”. The part in bold are the amendments from the definition as it was in the Third Electricity Directive. This definition makes it clear that the function of aggregation is separate from that of generation or supply.

222

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

Article 3 (2) of the Merger Regulation defines “control” as:

5.20

“Control shall be constituted by rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by: (a) ownership or the right to use all or part of the assets of an undertaking; (b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking.”

In addition to a number of individual cases that have clarified the meaning of this Article,288 the Commission has adopted an official Notice289 indicating its view of when control exists.

5.21

In summary, ‘control’ exists where one company either (i) holds a majority of the shares of another (and thus the latter is a fully controlled subsidiary) or (ii) where it is a minority shareholder but, in fact, nonetheless de facto controls the company in question. This de facto control can exist in two basic situations. First, when a contract exists giving the company the right to direct the operations of the other. Thus, even if an electricity company owns no shares in a separate distribution undertaking, or a small percentage of the equity, the management/functional unbundling requirements of the Directive apply if it has the contractual right to manage the company in question. Second, where due to the disparate nature of the ownership of the shares, although a company only has, say 40% of the shares in another, in reality it always has an absolute majority of the votes at the annual general meetings (due to the absence of many smaller shareholders). In all of these situations, the unbundling provisions of the Directives apply.

5.22

288 See in particular Arjomari/Wigins Teape, Commission Decision of 10.12.1990, CMLR 4 [1992] 854 at paragraph 4, Ameritech/Tele Denmark, Commission Decision of 5.12.91, OJ 4 [1998] 206 at paragraph 4, and CCIE/GTE, Commission Decision of 25.9.92 at paragraphs 6-12. These decisions can best be found at the Commission’s web site: http://ec.europa.eu/competition/mergers/cases/. A more in depth examination of the concept of control under the Merger Regulation can be found in Volume II of EU Energy Law, “EU Competition Law and Energy Markets”, fifth edition, 2019 (Claeys & Casteels). 289 Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (the “Merger Regulation”) of 10 July 2007, OJ  C95 of 16.04.2008. Also available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:095:0 001:0048:EN:PDF

223

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

3.

Legal unbundling

3.1 Definition 5.23

Article 35 (1) of the Recast Electricity Directive and Article 26 (1) of the Third Gas Directive require that: “Article 35 (1) electricity Article 26 (1) gas “Where the distribution system operator is part of a vertically integrated undertaking, it shall be independent at least in terms of its legal form, organisation and decision-making from other activities not relating to distribution. Those rules shall not create an obligation to separate the ownership of assets of the distribution system from the vertically integrated undertaking.”

5.24

Thus, distribution companies must be established as legally separate companies, which may be subsidiaries of a vertically integrated gas or electricity company. This approach results from a compromise, dating back to the Second Package, between those who argued that ownership unbundling was necessary and those who considered that accounting and/or management separation would be sufficient.

5.25

It may be argued that the requirement for legal unbundling, in fact, adds little to the obligation to ensure separate functional management of the network business. If the management of the network operations is already truly separate, one can argue that it makes little difference whether the entity in question is a legally separate subsidiary or a distinct business unit of a vertically integrated company. However, it is clear that the Commission considered that real added value existed in creating a separate subsidiary. In particular it believed that if the network company is a distinct, identifiable company, employees would have a clear and separate corporate identity which would reinforce their ability and willingness to think and act independently from the commercial interests of the parent company, especially at management level. In terms of the precise legal form of the subsidiarity, this depends on national law.

5.26

The last sentence of Article 35 (1) of the Recast Electricity Directive and Article 26 (1) of the Gas Directive, where it is stated that no obligation exists “to separate the ownership of assets of the distribution system from the vertically inte‑ 224

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

grated undertaking” has to be read in the light of paragraphs 35(2)(c) electricity and 26(2)(c) gas, which outline the measures necessary to ensure that the distribution system operator can decide on the effective management, operation, maintenance and upgrading of the network assets when these assets remain the property of the parent company. Thus, the actual ownership of the assets can remain with the holding company, but the distribution company has to have the exclusive right to decide on their usage. A further qualification to this is provided in paragraph (c) which is examined in detail in Section 4.5 below.290

3.2 Combined network operator Article 39 electricity “Article 35(1) shall not prevent the operation of a combined transmission and distribution system operator provided that operator complies with Articles 43(1), or 44 and 45, or Chapter VI or falls under Article 66(3).”

Article 29 gas “Article 26(1) shall not prevent the operation of a combined transmission, LNG, storage and distribution system operator provided that operator complies with Articles 9(1), or 14 and 15, or Chapter IV or falls under Article 49(6).”

As it obliges vertically integrated DSOs to implement legal and management unbundling from “activities not relating to distribution”, Articles 35(1) and 26(1) would also impose unbundling requirements between a TSO and a DSO.291 However, this is not the intention since acting as a TSO and a DSO does not raise issues of conflict of interest or discrimination. Article 39 of the Recast Electricity Directive and 29 of the Gas Directive therefore clarify that these former Articles “shall not prevent the operation of a combined transmission and distribution system operator”.

5.27

Of course, such a “combined operator” must comply with the rules on unbundling of TSOs, either ownership unbundling (“OU”), ISO or ITO. In practice, this means that a TSO which complies with the requirements of OU, ISO or ITO292 could combine the activities of transmission, LNG, storage and distribution. A natural exception to the need for a combined network operator to

5.28

290 See book paras 5.53-5.67. 291 Article 26(1): “Where the distribution system operator is part of a vertically integrated undertaking, it shall be independent at least in terms of its legal form, organisation and decision making from other activities not relating to distribution. (…)” 292 See Chapter 4.

225

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

comply with TSO unbundling rules is when the Member State in question benefits from a derogation to the rules on TSO unbundling. Articles 39 and 29, in this regard, refer expressly to Article 66(3) of the Recast Electricity Directive or Article 49(6) of the Gas Directive granting express derogations to Cyprus, Luxembourg and Malta.293 The same applies to the other derogations from unbundling rules contained in the Directives294 as a Member State exempted from TSO unbundling rules, e.g., as a small isolated system, would also comply with the rules on TSO unbundling.

4.

Management unbundling

4.1 Introduction 5.29

Whilst accounting and legal unbundling are important, the key element to ensure that distribution system operators act independently is, in the absence of ownership unbundling, management unbundling. In the First Electricity Directive, management unbundling was required, without actively specifying what this meant. The resultant margin of manoeuvre led to many different forms of management unbundling, from the effective to the inadequate. The Second and Third Directives therefore specified not only in general terms what is required by management unbundling, but they also provided a number of specific requirements that must be met.

4.2 General definition of management unbundling 5.30

Article 35 (1) of the Recast Electricity Directive and Article 26 (1) of the Third Gas Directive set out the basic criteria with respect to management unbundling of the distribution system operator. Article 35 (1) electricity Article 26 (1) gas “Where the distribution system operator is part of a vertically integrated undertaking, it shall be independent at least in terms of its legal form, organisation and decision-making from other activities not relating to distribution.

293 See book para 11.94 and 11.98. 294 See Chapter 11.

226

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell Those rules shall not create an obligation to separate the ownership of assets of the distribution system operator from the vertically integrated undertaking.”

In addition to the requirement of legal unbundling, creating one or more subsidiaries responsible for network operation, the distribution companies must therefore be separate in terms of their “organisation and decision-making”. These are key concepts in understanding the requirement to ensure effective management unbundling.

5.31

If a distribution system company is to operate the network in a manner independent of the generation, production and sales interests of the parent company, it must firstly have separate decision-making processes. Decisions must be taken by a separate management team, on the basis of the commercial interest of the network company, and not of the group as a whole. Thus, the parent company cannot interfere in the day-to-day decisions of the network business. Aside from the financial supervision rights that the parent company must necessarily have over the operation of its assets,295 it must de facto step out of the management of the network business.

5.32

In addition to the issue of decision-making, these Articles require separate “organisation”. As this is mentioned separately from the issue of decision-making, it appears to concern separation of the network business in terms of premises, services and infrastructure.

5.33

Where a company is situated in different offices from the remainder of the group, and acquires its services independently and has a different logo and public corporate identity, the employees’ perception of unbundling and willingness to act independently will be reinforced. Furthermore, separation of premises and different IT systems will limit the possibilities for the exchange of commercial information. However, such a statement, whilst undoubtedly correct, does not make any qualitative judgment as to the importance of such separation in achieving independence of action, nor does it consider the cost/benefit issues: the use of common service providers can bring substantial savings to a vertically integrated group.

5.34

Thus, it does not appear logical to interpret this provision as an absolute obligation to ensure that no shared services exist, but that a reasonable approach must be taken, separating services and premises in a manner appropriate to ensure effective independence.

5.35

295 Which are specified in paragraph (c) of the same Articles, see below, Section 4.5 of this Chapter. Book paragraphs 5.53-5.67.

227

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.36

This issue is addressed along these lines in the Commission’s interpretative document on unbundling under the Third Package296 which is quoted below;297 “An important question in the context of management separation is the extent to which it is permissible to have common services, i.e., services that are shared between transmission/distribution, supply and possibly other businesses within the vertically integrated undertaking. Such services could relate to personnel and finance, IT services, accommodation and transport. It is appropriate to look at this issue on a case-by-case basis. Under Article  26(2)(c) Electricity and Gas Directives, the DSO must have at its disposal the necessary resources, including human, technical, physical and financial resources, in order to fulfil its tasks of operating, maintaining and developing the network. This means that the DSO cannot unduly rely on the services of other parts of the vertically integrated undertaking, as the DSO itself must have the necessary resources at its disposal to operate, maintain and develop the network. Provision of services by other parts of the vertically integrated undertaking to the DSO will therefore be limited. Where such services are provided, conditions should be fulfilled to reduce competition concerns and to exclude conflicts of interest. In particular, any cross-subsidies being given by the DSO to other parts of the vertically integrated undertaking cannot be accepted. To ensure this, the service must be provided at market conditions and laid down in a contractual arrangement. It is recalled that the DSO is not entitled to provide any services to the related ITO (Article 17(1)(c) Electricity and Gas Directives).”

5.37

It should be highlighted that, although this unbundling obligation has not changed in substance since the Second Package, its implementation has in practice been considerably strengthened with the general powers given to the national regulatory authority to ensure compliance of the DSO with its unbundling obligations under the Third Package. These powers have not been rolled back (nor strengthened) under the Recast Electricity Directive. 296 Although this note concerns the interpretation of the Third Electricity Directive and although no similar interpretative note has yet been published regarding the Recast Electricity Directive, this interpretative note should apply to the interpretation of its Article 35 as a whole, given that its wording and context of its adoption are identical to the previous Article 26 of the Third Electricity Directive. This interpretative note will therefore be relied on to comment on the likely interpretation of Article 35 of the Recast Electricity Directive, but the reference to Article 26 of the previous electricity Directive will not be changed in the quotes. 297 Interpretative Note of 22 January 2010 on the Directives on the Unbundling Regime (Appendix 10, Section 3). Whilst this document is not formally binding on the Commission, as the College of Commissioners never formally discussed or approved it, it provides a good reflection of the Commission’s approach on the issue.

228

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

In addition to this general definition, the Articles mentioned above specify five specific criteria that must be met with respect to management unbundling: –

independent management;

–

separation of professional interests;

–

autonomy and control over assets by the network operator;

–

the existence of a compliance officer and a compliance programme; and

–

prohibition to take advantage of vertical integration to distort competition, in particular in respect of the separate identity of the supply branch of the vertically integrated undertaking.

5.38

5.39

These merit individual examination.

4.3 Independent Management Article 35 (2) (a) of the Recast Electricity Directive and Article 26 (2) (a) of the Gas Directive provide: Article 35 (2) (a) electricity “Those persons responsible for the management of the distribution system operator must not participate in company structures of the integrated electricity undertaking responsible, directly or indirectly, for the day-to-day operation of the generation, transmission and supply of electricity.”

Article 26 (2) (a) gas “Those persons responsible for the management of the distribution system operator must not participate in company structures of the integrated natural gas undertaking responsible, directly or indirectly, for the day-to-day operation of the production, transmission and supply of natural gas.”

229

5.40

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.41

This gives rise to the following comments.

5.42

The phrase “those persons responsible for the management” is not defined. It should therefore be interpreted in the light of the objectives sought by the provisions. Thus, it applies to all those employed by the network company who play a significant role in the commercial decisions relevant to the operation of the business. In principle, this includes all of the members of the Board of Directors of the company and will also include middle and even junior management who occupy commercially sensitive posts. This is reflected in the Interpretation Note of the European Commission on unbundling which states that “Article 26 does not restrict the group of persons responsible for the management of the DSO to the top management, such as members of the executive management and/or members of a board having decision-making powers. Article 26 addresses a wider group of persons, including the operational (middle) management of the DSO.” 298

5.43

Thus, the top and middle management of the distribution company may not “participate in company structures of the integrated [electricity/gas] undertaking responsible, directly or indirectly, for the day-to-day operation” of the generation, supply or sales activities of the group, and vice versa.

5.44

The next question to be considered is: what exactly are “company structures ... responsible, directly or indirectly, for the day to day operation...”? It is submitted that, in this respect, a distinction should be drawn between the Board of Directors of a holding company of a vertically integrated company and the Board of individual subsidiaries responsible for transmission, distribution, sales, etc. A Board of a holding company does not in principle deal with “day-to-day” issues. Such questions are much more likely to be considered at board level in the various operational subsidiaries. As a consequence, Directors sitting on distribution companies may in principle also sit on the Board of the holding company, but not on the Board of a sales/generating subsidiary.

5.45

In this respect, the Interpretation Note of the Commission on unbundling states: “As a consequence, a manager of the DSO cannot at the same time be a director of the related transmission, supply or production company, or vice versa. Whether and to what extent a manager of the DSO can work at the same time for the holding company of the vertically integrated undertaking if the holding company is not at the same time directly involved in production or supply, because legally separate 298 Appendix 10, point 3.3.1.

230

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell entities exist for these activities, must be decided on a case-by-case basis. In any event, such a combination of functions can only be permissible if the holding company does not take any day-to-day management decisions concerning the supply, production or network activity.”

4.4 Separation of personal interests Article 35 (2) (b) of the Recast Electricity Directive and Article 26 (2) (b) of the Gas Directive state the following:

5.46

Article 35 (2) (b) electricity Article 26 (2) (b) gas “Appropriate measures must be taken to ensure that the professional interests of the persons responsible for the management of the distribution system operator are taken into account in a manner that ensures that they are capable of acting independently.”

The simple fact that an identifiable management is appointed to a distribution company does not guarantee that it will act independently. There are many ways that a holding company can influence the management of its subsidiary companies, both legally (through the contractual relationship between parent and subsidiary) and practically. This paragraph deals with the second of these issues. It requires that the professional/career interests of the managers of the network business are not organised in such a way that they will be likely to act in a manner that they believe will be viewed favourably by the parent company. This therefore concerns issues such as salary and promotions.

5.47

There are no specific standard requirements on the method of achieving this objective. However, the Interpretative Note on Unbundling indicates that it believes that the following three issues need to be addressed;299

5.48

“Independence of the persons responsible for the network management may be put into jeopardy by their salary structure, notably if their salary is based on the performance of the holding company or of the production or supply company, as this may create conflicts of interest. Also the transfer of managers from the DSO to other parts of the company and vice versa may entail a risk of conflicts of interest and 299 See Appendix 10, Point 4.2.1.

231

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell requires rules and measures safeguarding independence. Conflicts of interest for the network management may also arise if the DSO directly or indirectly holds shares in the related supply or production company and obtains a financial interest in its performance. Likewise, the issue of shareholding on a personal basis of the managers of the DSO can give rise to concerns as far as independence of management is concerned. Decisions of the parent company to replace one or more members of the management of the DSO may also undermine the independence of the DSO in certain circumstances, notably if the reasons for replacement of members of the management have not been established beforehand in the charter of the DSO.”

5.49

Thus, the Directives specify that the role of the parent company is limited to the approval of the “annual financial plan or any equivalent instrument” and thereby to “set global limits on indebtedness levels”. However, once this annual plan is approved, the network company has to have complete and free control over the management of the business. This is confirmed in the Commission’s Interpretative Note on unbundling in paragraph 3.3.2, which notes that: “regarding the limits of the supervision rights, the Directives are equally clear: any detailed day-to-day oversight of the network function by parts of the vertically integrated undertaking other than the DSO is not permitted. Also instructions regarding decisions on the construction or upgrading of the network, if these decisions stay within the terms of the approved financial plan, are not permitted”.

5.50

This does not mean, however, that the parent company can have no influence over the decisions of the network subsidiary regarding future infrastructure projects. It is perfectly usual that before completing annual investment plans a network company will have extensive discussions with its customers, and notably electricity and gas sellers. However, such discussions must be held with all companies, on a non-discriminatory basis.

4.5 Autonomy and control over assets by the network operator 5.51

Article 35 (2) (c) of the Recast Electricity Directive and Article 26 (2) (c) of the Third Gas Directive state the following:

232

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

Article 35 (2) (c) electricity Article 26 (2) (c) gas “The distribution system operator must have effective decision-making rights, independent from the integrated electricity undertaking, with respect to assets necessary to operate, maintain or develop the network. In order to fulfil those tasks, the distribution system operator shall have at its disposal the necessary resources including human, technical, physical and financial resources. This should not prevent the existence of appropriate coordination mechanisms to ensure that the economic and management supervision rights of the parent company in respect of return on assets, regulated indirectly in accordance with Article 59(7) [41(6) gas], in a subsidiary are protected. In particular, this shall enable the parent company to approve the annual financial plan, or any equivalent instrument, of the distribution system operator and to set global limits on the levels of indebtedness of its subsidiary. It shall not permit the parent company to give instructions regarding day-to-day operations, nor with respect to individual decisions concerning the construction or upgrading of distribution lines that do not exceed the terms of the approved financial plan, or any equivalent instrument.”

The Directives provide for the general rule that the distribution system operator must have effective decision-making rights, independent from the integrated electricity undertaking, with respect to assets necessary to operate, maintain or develop the network. This gives rise to the following comments.

5.52

The original proposal of the Commission for the Second Electricity and Gas ­Directives, unchanged in the Third Package and the Recast Electricity Directive, maintained that all the assets relevant to the network had to be placed within the legally separate transmission/distribution companies. However, during negotiations in the Council, this approach was changed, as a number of Member States wished to retain the ownership of the assets in a different part of the vertically integrated company, usually at group level. There are two possible reasons for this insistence; first it provides greater flexibility for accounting and tax purposes, second the large number of employees working for a network company may see merit in remaining within the structure of the “main” company, fearing that the logical next step from legal unbundling is ownership separation.

5.53

Where, therefore, the assets are owned by the parent company, the Directives require that the network operator have “effective decision-making rights…. to operate, maintain and develop the network.”

5.54

233

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.55

The owner must therefore be merely a passive recipient of the dividend paid to it by the network company. For most issues, this does not raise particular problems, as the network operator simply decides on operational issues. This is clarified in the Interpretative Note on unbundling, which states that: “Where another part of the vertically integrated undertaking remains the owner of the assets and puts these at the disposal of the DSO, the basic decisions concerning the assets must remain with the DSO, while the other part of the vertically integrated undertaking may be involved in the implementation of these decisions, provided that safeguards are put in place ensuring that the other part of the vertically integrated undertaking only executes the decisions taken by the DSO.”

5.56

An important question in the context of management separation is the extent to which it is permissible to have common services, i.e., services that are shared between transmission/distribution, supply and possibly other businesses within the vertically integrated undertaking. The Commission’s Interpretative Note indicates the following: “The DSO cannot unduly rely on the services of other parts of the vertically integrated undertaking, as the DSO itself must have the necessary resources at its disposal to operate, maintain and develop the network. Provision of services by other parts of the vertically integrated undertaking to the DSO will therefore be limited. Where such services are provided, conditions should be fulfilled to reduce competition concerns and to exclude conflicts of interest. In particular, any cross-subsidies being given by the DSO to other parts of the vertically integrated undertaking cannot be accepted. To ensure this, the service must be provided at market conditions and laid down in a contractual arrangement.” 300

5.57

Where the network assets are owned by the transmission or distribution company, it is necessary to spell out to what extent the parent company can give instructions regarding the use of the assets. As mentioned above, the Commission’s Interpretative Note states that, in such circumstances, the basic decisions must remain with the network company. However, as the owner of the assets, the parent must be able to play some role, at least to protect the value of its assets and ensure that it receives a reasonable rate of return. If not, in reality, ownership unbundling has taken place. The relationship between a parent and subsidiary is almost always set out in the documents establishing a company, supplemented by possible contractual provisions. These set out the extent to which the management of the subsidiary is free to decide on issues, and when 300 See Appendix 10, Section 3.3.1.

234

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

it must request the authorisation of its shareholders. In certain cases, a parent exercises very close and regular supervision of a subsidiary, in other (more usual) cases, the subsidiary has a wider margin of discretion. It is therefore necessary, in order to ensure real management independence, to specify the limits of this relationship for a network business. To this requirement of independence in terms of effective decision-making rights, already contained in the Second Directives, the Third Package added to Article 26(2)(c) a second sentence providing for a strong principle of autonomy (which was kept in Article 35(2)(c) of the Recast Electricity Directive): “ in or‑ der to fulfil those tasks, the distribution system operator shall have at its disposal the necessary resources including human, technical, physical and financial resources”. This means that, in addition to having managerial independence, the DSO must be autonomous from the vertically integrated undertaking. This, however, does not prevent “the existence of appropriate coordination mechanisms” to ensure that “the economic and management supervision rights of the parent company in re‑ spect of return on assets in a subsidiary are protected”.

5.58

This in particular concerns the approval by the parent company of the annual financial plan of the DSO. Such approval is normal as the network remains one of the major assets of the parent company. If the management of the network would excessively increase indebtedness levels, this would impact on the overall credit rating of the group. In addition, as mentioned above, as in any parent/ subsidiary relationship, the expected return on assets of the network business is of clear legitimate interest to the parent, and an integral part of such a financial plan.

5.59

The term “any equivalent instrument” to a financial plan is not defined in the Directives. However, in a formal statement to the minutes on the occasion of the adoption of the Directives under the Second package, which remains valid under the Third Directives and in the Recast Electricity Directive, the Commission noted:

5.60

“The Directives refer to the financial plan or ‘any equivalent instrument’. The latter term must be interpreted restrictively in the sense that only instruments that are functionally equivalent to a financial plan, but which according to the applicable national terminology are not denominated a ‘financial plan’, may be subject to approval of the vertically integrated undertaking.”

235

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.61

However, neither the Directives, nor the Interpretative Note under the Second Package specify how detailed the annual financial plan must be. By requiring the financial plan to be very detailed, specifying every single projected infrastructure spending, a company could circumvent many of the provisions mentioned above and in fact exercise a very close degree of control over its network subsidiary. It is submitted that such an approach would infringe paragraph (c) of Article 26(2) of the Third Gas Directive and Article 35(2)(c) of the Recast Electricity Directive as it would eliminate the independence of the network company and deprive it of “effective decision-making rights, independent from the integrated electricity undertaking, with respect to assets necessary to operate, maintain or develop the network”. Furthermore, it would de facto give the parent company the ability to give instructions regarding individual decisions concerning the construction or upgrading of transmission lines.

5.62

Excessive influence by the group company over a subsidiary DSO may also interfere with the conduct of regulation of the network business. The regulator is often in the position where it has to set the return on capital that is appropriate for the businesses it regulates as well as the asset base to which the regulated return should apply. If the owner of the DSO were to abruptly change the capital structure of the regulated business (e.g., by paying a large special dividend from the DSO to the Group) or to block important projects that had been agreed with the regulator as included in the regulated asset base, the whole basis of regulated tariff setting could be made very unstable.

5.63

Thus, it is submitted that any financial plan must be general in nature, without specifying individual projects. It should be limited to agreed global debt levels, and be consistent with the agreed return on assets set out by the regulator.

5.64

The phrase “regulated indirectly according to Article 59(7) [41(6) gas]” which figures in paragraph (c) of the unbundling Articles, referring to the return on assets of the network business, concerns the approval of tariffs or tariff methodology. As the tariffs represent the income of the network operator, this addition therefore makes it clear that the regulator has the task of ensuring cost reflectiveness.

236

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

4.6 Compliance officer and compliance programme “Article 35 (2) (d) electricity Article 26 (2) (d) gas “The distribution system operator must establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded, and ensure that observance of it is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet that objective. An annual report, setting out the measures taken, shall be submitted by the person or body responsible for monitoring the compliance programme, the compliance officer of the distribution system operator, to the regulatory authority referred to in Article 57(1) [39(1) for gas] and shall be published. The compliance officer of the distribution system operator shall be fully independent and shall have access to all the necessary information of the distribution system operator and any affiliated undertaking to fulfil his task.”

The function of a compliance programme is threefold. First, it ensures that all the employees of a network company are fully aware of their obligation not to discriminate. Second, it requires the company, in drawing up the compliance programme, to reflect carefully on the procedures and safeguards necessary to ensure non-discrimination. Third, through the annual report, it requires the company to examine whether these procedures and safeguards have worked in practice. A compliance programme sets out the obligations and rights of all employees dealing with issues relevant to ensuring non-discrimination, which means almost all, if not all, non-clerical and non-secretarial staff. It certainly includes all staff dealing directly or indirectly with requests for access to the network, its planning and expansion. Whilst each compliance programme will vary according to the company structure in question, the Interpretative Note of the Commission on unbundling indicates the following:301 “The compliance programme contains rules of conduct which have to be respected by staff in order to exclude discrimination. Such rules relate, for example, to the obligation to preserve the confidentiality of commercially sensitive and commercially advantageous information (Article 27 Electricity and Gas Directives). The compliance programme may lay down in detail the kind of information that is to be considered confidential in this sense and how the information should be treated. It may also refer to the sanctions imposed under national legislation in case of non-respect 301 Appendix 10, Section 3.3.3.

237

5.65

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell of confidentiality rules. Another set of rules which, for example, can form part of a compliance programme relates to the behaviour of staff vis-à-vis network customers. Employees of a DSO must refrain from any reference to the related supply business in their contacts with customers of the DSO.”

5.66

With respect to enforcement of the compliance programme, the Interpretative Note states:302 “The compliance programme must be actively implemented and promoted through specific policies and procedures. Such policies may consist, inter alia, of the following elements: – active, regular and visible support of the management for the programme, for example through a personal message to the staff from the management stating its commitment to the programme; – written commitment of staff to the programme by signing up to the compliance programme; – clear statements that disciplinary action will be taken against staff violating the compliance rules; – training on compliance on a regular basis and notably as part of the induction programme for new staff.”

5.67

The Second Package was silent as to the person in charge of the compliance programme. The interpretative note of DG TREN under the Second Package only indicated that the person or body responsible for the report must be on the “senior management body or a member of this body”.

5.68

So as to strengthen the monitoring of the proper implementation of functional unbundling rules, the Third Package created an obligation for the DSO to appoint a compliance officer which is a “person or body” (possibly a certification company) responsible for monitoring the compliance programme. The Directives further clarify that the compliance officer of the distribution system operator has to be fully independent and have access to all the necessary information of the distribution system operator and any affiliated undertaking to fulfill his task. The Interpretative Note indicates in this regard that: “There is a clear obligation of result. When shaping the specific rules and guarantees for independence of the compliance officer of the DSO, the rules on the compliance officer of the ITO as laid down in Article 21(2) Electricity and Gas Directives may serve as a point of reference, where appropriate.” 302 Appendix 10, Section 3.3.3.

238

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

It should be underlined that, in the absence of any express provision to this effect, the specific more stringent and more detailed rules concerning the compliance officer of the ITO (see book paragraphs 4.235-4.241) cannot be deemed to strictly apply to the compliance officer of the DSO, although, of course, it can give some guidance as to the interpretation of the rules applicable to DSOs.

5.69

4.7 Prohibition to take advantage of vertical integration to distort competition Despite functional unbundling, vertical integration between a supplier and a distributor can give a competitive advantage to the supplier and thereby distort competition on the supply market. One important risk is that the supplier is perceived by final consumers as having such a strong link with the distributor that e.g., it provides stronger guarantees in terms of security of supply. This risk is especially significant in markets where customers are used to an historical incumbent supplier and distributor and will continue to identify the vertically integrated supplier as the “normal” supplier. This can also be very detrimental to consumer awareness of market opening.

5.70

So as to ensure more effectiveness of the functional unbundling rules, the Third Package therefore added the important rule that a distribution system operator that is part of a vertically integrated undertaking cannot take advantage of its vertical integration to distort competition. The Directives expressly envisage the situation where the suppliers and distributors use similar signs in their communication and branding which creates confusion in respect of the separate identity of the supply branch of the vertically integrated undertaking. This is now prohibited, and the regulatory authorities are given the task to monitor the activities of the vertically integrated undertaking so as to ensure that this does not happen.

5.71

The concept of “confusion” is very wide and provides for a general obligation to avoid any confusion for the consumers between the TSO and the supply company. This concept is used under trademark law which refers to any “ likelihood of confusion on the part of the public”; the Directives should in this respect be interpreted in compliance with the relevant provisions of EU legislation.303

5.72

303 Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trademark (Official Journal L 011, 14/01/1994, p. 0001–0036) and First Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trade marks (Official Journal L 040, 11/02/1989, p. 1–7).

239

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.

Accounting unbundling

5.1 The requirements of the Directives 5.73

Article 56 of the Recast Electricity Directive and Article 31 of the Gas Directive provide for the following: Article 56 electricity “1. Member States shall take the necessary steps to ensure that the accounts of electricity undertakings are kept in accordance with paragraphs 2 and 3. 2. Electricity undertakings, whatever their system of ownership or legal form, shall draw up, submit to audit and publish their annual accounts in accordance with the rules of national law concerning the annual accounts of limited liability companies adopted pursuant to Directive 2013/34/EU. Undertakings which are not legally obliged to publish their annual accounts shall keep a copy of these at the disposal of the public in their head office. 3. Electricity undertakings shall, in their internal accounting, keep separate accounts for each of their transmission and distribution activities as they would be required to do if the activities in question were carried out by separate undertakings, with a view to avoiding discrimination, cross-­subsidisation and distortion of competition. They shall also keep accounts, which may be consolidated, for other electricity activities not relating to transmission or distribution. Revenue from ownership of the transmission or distribution system shall be specified in the accounts. Where appropriate, they shall keep consolidated accounts for other, non-electricity activities. The internal accounts shall include a balance sheet and a profit and loss account for each activity. 4. The audit referred to in paragraph 2 shall, in particular, verify that the obligation to avoid discrimination and cross-subsidies referred to in paragraph 3 is respected.”

Article 31 gas “1. Member States shall take the necessary steps to ensure that the accounts of natural gas undertakings are kept in accordance with paragraphs 2 to 5 of this Article. Where natural gas undertakings benefit from a derogation from this provision on the basis of Article 49(2) and (4), they shall at least keep their internal accounts in accordance with this Article. 240

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell 2. Natural gas undertakings, whatever their system of ownership or legal form, shall draw up, submit to audit and publish their annual accounts in accordance with the rules of national law concerning the annual accounts of limited liability companies adopted pursuant to the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 44(2)(g) of the Treaty on the annual accounts of certain types of companies304. Undertakings which are not legally obliged to publish their annual accounts shall keep a copy thereof at the disposal of the public at their head office. 3. Natural gas undertakings shall, in their internal accounting, keep separate accounts for each of their transmission, distribution, LNG and storage activities as they would be required to do if the activities in question were carried out by separate undertakings, with a view to avoiding discrimination, cross-subsidisation and distortion of competition. They shall also keep accounts, which may be consolidated, for other gas activities not relating to transmission, distribution, LNG and storage. Until 1 July 2007, they shall keep separate accounts for supply activities for eligible customers and supply activities for non-eligible customers. Revenue from ownership of the transmission or distribution network shall be specified in the accounts. Where appropriate, they shall keep consolidated accounts for other, non-gas activities. The internal accounts shall include a balance sheet and a profit and loss account for each activity. 4. The audit, referred to in paragraph  2, shall, in particular, verify that the obligation to avoid discrimination and cross-subsidies referred to in paragraph 3 is respected. 5. Undertakings shall specify in their internal accounting the rules for the allocation of assets and liabilities, expenditure and income as well as for depreciation, without prejudice to nationally applicable accounting rules, which they follow in drawing up the separate accounts referred to in paragraph 3. Those internal rules may be amended only in exceptional cases. Such amendments shall be mentioned and duly substantiated. 6. The annual accounts shall indicate in notes any transaction of a certain size conducted with related undertakings.”

These Articles, which are largely self-explanatory, give rise, however, to the following comments. 304 OJ L 222, 14.8.1978, p. 11.

241

5.74

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

5.75

Firstly, whilst it is possible to set up a combined transmission and distribution network business,305 separate accounts must always be kept for each activity. This assists in ensuring that no cross-subsidisation takes place and that tariffs are cost reflective. All electricity and gas companies have to make available consolidated group accounts for public inspection, irrespective of whether they have a legal obligation requiring such disclosure under national law. However, unless required to do so under national law, they have no obligation to make available for public inspection the separate accounts that the Directives require, notably for transmission, distribution, LNG, storage, other electricity and gas activities and other non-electricity and gas activities.

5.76

Secondly, one specific issue that must be addressed by the auditor, specified in Article 56 (4) of the Recast Electricity Directive and 31 (4) of the Gas Directive, is a verification that the obligation to avoid discrimination and cross-subsidies referred to in paragraph 3 thereof is respected.

5.77

In understanding this provision, it is important to note that ensuring non-discrimination and the absence of cross-subsidies is, primarily, a task for the Regulator. The input of an independent accounting expert on this issue will be of assistance to the regulator in carrying out its functions. It implies, in particular, that unbundled companies will be obliged to submit a set of “regulatory” accounts to be consistent with the regulator’s requirements and separately audited.

5.78

As mentioned above, the Directives do not require public access to the separate accounts for transmission, distribution and other electricity and gas activities. However, Article 55 of the Recast Electricity Directive and Article 30 of the Third Gas Directive require that Member States, and in particular the regulators, have full access to such unbundled accounts. These Articles provide as follows: Article 55 electricity Article 30 gas “Member States or any competent authority they designate, including the regulatory authorities referred to in Article 57 [39(1) for gas], shall, insofar as necessary to carry out their functions, have right of access to the accounts of electricity undertakings as set out in Article 56 [31 for gas].

305 See book para 5.27.

242

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell Member States and any designated competent authority, including the regulatory authorities, shall preserve the confidentiality of commercially sensitive information. Member States may provide for the disclosure of such information where this is necessary in order for the competent authorities to carry out their functions.”

It is normal that Member States and regulators are placed under an obligation to preserve the confidentiality of any commercially sensitive information that they acquire, notably through the access to unbundled accounts. Where necessary, however, Member States and regulators may disclose such information where this is necessary to carry out their functions. The implementation of this provision is wholly left to subsidiarity.

5.79

It is rather curious that in the Second and Third Gas Directive, two extra paragraphs are provided for which are not contained in the Second, Third or Recast Electricity Directives:

5.80

Article 31 (5) – (6) gas “5. Undertakings shall specify in their internal accounting the rules for the allocation of assets and liabilities, expenditure and income as well as for depreciation, without prejudice to nationally applicable accounting rules, which they follow in drawing up the separate accounts referred to in paragraph 3. These internal rules may be amended only in exceptional cases. Such amendments shall be mentioned and duly substantiated. 6. The annual accounts shall indicate in notes any transaction of a certain size conducted with related undertakings.”

Regarding electricity, these Articles were included in a slightly amended form in Article 17 (4) and (5) of the First Electricity Directive, but are omitted in the Second and Third Electricity Directives as well as in the Recast Electricity Directive. Article 31 (5) of the Gas Directive thus addresses the question of how to value assets in the context of regulated third party access. The tariffs are set or agreed by the regulator (either directly or on the basis of a tariff methodology) on the basis of ensuring a given return on investment of the transmission and distribution company, thus ensuring that they are cost reflective.306 Thus the value of the assets is vital. Transmission and distribution companies will endeavour to revalue their assets upwards wherever possible to ensure higher income levels under regulated tariffs. Article 31 (5) assists the regulator in ensuring that 306 See book paras 3.123-3.149.

243

5.81

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

the asset valuations are justified, but is probably not essential, as the regulator will always have the power to accept or reject asset valuations when approving the tariffs or tariff methodologies. Thus, its omission after the First Electricity Directive is curious, but not problematic.

5.82

Article 31 (6) is aimed at preventing hidden cross-subsidies through the provision by the transmission/distribution company of goods or services to its parent company at below cost. This is helpful to the regulator, and complements the provisions on management unbundling set out below.

6.

New ‘unbundling’ rules for electricity DSOs

5.83

Due to the evolution of the electricity market following the commitment to decarbonize the economy and the digitalisation of the economy, new types of service providers are expected (and incentivized) to participate to the goodfunctioning of the electricity market. There providers are expected to sell, among others, such services as electricity storage services, aggregation, ‘demandresponse’ or flexibility services and electro-mobility-related services.

5.84

DSOs are also expected to adopt a more active role on the electricity market. This is explicitly provided by (i) Article 31 (10) of the Recast Electricity Directive which provides that “Member States (…) may allow distribution system op‑ erators to perform activities other than those provided for in this Directive and in Regulation (EU) 2019/943, where such activities are necessary for the distribu‑ tion system operators to fulfil their obligations under this Directive or Regulation (EU) 2019/943, provided that the regulatory authority has assessed the necessity of such a derogation” and (ii) Article 34 that foresees explicitly that DSOs can be charged with the management of electricity market data, including their communication to different market actors. 

5.85

To preserve the role of the DSOs as neutral market facilitators and ensuring that they do not unfairly compete with such new service providers or distort the electricity market, voluntarily or not, through their new activities, new ‘unbundling’ rules were adopted under the Recast Electricity Directive. Although these new rules do not apply to the way the DSOs are operated in themselves (contrary to the requirements laid down under Article 35 discussed above), they explicitly allow or prohibit DSOs from carrying out certain activities, which implicitly entails that DSOs must (or do not need to) be separate from market actors carrying out these activites. 244

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

6.1 Citizen Energy Communities Article 2 (11) of the Recast Electricity Directive defines “citizen energy com‑ munities” as follows:

5.86

Article 2 (11) electricity “‘Citizen energy community’ means a legal entity that: (a) is based on voluntary and open participation and is effectively controlled by members or shareholders that are natural persons, local authorities, including municipalities, or small enterprises; (b) has for its primary purpose to provide environmental, economic or social community benefits to its members or shareholders or to the local areas where it operates rather than to generate financial profits; and (c) may engage in generation, including from renewable sources, distribution, supply, consumption, aggregation, energy storage, energy efficiency services or charging services for electric vehicles or provide other energy services to its members or shareholders;”

As paragraph ‘(c)’ in this definition implies, Member States are allowed, under Article 16 (4) of the Recast Electricity Directive, to “grant citizen energy communities the right to manage distribution networks in their area of operation and establish the relevant procedures, without prejudice to Chapter IV or to other rules and regula‑ tions applying to distribution system operators”. Hence, citizen energy communities can become DSOs, either under the general regime or as a closed distribution system (in accordance with Article 38, see section 7.2, para. 5.118-5.129).

5.87

Furthermore, according to Article 16 (3) b, Member States must ensure that citizen energy communities “are treated in a non-discriminatory and proportionate manner with regard to their activities, rights and obligations as (…) distribution system operators (…)”.

5.88

A citizen energy community that would also manage distribution networks would thus be subject to the same obligations as other DSOs (unless it is covered by an exemption regime, see section 7) and be subject to same surveillance by national regulatory authorities as other DSOs. They must therefore comply with the other unbundling rules described in this Chapter 5.

5.89

245

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

6.2 Electro-mobility-related services 5.90

Regarding the integration of electro-mobility into the electricity network, although there are no recitals stating it clearly (contrary to Recital 62 for storage services, see hereunder section 6.3, para 5.100-5.104), it is clear that the objective of the provisions of the Recast Electricity Directive is that electro-mobility related services (and, in particular, recharging services for electric vehicles) become market-based and competitive.

5.91

As a general principle (see Article 33(1) and (2)), with limited exceptions, DSOs shall therefore not be allowed to own, develop, manage or operate recharging points for electric vehicles and must cooperate with recharging service providers on a non-discriminatory basis. Article 33 provides that: Article 33 electricity “1. Without prejudice to Directive 2014/94/EU of the European Parliament and of the Council, Member States shall provide the necessary regulatory framework to facilitate the connection of publicly accessible and private recharging points to the distribution networks. Member States shall ensure that distribution system operators cooperate on a non-discriminatory basis with any undertaking that owns, develops, operates or manages recharging points for electric vehicles, including with regard to connection to the grid. 2. Distribution system operators shall not own, develop, manage or operate recharging points for electric vehicles, except where distribution system operators own private recharging points solely for their own use. 3. By way of derogation from paragraph 2, Member States may allow distribution system operators to own, develop, manage or operate recharging points for electric vehicles, provided that all of the following conditions are fulfilled: – other parties, following an open, transparent and non-discriminatory tendering procedure that is subject to review and approval by the regulatory authority, have not been awarded a right to own, develop, manage or operate recharging points for electric vehicles, or could not deliver those services at a reasonable cost and in a timely manner; – the regulatory authority has carried out an ex-ante review of the conditions of the tendering procedure under point (a) and has granted its approval; 246

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell – the distribution system operator operates the recharging points on the basis of third-party access in accordance with Article 6 and does not discriminate between system users or classes of system users, and in particular in favour of its related undertakings.

The regulatory authority may draw up guidelines or procurement clauses to help distribution system operators ensure a fair tendering procedure.

4.  Where Member States have implemented the conditions set out in paragraph 3, Member States or their designated competent authorities shall perform, at regular intervals or at least every five years, a public consultation in order to re-assess the potential interest of other parties in owning, developing, operating or managing for electric vehicles. Where the public consultation indicates that other parties are able to own, develop, operate or manage such points, Member States shall ensure that distribution system operators’ activities in this regard are phased out, subject to the successful completion of the tendering procedure referred to in point (a) of paragraph 3. As part of the conditions of that procedure, regulatory authorities may allow the distribution system operator to recover the residual value of its investment in recharging infrastructure.”

Two cases are foreseen by paragraphs 3 and 4 of this Article 33, where Member States can choose to provide for an exemption to the general principle.

5.92

The first case is that DSOs can be allowed to own private recharging points solely for their own use. The notion of “ for their own use” is not defined in the Recast Electricity Directive. Furthermore its precise meaning is not clarified in any of the Recitals and no specific mention of this wording is made in the legislative documents that lead to its inclusion.307 Given the purpose of the general principle, it should however be understood as prohibiting DSOs from owning, operating or using recharging points in a way that competes with other marketbased recharging service providers.

5.93

The second case concerns situations where there is a definite market failure on the recharging services market, i.e., no recharging service provider has been awarded the right to own and operate recharging points despite the fact that an open, transparent and non-discriminatory tendering procedure, approved by the national regulatory authority, has been carried out. However, even if a DSO

5.94

307 See the Proposal for a Directive of the European Parliament and of the Council on common rules for the internal market in electricity (recast) – General approach, ST 14,572 2017 INIT - 2016/0380 (COD), 29 November 2017, available at https://eur-lex.europa.eu/procedure/EN/2016_380.

247

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

is granted an exemption to the prohibition of owning and operating recharging points, this exception will be both precarious and limited.

5.95

It is precarious because any exemption allowing a DSO to operate recharging points must be “phased out” if a tendering procedure successfully designates an authorised recharging service provider. Although this is not explicitly stated in Article 33 (nor in Article 36, see below), this ‘phasing out’ of the DSO’s activities should most likely be understood in the way that obliges the DSOs to sell (or otherwise dispose of ) its recharging infrastructure. Indeed, from a textual point of view, the ‘activities’ at stake refer rather clearly to the fact of “owning” as well as “ developing, operating or managing” recharging points since Article 33 always uses all four concepts (in a row) to designate the activities that the DSO cannot undertake (in all four paragraphs of the Article). Moreover, from a practical perspective, if the DSO were allowed to keep using the recharging point (even for their own sake), it would contravene the Directive’s market-based approach. Yet, it would seem incoherent to allow DSOs to keep the recharging infrastructure but not to use it in any way.

5.96

The exemption is also limited because it only allows the said DSO to provide recharging services on the same ‘regulated-tariff-basis’ as the rest of the services provided by the DSO. Indeed, paragraph 3 (c) of Article 33 explicitly refers to Article 6 of the Recast Electricity Directive on ‘third-party access’. This notably means that, even in a scenario where a DSO would be allowed to provide recharging services, the underlying methodology for the calculation of the fees charged for the provision of recharging services should be approved in advance by the national regulatory authority.

6.3 Storage services 5.97

Article 36 of the Recast Electricity Directive provides for the following: Article 36 electricity “1. Distribution system operators shall not own, develop, manage or operate energy storage facilities. 2. By way of derogation from paragraph 1, Member States may allow distribution system operators to own, develop, manage or operate energy storage facilities, where they are fully integrated network components and the regulatory authority has granted its approval, or where all of the following conditions are fulfilled: 248

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell a) other parties, following an open, transparent and non-discriminatory tendering procedure that is subject to review and approval by the regulatory authority, have not been awarded a right to own, develop, manage or operate such facilities, or could not deliver those services at a reasonable cost and in a timely manner; b) such facilities are necessary for the distribution system operators to fulfill their obligations under this Directive for the efficient, reliable and secure operation of the distribution system and the facilities are not used to buy or sell electricity in the electricity markets; and c) the regulatory authority has assessed the necessity of such a derogation and has carried out an assessment of the tendering procedure, including the conditions of the tendering procedure, and has granted its approval.

The regulatory authority may draw up guidelines or procurement clauses to help distribution system operators ensure a fair tendering procedure.

3. The regulatory authorities shall perform, at regular intervals or at least every five years, a public consultation on the existing energy storage facilities in order to assess the potential availability and interest in investing in such facilities. Where the public consultation, as assessed by the regulatory authority, indicates that third parties are able to own, develop, operate or manage such facilities in a cost-effective manner, the regulatory authority shall ensure that the distribution system operators’ activities in this regard are phased out within 18 months. As part of the conditions of that procedure, regulatory authorities may allow the distribution system operators to receive reasonable compensation, in particular to recover the residual value of their investment in the energy storage facilities. 4.  Paragraph 3 shall not apply to fully integrated network components or for the usual depreciation period of new battery storage facilities with a final investment decision until 4 July 2019, provided that such battery storage facilities are: a) connected to the grid at the latest two years thereafter; b) integrated into the distribution system; c) used only for the reactive instantaneous restoration of network security in the case of network contingencies where such restoration measure starts immediately and ends when regular re-dispatch can solve the issue; and 249

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell d) not used to buy or sell electricity in the electricity markets, including balancing.”

5.98

In essence, this new provision prohibits DSOs from owning, developing, managing or operating energy storage facilities but allows Member States to provide exceptions to this rule in limited cases. Exceptions to these rules for DSOs are very similar to those for TSOs, because the principle behind them is the same. Recital 62 explains explicitly that “ in the new electricity market design, energy storage services should be market-based and competitive”. This prohibition and the limited exceptions (for both DSOs and TSOs) therefore aim at ensuring that this market is and remains undistorted and to avoid “cross-subsidisation be‑ tween energy storage and the regulated functions of distribution or transmission”.

5.99

The first case where Member States may provide for an exemption is where such storage facilities are “ fully integrated network components”. This concept is defined by Article 2 (51) as “network components that are integrated in the trans‑ mission or distribution system, including storage facilities, and that are used for the sole purpose of ensuring a secure and reliable operation of the transmission or distribution system, and not for balancing or congestion management”. The examples given by Recital 63 are “capacitors or flywheels” that “provide important services for network security and reliability, and contribute to the synchronisation of different parts of the system”. The use of such components are still, however, subject to the prior approval of the national regulatory authority.

5.100

The second of such cases is, just as was foreseen for recharging services, the case of market failure on the storage services market. If there is a network need for storage services and DSOs cannot procure them on the market because no storage service provider has been awarded the right to own and operate storage facilities, despite the fact that an open, transparent and non-discriminatory tendering procedure, has been carried out, then an exemption may be envisaged. As for the operation of recharging points, the national regulatory authority is involved both in the assessment of the DSOs’ need for storage services and the continued lack of market interest for their provision. Furthermore, paragraph 3 of Article 36 makes it clear that any exemption allowing a DSO to provide storage services is also precarious, since as soon as third parties are “able to own, develop, oper‑ ate or manage [storage] facilities in a cost-effective manner”, the DSO’s activities must be “phased out within 18  months”. Although this is not explicitly stated in Article 36, for the same reasons as those developed above for Article 33, this phasing out of the DSO’s activities should most likely be understood in the way that obliges the DSOs to sell (or otherwise dispose of ) the storage infrastructure. 250

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

This 18-month period is specific to Article 36. No such period is specified in the case of the exception to the prohibition to own and operate recharging facilities. This gives less flexibility to DSOs in the case they provide storage services compared to recharging services. However, the exception for storage services under Article 36 does not explicitly refer to Article 6 and to the third party access regime. DSOs should therefore be freer in their price-setting ability when providing electricity storage services than for their other activities, without prejudice to their other obligations such as their non-discrimination obligation.

5.101

A transitory regime is instituted by paragraph 4 for certain storage facilities.

6.4 Aggregation and flexibility services No explicit ‘unbundling’ rules (or other equivalent prohibition) are provided for by the Recast Electricity Directive concerning aggregation and the provision of flexibility services by DSOs. Article 32, the only Article specifically regarding the use of flexibility in distribution networks, reads as follows: Article 32 electricity “1. Member States shall provide the necessary regulatory framework to allow and provide incentives to distribution system operators to procure flexibility services, including congestion management in their areas, in order to improve efficiencies in the operation and development of the distribution system. In particular, the regulatory framework shall ensure that distribution system operators are able to procure such services from providers of distributed generation, demand response or energy storage and shall promote the uptake of energy efficiency measures, where such services cost effectively alleviate the need to upgrade or replace electricity capacity and support the efficient and secure operation of the distribution system. Distribution system operators shall procure such services in accordance with transparent, non-discriminatory and market-based procedures unless the regulatory authorities have established that the procurement of such services is not economically efficient or that such procurement would lead to severe market distortions or to higher congestion. 2. Distribution system operators, subject to approval by the regulatory authority, or the regulatory authority itself, shall, in a transparent and participatory process that includes all relevant system users and transmission system operators, establish the specifications for the flexibility services procured and, where appropriate, standardised market products for such services at least at national level. The 251

5.102

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell specifications shall ensure the effective and non-discriminatory participation of all market participants, including market participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation. Distribution system operators shall exchange all necessary information and shall coordinate with transmission system operators in order to ensure the optimal utilisation of resources, to ensure the secure and efficient operation of the system and to facilitate market development. Distribution system operators shall be adequately remunerated for the procurement of such services to allow them to recover at least their reasonable corresponding costs, including the necessary information and communication technology expenses and infrastructure costs. 3. The development of a distribution system shall be based on a transparent network development plan that the distribution system operator shall publish at least every two years and shall submit to the regulatory authority. The network development plan shall provide transparency on the medium and long-term flexibility services needed, and shall set out the planned investments for the next five-to-ten years, with particular emphasis on the main distribution infrastructure which is required in order to connect new generation capacity and new loads, including recharging points for electric vehicles. The network development plan shall also include the use of demand response, energy efficiency, energy storage facilities or other resources that the distribution system operator is to use as an alternative to system expansion. 4. The distribution system operator shall consult all relevant system users and the relevant transmission system operators on the network development plan. The distribution system operator shall publish the results of the consultation process along with the network development plan, and submit the results of the consultation and the network development plan to the regulatory authority. The regulatory authority may request amendments to the plan. 5. Member States may decide not to apply the obligation set out in paragraph 3 to integrated electricity undertakings which serve less than 100,000 connected customers or which serve small isolated systems.”

252

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

Contrary to Articles  33, 35 or 36, DSOs are not expressly forbidden by Article  32 from acting as aggregators or to provide flexibility services. Member States are simply obliged to provide a regulatory framework that incentivizes DSOs to procure flexibility services. Likewise, there is no such prohibition, express or implied, in the definition of ‘aggregation’ nor under Articles 12, 13, 17 regarding aggregation and demand response.

5.103

There are, however, multiple provisions that provide for the transparent and non-discriminatory nature of (i) any regulatory framework that Member States would put into place with regard to aggregation or flexibility and the role of the DSOs therein (e.g., Article 32 (1), last sentence) and (ii) the procurement procedure and/or behaviour of the DSOs (e.g., Article 32 (2) or Article 31 (6)). Such provisions could be said to indirectly prohibit DSOs from acting as aggregators for, or to provide flexibility services relating to, their own distribution network. Indeed, one could argue that DSOs would be inherently incapable of procuring flexibility services in a non-discriminatory manner if they are in a position to provide themselves with such services. However, even such an interpretation could be contradicted, notably by arguing that the prohibitions under Articles 33 and 36 are clear and explicit and that, if the European legislator had intended for DSOs not to be allowed to act as aggregators or flexibility services providers for their own network, this would have been provided for clearly. It seems that, for this case at least, the final interpretation of the interplay of these Articles will be decided by the Courts.

5.104

A fortiori, there seems to be little textual grounds to interpret the Recast Electricity Directive in a way that prohibits Member States from allowing DSOs to act as aggregators or flexibility services providers when such services or aggregation relate to other DSOs’ (or TSOs’) networks. There is even one case where the Directive explicitly allows it, since Member States “must ensure that citi‑ zen energy communities (…) are treated in a non-discriminatory and transpar‑ ent manner with regard to their activities rights and obligations as (…) market participants engaged in aggregation” and Member States, “may decide to grant [them] the right to manage distribution network”.

5.105

253

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

7.

Exemptions

7.1 Exemption for small distributors 5.106

The final sentence of Article 35 (4) of the Recast Electricity Directive and Article 26 (4) of the Gas Directive, state that: Article 35 (4) electricity Article 26 (4) gas “Member States may decide not to apply paragraphs 1 and 2 and 3 to integrated electricity undertakings serving less than 100,000 connected customers, or serving small isolated systems.”

5.107

In small distribution companies, the economies of scale may not exist to justify the creation of separate units, or indeed separate subsidiaries, to carry out the different functions of a vertically integrated company. Employees may be responsible for more than one of the areas of generation, network activities and sales. The imposition on such companies of the normal unbundling requirements outlined above may therefore add significant costs to the operation of very small distribution companies.

5.108

The Commission, Council, and European Parliament recognised therefore, as part of the negotiations for the Second Package, that a cost-benefit analysis was necessary to decide upon the level of unbundling that such companies must carry out. The result of this analysis is the inclusion in the Directives of an exemption based on the number of “connected customers” that a distribution company has. Despite the Commission’s announcement, in its Communication of 10 January 2007 preparing the Third Package, of its intention to “re-examine the suitability of the 100,000 threshold”, this provision was kept unchanged in the Third Package and in the Recast Electricity Directive.

5.109

The term “connected customers” is not defined. However, it is clear that it means the number of physical connections, not the number of consumers or citizens concerned. Thus, if a distribution company is responsible for connecting only an apartment block in its entirety, it is irrelevant that the block has 10 apartments that are served from this single connection. Possibly the best manner to easily judge the number of connected customers is to determine the number of billed addresses. Thus, if an apartment block has separate supply and connection to 254

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

all apartments concerned, with separate bills by an electricity supplier to each apartment, all are considered to be a “connected customer”. If, however, only the apartment block owner is billed, who then charges his or her tenants a standard charge, only one connected customer exists.308 This definition is logical. The level of work for a distribution company depends primarily on the number of physical connections it has to manage, not the number of actual users. As the objective of the exemption threshold is to estimate the likely size of the distribution company, this makes sense.

5.110

The second issue in determining whether a distribution company is considered as having 100,000 connected customers concerns the number of distribution undertakings within a vertically integrated group. If a group only controls309 one distribution company, this is easily understood. If this company has more than 100,000 connected customers, then legal, functional, management and accounting unbundling are necessary. If it has fewer than 100,000 connected customers, only accounting unbundling is required. However, if a group controls more than one distributor, and the cumulative number of connected customers of all those distribution companies exceeds 100,000, then all must be fully unbundled, irrespective of their size. As stated in the Interpretative Note of the Commission on unbundling:

5.111

“If an undertaking involved in supply and/or generation controls one or more legally separate DSOs and the group of companies as a whole forms one single vertically integrated company, all connected customers of all the DSOs served by the undertaking have to be aggregated. Where applicable, the customers connected to a distribution network which is operated in the same company structure as the supply/ generation business in question have to be added as well.”

Such a rule could probably not, however, be applied to a company which had a holding in companies with fewer than 100,000 customers in two separate Member States. The exemption from unbundling could, for example, be given to two companies with 75,000 customers in separate Member States, even if owned by the same company.

5.112

The exemption for such undertakings is by no means obligatory – it is up to each Member State to determine if and to what extent an exemption is necessary. Experience, however, shows that Member States make extensive use of these dero-

5.113

308 See Section 3.5 of the Interpretative Note on unbundling, Appendix 10. 309 Within the meaning of the merger regulation.

255

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

gations from unbundling at distribution level. Notably, a 2016 survey by the CEER310 showed that 15 Member States311 applied the exemption at national level related to DSOs serving fewer than 100,000 connected customers. Figures 1 and 2 on the next two pages illustrate the proportion of DSOs concerned in each Member States, both for electricity and for gas.312

5.114

It should be noted that, even if a Member State exempts its small distributors from the obligations of legal and management unbundling, the Gas and Electricity Directives still require that accounting unbundling takes place (since such unbundling is not required by Article 35 [26 for gas] but by article 55 [31 for gas). Furthermore, a clear obligation lies on distributors of any size not to “ discriminate between system users or classes of system users, particularly in favour of its related undertaking” (Article 31 (2) [25 (2) for gas]). Thus, an obligation as to result lies on Member States to take other appropriate measures to ensure that discrimination does not take place. In the event of systematic discrimination in a Member State, a clear failure to implement the Directives would exist and one might expect the Commission to commence infringement proceedings requiring the Member State in question to take additional appropriate measures. However no such procedures of this type have been initiated to date.

310 Council of European Energy Regulators, CEER Status Review: Status Review on the Implementation of Distribution System Operators’ Unbundling Provisions of the 3rd Energy Package, Ref: C15-LTF-43-03, 1 April 2016, p. 13. 311 Austria, France, Croatia, Denmark, Estonia, Germany, Hungary, Italy, Latvia, Poland, Romania, Slovenia, Spain, Slovak Republic and Sweden. The following precisions apply: “In [Austria and Hungary] these provi‑ sions refer only to gas DSOs (…). In Spain, electricity DSOs serving less than 100 000 connected costumers are exempted from the provisions regarding functional unbundling, but must meet the requirements of legal unbundling by 2016. In Italy there are also different exemptions for electricity and gas sectors: electricity DSOs serving less than 100 000 connected costumers are exempted from legal but not from functional un‑ bundling, whereas respective gas DSOs are exempted from functional but not from legal unbundling”. 312 Council of European Energy Regulators, op.cit., pp. 11-12.

256

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

Figure 5.1. Electricity DSOs 2015-2018.

Figure 5.2. Electricity DSOs with less than 100.000 connexted customers 20152018.

257

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

Gas DSOs 2015-2018.

Gas DSOs with less than 100.000 connected customers 2015-2018.

258

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

7.2 Exemption for closed distribution systems In the “Citiworks” case of 22 May 2008,313 the European Court of Justice found that a provision of German law exempting certain operators of small and closed energy supply systems from the obligation to provide third-party access on the grounds that they were located on a geographically connected operation zone and that they predominantly served the energy needs of the undertaking owning the closed network did not comply with the rules on third party access of the Second Directives (for further details of this case, see book paragraphs 3.903.105).

5.115

In the case in question, the applicability of the Second Directives to the “closed distribution system” of the Leipzig-Halle airport was at stake. The Court decided that the third party access rules under Article 20(1) of the Second Electricity Directive prevented Germany from exempting DSOs such as the distributor of electricity of the airport from the obligation to grant third party access even though the distribution system was located on a geographically “closed” area (the airport) and predominantly served to supply the energy needs of the distributor itself and of connected undertakings.

5.116

Following this decision, concerns were raised that the requirements of the Directives were too heavy on some “closed distribution systems”, such as industrial sites or airports.

5.117

Following this judgment, the Parliament voted in summer 2008, in First Reading, for a derogation from the scope of the Directive for such industrial sites in the Third Directives. The derogation finally adopted under the Third Package does not go that far but provides for a possibility for Member States to grant derogations for these sites from ex-ante tariffs setting by the regulator; no derogation to third-party access can, however, be granted. Article 38 of the Recast Electricity Directive and 28 of the Gas Directive provide for the main following rules.

5.118

313 Case C-439/06; judgment of the Court (Third Chamber) of 22 May 2008 (reference for a preliminary ruling from the Oberlandesgericht Dresden, Germany) – Energy management proceedings between citiworks AG (Intervening party: Sächsisches Staatsministerium für Wirtschaft und Arbeit als Landesregulierungsbehörde), on the one hand, and Flughafen Leipzig/Halle GmbH and Bundesnetzagentur, on the other. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:62006CJ0439

259

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

Article 38 electricity “1. Member States may provide for national regulatory authorities or other competent authorities to classify a system which distributes electricity within a geographically confined industrial, commercial or shared services site and does not, without prejudice to paragraph 4, supply household customers, as a closed distribution system if: (a) for specific technical or safety reasons, the operations or the production process of the users of that system are integrated; or (b) that system distributes electricity primarily to the owner or operator of the system or their related undertakings. 2.  Closed distribution systems shall be considered to be distribution systems for the purposes of this Directive. Member States may provide for regulatory authorities to exempt the operator of a closed distribution system from: (a) the requirement under Article 31(5) and (7) to procure the energy it uses to cover energy losses and the non-frequency ancillary services in its system in accordance with transparent, non-discriminatory and market-based procedures; (b) the requirement under Article 6(1) that tariffs, or the methodologies underlying their calculation, are approved in accordance with Article 59(1) prior to their entry into force; (c) the requirements under Article 32(1) to procure flexibility services and under Article 32(3) to develop the operator’s system on the basis of network development plans; (d) the requirement under Article 33(2) not to own, develop, manage or operate recharging points for electric vehicles; and (e) the requirement under Article 36(1) not to own, develop, manage or operate energy storage facilities. 3. Where an exemption is granted under paragraph 2, the applicable tariffs, or the methodologies underlying their calculation, shall be reviewed and approved in accordance with Article 59(1) upon request by a user of the closed distribution system. 260

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell 4. Incidental use by a small number of households with employment or similar associations with the owner of the distribution system and located within the area served by a closed distribution system shall not preclude an exemption under paragraph 2 being granted.”

Article 28 gas “1. Member States may provide for national regulatory authorities or other competent authorities to classify a system which distributes gas within a geographically confined industrial, commercial or shared services site and does not, without prejudice to paragraph 4, supply household customers, as a closed distribution system if: (a) for specific technical or safety reasons, the operations or the production process of the users of that system are integrated; or (b) that system distributes gas primarily to the owner or operator of the system or to their related undertakings. 2. Member States may provide for national regulatory authorities to exempt the operator of a closed distribution system from the requirement under Article 32(1) that tariffs, or the methodologies underlying their calculation, are approved prior to their entry into force in accordance with Article 41. 3. Where an exemption is granted under paragraph 2, the applicable tariffs, or the methodologies underlying their calculation, shall be reviewed and approved in accordance with Article 41 upon request by a user of the closed distribution system. 4. Incidental use by a small number of households with employment or similar associations with the owner of the distribution system and located within the area served by a closed distribution system shall not preclude an exemption under paragraph 2 being granted.”

This gives rise to the following comments.

261

5.119

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

7.2.1 Definition of closed distribution systems 5.120

Closed distribution systems are therefore systems that distribute gas or electricity: –

within a geographically confined industrial, commercial or shared­ services site; and where

–

for specific technical or safety reasons, the operation or the production process of the users of that system is integrated; or that system distributes electricity primarily to the owner or operator of the system or their related undertakings.

5.121

The site should be an industrial, commercial or shared services site. Recital 66 of the electricity Directive and 28 of the Gas Directive give as possible examples “train station buildings, airports, hospitals, large camping sites with integrated facilities or chemical industry sites”. In particular, the network should not supply household customers. However, “ incidental use by a small number of households with employment or similar associations with the owner of the distribution system and located within the area served by a closed distribution system” does not preclude the application of the exemption.

5.122

The addition of the sentence “closed distribution systems shall be considered to be distribution systems for the purposes of this Directive”, clarifies beyond any doubt that, besides the possible derogation allowed by Article 38, closed distribution systems must follow all unbundling rules applicable to DSOs.

7.2.2 Scope of the derogation 5.123

The derogation aims at allowing closed distribution systems to be excluded from obligations which would constitute an unnecessary administrative burden because of the particular nature of the relationship between the distribution system operator and the users of the system.

5.124

Firstly, both gas and electricity closed distribution systems can be exempted from the requirement that network tariffs (or the methodologies underlying their calculation) are approved by the regulator prior to their entry into force. However, where an exemption is granted, the tariffs or methodologies can still be reviewed and approved by the regulator upon request by a user of the closed distribution system. The wording of the Directives implies that the regulator 262

Chapter 5 Unbundling of Distribution System Operators Christopher Jones, revised and updated by William-James Kettlewell

is bound to approve the tariffs following any request to this effect. Arguably, Member States could probably make this review subject to procedural conditions such as a legitimate interest to act for the third party (normally be a supplier or a customer) requesting the regulatory oversight. Secondly, electricity (not gas) closed distribution systems can be exempted from the obligations of Article  31(5) & (7) of the Electricity Directive, which requires DSOs to procure the energy that they use to cover energy losses and reserve capacity in their systems according to transparent, non-­discriminatory and market-based procedures.

5.125

Lastly, since the scope of the tasks of, and unbundling obligations applicable for, electricity DSOs have been extended under the Recast Electricity Directive, the scope of the derogation allowing Member States to exempt electricity closed distribution systems from these additional obligations is also extended. Member State can therefore derogate from (i) the obligations for DSOs to procuring flexibility services in a non-discriminatory manner, (ii) the obligation of developing their network on the basis of network development plans, (iii) the prohibition from owning or operating recharging points for electric vehicles and (iv) the prohibition from owning or operating energy storage facilities.

5.126

7.2.3 Procedure Member States may require national regulatory authorities or other competent authorities to classify (i.e., to approve) a system as a closed distribution system. As a second step, Member States may provide for national regulatory authorities to exempt the operator of these closed distribution system.

263

5.127

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

Chapter 6 National Regulatory Authorities

1.

The need for a strong sector-specific regulator

Given the nature of the monopoly held by the electricity and, to a somewhat lesser extent, gas networks, and the fact that they are an essential facility for anyone selling grid-bound goods or services in these areas, a regulator is necessary to ensure effective and non‑discriminatory access. Whilst competition policy can deal with certain cases of discrimination by dominant companies, and the Commission has been active in this domain over the past years,314 its procedures and remedies are not best equipped to address possible shortcomings in an entire network industry where competition for the services in question is completely non‑existent or at best very limited. This is why in monopoly network industries fair access is generally safeguarded by sector-specific regulators. In the case of electricity and gas regulators, they also perform tasks which would go beyond the capacity of competition authorities, such as ex ante approval of terms and conditions, setting or approving tariffs or methodologies, continuous market monitoring and facilitating infrastructure investment.

6.1

A requirement for Member States to establish regulators with specific competences was introduced by the Electricity and Gas Directives contained in the

6.2

314 The most recent examples of this are case COMP/AT.40461 “DE-DK Interconnector” where the Commission imposed in December 2018 binding commitments on Tennet, the largest German electricity TSO, to increase electricity trading capacity between Denmark and Germany; COMP/AT.39849 “BEH gas”, where the Commission levied a EUR 77m fine on the Bulgarian vertically integrated gas undertaking (its holding) for foreclosing the Bulgarian gas market by restricting access to gas market infrastructure; as well as in COMP/AT.40335 “Romanian gas interconnectors” where the Commission investigated possible export restrictions by the Romanian gas TSO Transgaz and accepted commitments by the latter in March 2020 to to address the Commission’s concerns. Transgaz committed to make available to the market significant firm capacities for natural gas exports from Romania to neighbouring Member States, in particular Hungary and Bulgaria.

265

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

Second Internal Market Package of 2003.315 As a result, energy regulators were established in all Member States. Though it succeeded in imposing sector specific regulators in all Member States, the regulatory framework under the Second Package suffered from several shortcomings. First, the requirements for independence were insufficient, as there was no obligation for regulators to be independent from governments but only from the energy industry. Second, the set of regulatory powers under EU law was limited: decision-making powers were only granted as regards tariffs, terms and conditions and complaints. Other competences were limited to monitoring of the activities of network operators.

6.3

Therefore, the Commission’s assessment of the role of regulators in 2007 showed a number of deficiencies. Overall, the effectiveness of regulators was frequently constrained by a lack of independence from government and insufficient powers. The country reviews done at the time in particular showed that, on many issues, regulators did not have sufficient discretionary and effective ex ante powers, and that this could lead to inconsistent decision-making. In many cases, the Commission found that regulatory powers were distributed among different bodies; in particular they were often split between the regulatory authority and the ministry. Lack of uniformity of regulators’ effective powers across Europe was also deemed to create a barrier to efficient cooperation on cross border issues and the development of a “level playing field”.

6.4

The Commission’s Communication of 10 January 2007 concluded as follows: “– There is evidence that both TSOs and regulators tend to be over-oriented to short term national concerns rather than pro-actively trying to develop integrated markets. For example, congestion has been in some countries shifted to national borders and cross border capacity is the first to be constrained. Some regulators have been slow to agree how to implement the basic provisions already contained in the legislation – for example, market-based capacity allocation. – On many issues, certain regulators are constrained in their relations with the industry, lacking the appropriate powers and discretion. This is particularly the case for subjects where, in the Directives, the regulator is not responsible ex-ante such as rules for functional unbundling, non-tariff access conditions, provision of information to network users and gas storage.

315 Directive 2003/54/EC concerning common rules for the internal market in electricity; Directive 2003/55/ EC concerning common rules for the internal market in natural gas.

266

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács – Regulators have, on occasion, been put in a position where their decisions clearly go against the objective of creating a single internal market for electricity and gas, usually due to direct or indirect influence from national governments. The clearest, although not the only, example of this is inappropriate regulated supply tariffs. – Concentrated national markets have tended to encourage regulators to introduce intrusive regulation into wholesale and balancing markets, for example price caps, which are a strong disincentive to invest. At the same time, capacity mechanisms are wholly uncoordinated, leading to potential distortions.”316

These findings were confirmed by a separate consultant’s report on regulatory competences, which concluded: “there remain insufficiencies in respect of the scope of activities, available powers and regulators’ ability to exercise independent regulation” and that this “causes residual problems of regulatory asymmetry and in some cases prevents the appropriate development of competition.” 317

6.5

As part of the Third Package, the 2009 Electricity and Gas Directives318 laid down a number of rules governing the formal set-up and independence of regulatory authorities, their duties, powers and obligations. These rules were, by and large, the same for electricity and gas. Referring to the Second Package, Recital 33 of the Third Package Electricity Directive and Recital 39 of the Gas Directive summarized the motivation for strengthening national regulatory authorities by explaining that “the effectiveness of regulation is frequently hampered through a lack of in‑ dependence of regulators from government, and insufficient powers and discretion”.

6.6

Since 2009 work on the internal market for electricity and gas has progressed steadily, numerous aspects of which are described in this book. The rules of the Third Package Directives relating to national regulatory authorities have largely tested well over time and Member State regulatory authorities, alongside ACER, have been of crucial importance to the deepening of integration in EU electricity and gas markets. However, a number of infringement cases launched by the Commission on regulatory independence and a referral to the Court of Justice, as well as overall experience gathered over the past years has brought to light certain areas for further legislative action. Therefore, in the context of

6.7

316 Commission, Prospects for the internal gas and electricity market, COM(2006) 841, 10.1.2007, p 7-8. 317 Study of the Powers and Competencies of Energy and Transport Regulators, Europe Economics and TIS, October 2006. 318 Directive 2009/72/EC concerning common rules for the internal market in electricity (the Electricity Directive); Directive 2009/73/EC concerning common rules for the internal market in natural gas (the Gas Directive).

267

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

the Commission’s “Clean Energy for all Europeans Package”319 specific provisions were proposed for modification Electricity Directive, touching on the legal framework for national regulators. Specifically, these areas are: i) further strengthening regulatory independence; ii) clarifying regulatory cooperation and coordination rules; and iii) adding new duties stemming from the strengthened provisions on electricity consumers and distribution systems.

6.8

The “Clean Energy for all Europeans” package and its specific electricity market design aspects focused on the regulatory framework in the EU electricity market. No amendments have to date been tabled concerning the Third Package Gas Directive though the Commission has announced its intention to work on a future gas market design as well. In assessing the provisions on regulatory authorities this chapter will be therefore be based on the Electricity Directive, noting where the two Directives now have asynchronous provisions.320

6.9

Going forward therefore, “Electricity Directive” will refer to Directive 2019/692/ EU, whereas “Gas Directive” will refer to Directive 2009/73/EC, the Third Package Directive, which remains in force. The term “Directives” will be used when referring to provisions in those pieces of legislation while “Third Package Directives” will refer to Directives 2009/72/EC and 2009/73/EC.

6.10

In order to support the implementation of the Third Package Directives by Member States, the Commission published an Interpretative Note on the regulatory authorities in 2010.321 Whilst this document is not formally binding for Member States (or, in fact, the Commission), it reflects the Commission’s interpretation of the relevant legislative provisions and thus constitutes an important guidance document for transposing the Directives into national law. As most of the provisions from the Third Package Directives relative to regulatory authorities are carried over into the Electricity Directive, the Interpretative Note continues to be an important source of analysis of the respective norms and will be referred to throughout this chapter.

319 Proposed on 30 November 2016 (COM(2016) 864); a political agreement was reached on 18 December 2018. 320 This has been done in particular in the frame of the Madrid Forum meetings held since 2017. There have also been earlier considerations of mirroring key non-electricity-specific general amendments of the Electricity Directive into an amended Gas Directive but these plans were later dismissed. 321 Appendix 13.

268

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

The provisions of the Directives limit the legislative room for manoeuvre of Member States in relation to the establishment of regulatory authorities considerably. As with all shared competences under Article 4 TFEU, they need to be justified against the principles of subsidiarity and proportionality enshrined in Article 5 TEU – and more specifically, the principles of institutional and procedural autonomy acknowledged by the European Court of Justice.322 The evidence mentioned above supports the assumption that the criteria of these principles are met by the Directives.

6.11

However, it must be emphasised that the Electricity and Gas Directives are somewhat more prescriptive and detailed in terms of institutional requirements, duties and powers of regulatory authorities than comparable pieces of EU legislation, such as for electronic communications or postal services.323 Considering more recent examples from other sectors, such as railways or credit institutions,324 the degree of harmonisation at EU level generally seems to have increased over time. At the same time, cooperation requirements between national regulatory authorities were generally strengthened and, in several areas, additional bodies (agencies) at EU level have been created.325

6.12

2.

Designation of a single regulatory authority

Under the Second Package, Member States could appoint several authorities as regulators and split tasks between them, for example between an independent regulator, a ministry, and/or a competition authority.326 In practice therefore, Member States were free to appoint more than one regulatory authority.

6.13

Articles 57(1) of the Electricity Directive and 39(1) of the Gas Directive provide that, when setting up the regulatory authority:

6.14

322 See, for instance, ECJ, Joined cases 205 to 215/82 Deutsche Milchkontor [1983] ECR 2633, paragraph 17. Cf. paragraph 6.119. below. 323 Cf. Article 3 of Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services (as amended by Directive 2009/140/EC); Article 22 of Directive 97/67/EC on common rules for the development of the internal market of Community postal services and the improvement of quality of service (as amended by Directive 2008/6/EC). 324 Cf. Articles 55 to 57 of Directive 2012/34/EU establishing a single European railway area; Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, in particular Articles 4 to 7, 40 to 45, 102 to 110 and 143 to 144 thereof. 325 See Chapter 7 on the Agency for the Cooperation of Energy Regulators, the EU agency with responsibilities in the energy sector. 326 Article 23(1) of the former Electricity Directive 2003/54/EC and Article 25(1) of the former Gas Directive 2003/55/EC: 269 ‘Member States shall designate one or more competent bodies with the function of regulatory authorities’.

269

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

“Each Member State shall designate a single [national]327 regulatory authority at national level”.

6.15

The Directives therefore clearly establish the principle that one entity must be granted all the powers (as a “one-stop shop”) to regulate the national electricity and gas sectors. The details of the organisational structure and composition of national regulatory authorities are to be elaborated by the Member States. In particular, Member States are free to set up several bodies within a national regulatory authority, e.g. a director, a board, a commission, a chamber etc.328 In case competences are split between different bodies, Member States must ensure that, taken together, all competences and duties listed in the Directives are assigned to the authority and that each of the bodies meets the independence requirements prescribed in the Directives.

6.16

As mentioned above and will be detailed in the section below, there are certain aspects in terms of regulatory independence that the amended provisions of the Electricity Directive intend to improve upon. Overall, however, the concept of a single regulator acting on the national level and working together with its peers on cross-border and European matters has worked out very successfully since the implementation of the Third Package. Regulatory cooperation, whether in the frame of ACER, the Council of European Energy Regulators (CEER) or on ad hoc cross-border issues, has become more intense and generally fruitful. That said cooperation has not always delivered success in resolving common issues which is why the Electricity Directive contains provisions to improve upon the respective procedures for regulatory cooperation, as will be detailed below. Regulatory authorities at national level may be entrusted with additional powers in areas not covered by the Directives such as security of supply, energy efficiency, renewable energy or energy statistics. Where this is the case, given the nature of those tasks, it is questionable whether the strict institutional requirements stipulated by the Directives, notably the independence of national regulatory authorities, also apply. In this respect it should be noted that the Directives distinguish between regulatory and other tasks: Several provisions indicate that the institutional guarantees of the Directives specifically relate to the exercise of regulatory duties and powers listed in the same Directives (or other EU legislation referring to national regulatory authorities).329 Moreover, in those cases not

6.17

327 The reference to national has been removed in the Electricity Directive and the Title of Chapter VII of the Electricity Directive is also simplified to “Regulatory Authorities” instead of the former “National Regulatory Authorities”. 328 Cf. the Commission’s Interpretative Note on regulatory authorities, p 4. 329 Article 57(4) of the Electricity Directive and Article 39(4) of the Gas Directive explicitly refer to regulatory

270

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

under the Directives, the authorities may be subject to different administrative, procedural or budgetary rules. Regulatory authorities designated pursuant to the Electricity and Gas Directives may also be assigned regulatory functions in other areas including telecommunications, media, postal services or transport.330 An integrated regulatory structure of this kind is unobjectionable with regard to the requirement of a single regulatory authority. With regard to its independence, as any other regulatory authority under the Electricity and Gas Directives, it has to meet the requirement of being legally distinct and functionally independent from any other public or private entity.331

6.18

2.1 Regional regulatory authorities Articles 57(2) of the Electricity Directive and Article 39(2) of the Gas Directive, respectively, allow for the designation of other regulatory authorities at regional level within Member States, provided there is only one senior representative per Member State at the Union level in the ACER Board of Regulators.

6.19

As part of the compromise leading to the acceptance of a single regulator at national level, the Third Package Directives enabled Member States to designate regulatory authorities at regional level. This is also upheld in the Electricity Directive. “Regional” in this context means a specific region at infra-national level within a Member State, not a regulator encompassing several regions of Europe at supra-national level. To date only Belgium and Germany have instituted such a system of regional authorities.

6.20

The reference to “other” regulatory authorities at regional level implies that the regional regulatory level should not replace the national (i.e. federal) regulatory level but add to it. This leads to the question whether competences may be divided or shared between the national regulator and regional regulatory authorities. Under a strict interpretation, the national regulator would have to be granted all the competences under the Directives; only additional competences, which

6.21

authorities “carrying out the regulatory tasks conferred upon it by this Directive and related legislation”. When acting outside these regulatory tasks, Article 57(4)(b)(ii) of the Electricity Directive and Article 39(4)(b)(ii) of the Gas Directive allow for general policy guidelines issued by the government. 330 The Bundesnetzagentur in Germany is a prime example of such a multi-sectoral regulator and has the broadest mandate of all European regulatory authorities. Several other national regulators have however mandates beyond the electricity and gas sector, most typically in water and waste services as well as, separately, being organizationally merged with the national competition agency. 331 Article 57(4)(a) of the Electricity Directive and Article 39(4)(a) of the Gas Directive. See Section 3 in this chapter on the regulatory authorities’ independence.

271

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

are not foreseen in the Directives, may be granted to regional authorities. Such a reading is supported by the fact that, in contrast to the rule on geographically separate regions in paragraph 3, the provision relating to the regional regulator in paragraph 2 does not constitute a “derogation” from paragraph 1. However, competences outside the scope of the Directives may be assigned to other authorities in any event. What is more, the requirement to have one senior representative for representation and contact purposes at Union level makes sense only if, otherwise, several representatives would come into consideration.

6.22

A less restrictive, and more plausible, interpretation thus allows for tasks listed in the Directives to be exercised by regional authorities, subject to a certain degree of coordination and review by the national regulator. In Germany, for instance, there are 10 regional regulatory authorities tasked with overseeing, on the basis of the provisions of the Directive, the electricity and gas distribution systems falling into their geographic areas. Belgium, also a federal state, has established regional regulatory authorities in all three of its regions. In view of their structural specificities332, both Member States have thus managed to balance well the effectiveness of the “one-stop shop” principle contained in the Directives with the institutional flexibility granted to (federal) Member States by the legislator.

2.2 Small and separated systems 6.23

Article 57(3) of Electricity Directive and Article 39(3) of the Gas Directive, respectively, allow for the designation of regulatory authorities for small systems333 in a geographically separate region whose consumption in 2008 accounted for less than 3 % of the total consumption of the Member State of which it is part, provided there is only one senior representative per Member State at the Union level in the ACER Board of Regulators. As a derogation from the “one-stop shop” principle, this provision allows Member States to set up more than one regulatory authority per Member State. However, since there is no derogation from the duties and powers given to national regulatory authorities (notably) under Articles 59 (Electricity) and 39 (Gas) of the Directives, it must be assumed that the regulatory authorities designated for small systems, in principle, need to be vested with all the tasks and competences listed in the Directives. As the Commission pointed out,334 the requirements of this derogation are likely to be met only by islands. Correspondingly, to date, only the UK has a regulator responsible for Northern 332 The Bavarian Ruling Chamber for instance oversees 330 electricity and gas DSO with less than 100.000 customers, all operating within the geographic boundaries of the State of Bavaria. 333 Note that this differs from the definition of a “small isolated system” according to Article 2(42) of the Electricity Directive. 334 Interpretative Note on regulatory authorities, p. 4.

272

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

Ireland that falls under these provisions. As in the case of regional authorities, a single senior national representative has been appointed for the United Kingdom as well for representation and contact purposes at Union level. With the UK’s departure from the EU there is thus no Member State applying this derogation.

3.

Independence of regulatory authorities

Minimum requirements of regulatory authorities’ independence are a common feature of sector specific regulation. Regulators should enjoy a high degree of independence when exercising their duties as this constitutes “a key principle of good governance and a fundamental condition for market confidence”.335

6.24

It should be pointed out that, according to Article 57(4) of the Electricity Directive and Article 39(4) of the Gas Directive, regulatory authorities must be independent when acting under the Directives “and related legislation”. The Directives thus differentiate between regulatory and non-regulatory tasks and powers. “Related legislation” certainly includes other acts setting out the rules of the internal electricity and gas market, i.e. the Electricity and Gas Regulations as well as the ACER Regulation.336 Nevertheless, while Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency (REMIT), Directive 2012/27/EU on energy efficiency337 and Regulation (EU) No 347/2013 on guidelines for trans-European energy infrastructure explicitly refer to national regulatory authorities as defined by the Electricity and Gas Directives, they should not be considered as related legislation.338 In any case, to the extent national regulatory authorities have been granted additional competences outside the scope of the Directives and related legislation, they are not subject to the same independence requirements (or other provisions of the Directives).

6.25

335 See the Commission’s proposals for the Third Package Directives, COM(2007) 528 and 529, paragraph 2.2. The proposal for the Electricity Directive makes no specific mention of regulatory independence in the explanatory memorandum. 336 Regulation (EU) 2019/943 on the internal market for electricity; Regulation (EC) No 715/2009 on conditions for access to the natural gas transmission networks; Regulation (EU) 2019/942 establishing a European Union Agency for the Cooperation of Energy Regulators. 337 As amended by Directive (EU) 2018/844. 338 Cf. the Commission’s Interpretative Note on regulatory authorities, p. 5, which explicitly mentions only the Electricity and Gas Regulations in that context.

273

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.26

Regulatory independence from government is, however, important to prevent the protection or support of ‘national champions’; and to prevent decisions being influenced by (short term) political considerations. The Third Package therefore extended the notion of independence and added organisational as well as procedural safeguards to support the practical implementation of the principle of independence.

6.27

The implementation of the Third Package has nevertheless shown that effective regulatory independence across all Member States is an elusive objective. By way of example, the Commission has taken specific enforcement steps on the matter, launching a number infringement cases and referring Germany to the Court of Justice for failing to ensure full respect of the rules on regulatory independence.339 ACER has also weighed in on the matter with its formal recommendation on ensuring its own independence and that of national regulatory authorities.340 Furthermore, in its 2017 paper on regulatory independence in conjunction with the Commission’s “Clean Energy Package” proposal, CEER identified the following categories where a further strengthening of regulatory independence was deemed necessary: i) avoiding that national regulators are given instructions on regulatory decisions by the government341; ii) giving national regulators the power to issue final and binding decisions, without ministry scrutiny; iii) giving the head of the regulatory authority more legal comfort that the term of office is respected; and iv) ensuring adequate resources for the regulator, without government interference.

3.1 Principle of independence 6.28

The principle of independence of national regulatory authorities is enshrined in paragraph 4 of Article 57 of the Electricity Directive and of Article 39 of the Gas Directive:

339 Cf. IP/18/4487. 340 Cf. ACER Recommendation No. 1/2016 of 30 May 2016. The Recommendation calls for the following measures: a clear definition in legislation of the respective roles of the Member States and the NRAs; enshrining in law the accountability of NRAs to national parliaments rather than to their governments; clear and explicit rules for nomination, appointment and dismissal of board members and top management; financial independence to be enshrined and adequate resourcing to be ensured; and inclusion of a general legislative provision requiring NRAs to cooperate at Union level within ACER, and that, as a minimum, all NRAs regularly participate in meetings of the Board of Regulators. 341 According to the CEER study this was still the case in five Member States.

274

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács “Member States shall guarantee the independence of the regulatory authority and shall ensure that it exercises its powers impartially and transparently. For this purpose, Member State shall ensure that, when carrying out the regulatory tasks conferred upon it by this Directive and related legislation, the regulatory authority: (a) is legally distinct and functionally independent from other public or private entities; 342 (b) ensures that its staff and the persons responsible for its management: (i) act independently from any market interest; and (ii) do not seek or take direct instructions from any government or other public or private entity when carrying out the regulatory tasks. This requirement is without prejudice to close cooperation, as appropriate, with other relevant national authorities or to general policy guidelines issued by the government not related to the regulatory powers and duties under Article 59 [gas: Article 41].”

As indicated above, the requirement of independence not only relates to market participants but also to any other public or private body including government structures. The Directives therefore require Member States to create a specific regulatory body outside of the government administration typically characterised by a hierarchical organisation and political responsibility of their management. The Member States’ influence on regulatory authorities must be limited to a few formal rights such as appointment, approval of the budget or reporting. Point (b)(ii) mentions “close cooperation […] with other relevant national au‑ thorities” and “policy guidelines issued by the government”. In practical terms it is impossible to operate a regulatory body in a policy vacuum therefore it is only natural that these items are mentioned. At the same time there may often only be a very thin line between forms of cooperation or acceptance of policy guidelines that potentially impinge on the independence of a particular regulatory authority or those that do not.

342 The text of the Gas Directive still corresponds to the Third Package Directives text which is slightly different: (a) is legally distinct and functionally independent from any other public or private entity;

275

6.29

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

3.1.1 Organisational requirements and transparency 6.30

In terms of organisation, the key provision is the requirement for regulatory authorities to be “ legally distinct and functionally independent from any other public or private entity”.343 The term “legally distinct” implies organisational autonomy separating the regulator from other entities.344 It requires Member States to adopt a tailor-made legal framework serving as the legal basis for the regulator’s actions and conferring the duties and powers listed in the Directives. As a rule, regulatory authorities can thus not be part of a governmental structure, e.g. a separate department within a ministry would not qualify as “legally distinct”.

6.31

Functional independence refers to the regulatory practice of the national regulatory authorities and all activities enabling them to fulfil their duties, including the adoption of (legal and/or administrative) acts, the procurement of goods and services and human resource management. Taking into account the relevant case law of the ECJ,345 functional independence requires national regulatory authorities to remain free from instructions of any kind in the performance of their duties and, in particular, to take autonomous decisions within the meaning of Article 57(5)(a) of the Electricity Directive and Article 39(5)(a) of the Gas Directive.

6.32

Article 57(4) of the Electricity Directive and Article 39(4) of the Gas Directive require national regulatory authorities to exercise their powers transparently. To that end Article 59(7) of the Electricity Directive and Article 41(16) of the Gas Directive generally oblige national regulatory authorities to publish their decisions while preserving the confidentiality of commercially sensitive information.346 In addition, the Directives provide standards of transparency especially for tariffs and methodologies347 and network development.348

343 Note that the same wording is used in Article  3(2) of Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services. 344 Cf. the Commission’s Interpretative Note on regulatory authorities, p 6. 345 Cf. in particular the judgments on supervisory agencies under Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data, Cases C-518/07 Commission v Germany [2010] ECR I-1885, paragraph 25; C-614/10 Commission v Austria [2012] EU:C:2012:631, paragraph 42; C-288/12 Commission v Hungary [2014] EU:C:2014:237, paragraph 52 (here the ECJ uses the term “operational independence”). 346 Note that the Agency is subject to a similar transparency requirement under Article 17(3) of the ACER Regulation. 347 Article 59(1)(a) of the Electricity Directive and Article 41(1)(a) of the Gas Directive. 348 Articles 51(4) and 22(4), respectively, of the Electricity and Gas Directives.

276

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

3.1.2 Personnel requirements As for the obligations imposed on management and staff, independence from “market interest” required by Article 57(4)(b)(i) of the Electricity Directive and Article 39(4)(b)(i) of the Gas Directive primarily refers to electricity and gas undertakings but, in principle, it also extends to their customers who must be regarded as market participants. Whereas a single consumer may usually not be considered as having a market interest from which the personnel of the regulator needs to stay independent, a lobby group defending the (aggregated) interests of a particular sector of energy customers may clearly be representing such market interest that needs to be considered by the regulator when engaging with that counterparty. In this context, it is noteworthy that while regulatory authorities should help to ensure consumer protection,349 in general, they have to exercise their tasks in a neutral and objective manner.350 This is particularly important when acting as a dispute settlement authority.351

6.33

Holding a position with electricity or gas undertakings or holding shares of such undertakings must be considered incompatible with the requirement to act independently of any market interest.352

6.34

The prohibition to seek or take instructions is part of the concept of political independence.353 According to the Commission’s analysis, the provisions of the Second Package, requiring only independence of the interests of the electricity and gas industry, did not guarantee independence from short-term political interests.354 However, regulators’ independence from (other) public entities, which is required starting with the Third Package Directives, raises the issues of democratic accountability and legal protection. The Directives address these issues by stating that:

6.35

“This precludes neither judicial review nor parliamentary supervision in accordance with the constitutional laws of the Member States.”355

349 350 351 352 353

Article 58(g) of the Electricity Directive, Article 40(g) of the Gas Directive. Cf. the Commission’s Interpretative Note on regulatory authorities, p. 6. Article 59(2) of the Electricity Directive, Article 41(11) of the Gas Directive. Cf. the Commission’s Interpretative Note on regulatory authorities, p. 8. Similar provisions can be found, for instance, in Article 3(3a) of Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services and in Article 55(3) of Directive 2012/34/EU establishing a single European railway area. 354 See the Commission’s proposals for the Third Package Electricity and Gas Directives, COM(2007) 528 and 529, paragraph 2.2. 355 Recital 80 of the Electricity Directive, Recital 30 of the Gas Directive.

277

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.36

Here the Directives aim to strike a delicate balance. National regulators must not act according to political considerations; their administrative acts should solely be based on the relevant legislation they have to implement, guided by the general objectives of the internal energy market as laid down in the Directives. While they are not subject to instructions from government, they must be subject to parliamentary control in order to ensure the necessary democratic accountability and legitimacy. In addition, Member States have to provide effective legal remedies against administrative acts adopted by national regulatory authorities, so that their decisions may be subject to judicial review.356

6.37

The prohibition of direct instructions works both ways: seeking and taking instructions would both violate the principle of political independence.357

6.38

“Public entities” within the meaning of Article 58 of the Electricity Directive and Article 40 of the Gas Directive cover not only national entities but also EU institutions including the Commission and ACER. For the latter, the ACER Regulation introduced a similar independence requirement for the Director and the Board of Regulators which was carried forward in the amended text and even strengthened as regards the independence provision of the ACER Director.358

6.39

The Directives also clarify that the rules on independence do not preclude cooperation with other relevant national authorities such as competition authorities.359 Indeed, regulatory authorities are under an obligation to cooperate nationally and internationally, especially in relation to cases of access to and operational security of cross border infrastructure.360 Another issue concerns regulatory authorities that are part of a larger regulatory body such as the competition authority or a joint regulatory institution merging several sector-specific regulators. If one accepts the possibility for national regulatory authorities to be entrusted with additional competences outside the scope of the Directives, this kind of organisational integration must also be regarded as compatible with the Directives – as long as the “political” independence of the regulatory authorities is ensured.

6.40

356 Cf. Article 60(4) of the Electricity Directive, Article 41(12) of the Gas Directive. 357 Cf. the Commission’s Interpretative Note on regulatory authorities, p. 7. 358 Articles 22(3) and 23(1) of the ACER Regulation. A sentence was added that the Director was only accountable to the Administrative Board in relation to administrative, budgetary and managerial matters. 359 Articles 59(2) and 59(3)(b) of the Electricity Directive; Articles 41(2) and 41(4)(b) of the Gas Directive. 360 Article 61(1) of the Electricity Directive, Article 42(1) of the Gas Directive. Cf. Section 8 as well as the Commission’s Interpretative Note on regulatory authorities, p. 8.

278

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

3.2 Rules protecting independence Accompanying rules on financing and the appointment of the management should help protect regulators’ independence, notably to avoid indirect attempts to influence the regulatory practice of authorities. Preserving almost entirely the text of the Third Package Directives, the Electricity Directive clarifies in Article 57(5) the formulation on functional independence by enumerating specifically the requirements vis-á-vis Member States:

6.41

“In order to protect the independence of the regulatory authority, Member States shall in particular ensure that: (a) the regulatory authority can take autonomous decisions, independently from any political body; (b) the regulatory authority has all the necessary human and financial resources it needs to carry out its duties and exercise its powers in an effective and efficient manner; (c) the regulatory authority has a separate annual budget allocation with and autonomy in the implementation of the allocated budget; and (d) the members of the board of the regulatory authority or, in the absence of a board, the regulatory authority’s top management are appointed for a fixed term of five up to seven years, renewable once.”361

Point (a) reiterates the principle of political independence: the decisions of regulatory authorities are not subject to approval or review by any political body. In order to enable regulatory authorities to act independently in practice, new point (b) of the Electricity Directive contains the largely existing provisions on financial autonomy and adequate resources. Crucially, compared to the text of the Third Package Directives, the objective to “[…] exercise its powers in an ef‑ fective and efficient manner.” was added in relation to the functional autonomy. This is clearly a stronger formulation than “carry out its duties” and shows that the legislator saw it necessary to further specify the notion to respond to the experience and recommendations of the years since the implementation of the Third Package. As explained in the Commission’s Interpretative Note, regulatory authorities may either be granted separate global budgets on an annual basis, 361 Article 57(5) of the Electricity Directive. Article 39(5) of the Gas Directive is less pronounced in the enumeration of the financial autonomy terms.

279

6.42

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

or be allowed to collect fees from electricity and gas customers.362 Both financial and human resources will have to be assessed with regard to the tasks of the regulatory authority.

6.43

As regards financing, Member States must ensure that regulatory authorities have separate annual budget allocations, with autonomy in the implementation of the allocated budget. Both reformulated points show the evident tension: on one side, trying to push for autonomy also from the political level in order to achieve as independent regulatory authorities as possible; and on the other the overall reticence of Member States to give free hand on the matter. During the Third Package negotiations the notion of “budgetary autonomy” was still on the table, but was finally decided against in favour of “autonomy in the implementa‑ tion of the allocated budget” as a compromise solution. Nevertheless, as stated above, implementation of the Third Package Directives has shown that further efforts needed to be made in terms of strengthening regulatory independence. Consequently, new points (b) and (c) and the limited reformulation go another small step but still uphold overall the delicate political balance of the Third Package.

6.44

The Directives further provide that: “approval of the budget of the regulatory authority by the national legislator does not constitute an obstacle to budgetary autonomy. The provisions relating to the autonomy in the implementation of the allocated budget of the regulatory authority should be implemented in the framework defined by national budgetary law and rules”.363

6.45

Under paragraph 5 point (d) of the Electricity Directive on the ‘designation and independence of regulatory authorities’, the members of the board of a regulatory authority or, in the absence of a board, the regulatory authority’s top management, are to be appointed for a fixed term of five up to seven years, renewable once.364 Additionally, an appropriate rotation scheme for the board or top management must be put into place. This should contribute to making appointments less susceptible to political influence by preventing all members of the board or top management from being appointed or resigning at the same 362 Interpretative Note on regulatory authorities, p. 9. 363 Recital 80 of the Electricity Directive and Recital 30 of the Gas Directive (differs only in small linguistic revision). 364 At the time of the negotiation of the Third Package the Commission, supported by the Parliament, proposed a non-renewable appointment to guarantee more independence, which was rejected by the Council. The end result can be interpreted as a compromise solution.

280

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

time. No change has been made to this arrangement with the new Electricity Directive. The members of the board or, in the absence of a board, the top management may be relieved from office during their term only if they no longer fulfil the conditions set out in this Article or have been found guilty of misconduct under national law.

6.46

As some small Member States were afraid that they would not have sufficient competent human resources to properly implement this provision, the Directives provide some mitigation by indicating that:

6.47

“While contributing to the regulatory authorities’ independence from any political or economic interest through an appropriate rotation scheme, it should be possible for Member States to take due account of the availability of human resources and of the size of the board.”365

Neither board members nor staff of regulatory authorities are subject to cooling-on or cooling-off periods under the Directives before joining or after leaving the regulatory authority.366

6.48

New provisions (points 5(e)-(g)) added in the Electricity Directive aim to further ensure that the appointment of regulatory authority board members is objective and transparent and that the candidates have the required skills and experience. The requirement to heed conflict of interest and confidentiality provisions for board members – even beyond the end of the mandate – has been added. Finally, a potential dismissal of regulatory board members may henceforth only be done on the basis of transparent criteria that have been established in advance.

6.49

In order to provide for a monitoring cycle on the implementation of the respective independence provisions – “the compliance of national authorities with the principle of independence” – Article 57(7) of the Electricity Directive sets out that the Commission must present a report to the European Parliament and the Council three years after the entry into force of the Directive and every four years thereafter.

6.50

365 Recital 80 of the Electricity Directive, Recital 30 of the Gas Directive (differs only in small linguistic revision). 366 Unlike, for instance, regulatory bodies for railways under Article 55(3) of Directive 2012/34/EU.

281

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

4. 6.51

General objectives of the regulatory authorities

Article 58 of the Electricity Directive and Article 40 of the Gas Directive provide for a list of general objectives that are assigned to the regulatory authorities;367 “In carrying out the regulatory tasks specified in this Directive, the regulatory authority shall take all reasonable measures in pursuit of the following objectives within the framework of its duties and powers as laid down in Article 59, in close consultation with other relevant national authorities, including competition authorities, as well as authorities, including regulatory authorities, from neighbouring Member States and neighbouring third countries, as appropriate, and without prejudice to their competence: (a) promoting, in close cooperation with regulatory authorities of other Member States, the Commission and ACER, a competitive, flexible, secure and environmentally sustainable internal market for electricity within the Union, and effective market opening for all customers and suppliers in the Union, and ensuring appropriate conditions for the effective and reliable operation of electricity networks, taking into account long-term objectives; (b) developing competitive and properly functioning regional cross-border markets within the Union with a view to achieving the objectives referred to in point (a); (c) eliminating restrictions on trade in electricity between Member States, including developing appropriate cross-border transmission capacities to meet demand and enhancing the integration of national markets which may facilitate electricity flows across the Union; (d) helping to achieve, in the most cost-effective way, the development of secure, reliable and efficient non-discriminatory systems that are consumer-oriented, and promoting system adequacy and, in accordance with general energy policy objectives, energy efficiency, as well as the integration of large and small-scale production of electricity from renewable sources and distributed generation in both transmission and distribution networks, and facilitating their operation in relation to other energy networks of gas or heat;

367 Text of the Electricity Directive.

282

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (e) facilitating access to the network for new generation capacity and energy storage facilities, in particular removing barriers that could prevent access for new market entrants and of electricity from renewable sources; (f ) ensuring that system operators and system users are granted appropriate incentives, in both the short and the long term, to increase efficiencies, especially energy efficiency, in system performance and to foster market integration; (g) ensuring that customers benefit through the efficient functioning of their national market, promoting effective competition and helping to ensure a high level of consumer protection, in close cooperation with relevant consumer protection authorities; (h) helping to achieve high standards of universal service and of public service in electricity supply, contributing to the protection of vulnerable customers and contributing to the compatibility of necessary data exchange processes for customer switching.”

Regulatory authorities have the obligation to take all reasonable measures to implement this list of objectives. Even so, the Directives clearly state that these general objectives do not by themselves confer additional competences upon the regulatory authorities: The objectives are to be pursued within the framework of the duties and powers given to regulators under Articles 59 of the Electricity Directive and 41 of the Gas Directive.368 The general objectives, however, may serve as an interpretative guideline for the tasks and powers granted to national regulatory authorities and the exercise of these tasks and powers.

6.52

The list of general objectives emphasises the role of regulatory authorities in relation to the achievement of an effective integrated internal market within the Union (paragraphs a, b, c and f ). Clearly, regulators should not only focus on their national markets but be strongly involved in driving market opening at European level. In this respect, they have a specific responsibility for developing competitive and properly functioning regional markets within the Union (paragraph b); and for eliminating restrictions on trade between Member States, including developing appropriate cross border transmission capacities and enhancing the integration of national markets so as to facilitate flows across the Union (paragraph c).

6.53

368 See the Commission’s Interpretative Note on regulatory authorities, p. 12.

283

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.54

Another key objective is the effective and reliable operation of networks. The Directives stress in this respect the need to put into place appropriate conditions, including incentives for both system operators and system users to foster long term objectives. The aim is to avoid that regulators limit themselves to short term policies with detrimental impact on long term investments and security of supply. Efficiency objectives are also included, notably in that the development of the system should be undertaken to increasing efficiencies in system performance (paragraphs a, d and f ).

6.55

Regulators should also have a specific focus on promoting effective competition, (paragraphs a, b and g) and facilitating access to the network for new market entrants and new generation or production capacity (paragraph e).

6.56

Environmental concerns have to be an important element of the regulators’ policy in order to promote, in line with their general energy policy objectives, energy efficiency as well as the integration of large and small-scale production of electricity from renewable energy sources and distributed generation in both transmission and distribution networks (paragraph (e) of the Electricity Directive).

6.57

The regulatory policy has to be consumer oriented, including the general obligation to ensure that consumers ultimately benefit from the efficient functioning of their national market. The Directives recognise the role of regulatory authorities in customer protection, public service obligations and the protection of vulnerable customers although they indicate that the regulator is only to contribute to these policies (or provide “help”), implying that the primary responsibility in this area remains with the government or other entities such as consumer authorities (paragraphs d, g and h).369 To this effect paragraph (g) of this Article in the Electricity Directive has been amended to clarify that the high level of consumer protection was to be ensured in close cooperation with consumer protection authorities.370

6.58

Finally, the pursuit of these objectives is not an exclusive competence of the regulatory authorities: rather, they must be implemented “in close consultation with other relevant national authorities” and “without prejudice” to the competencies of other authorities. This in particular concerns national energy ministries (departments, agencies) and competition authorities but also consumer protection bodies and others. 369 See Chapter 10. 370 Cf. the duty to cooperate with other relevant national authorities pursuant to Article 59(2) of the Electricity Directive and Article 41(2) of the Gas Directive.

284

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

5.

Duties of regulatory authorities

Articles 59(1) of the Electricity Directive and 41(1) of the Gas Directive are the key articles that contain the duties of national regulatory authorities.

6.59

As explained above, these responsibilities should be seen in conjunction with the general objectives listed in Article 58 of the Electricity Directive and Article 40 of the Gas Directive. Moreover, the list of duties of the regulatory authorities is complemented by a list of powers that must be granted to them. The Directives thus provide for a number of such competences to be conferred upon regulatory authorities so as to enable them to carry out the tasks assigned to them with a view to pursuing the catalogue of general objectives. Both duties and powers granted under the Directives constitute a minimum standard. Member States may foresee additional tasks and additional competences for regulatory authorities.371 Those must, however, not encroach upon the duties and powers assigned by the Directives, nor the independence guaranteed by the Directives.

6.60

5.1 General principles applicable to the duties Articles 59(2) of the Electricity Directive and 41(2) of the Gas Directive provide some important clarifications as regards the regulators’ duties and powers.

6.61

First, Member States have the possibility to decide that the monitoring duties set out in paragraph 1 are carried out by authorities other than the regulatory authority. Where this is the case, the information resulting from such monitoring activities must be made available to the regulatory authority as soon as possible. It must be emphasised that the possibility to entrust duties to other authorities only concerns the tasks explicitly limited to monitoring and, in particular, does not cover decision making or enforcement powers.

6.62

Second, when exercising their powers, regulatory authorities have a general obligation to cooperate with any other relevant national authority. The Directives indicate that this should be done while preserving their independence and without prejudice to each authority’s own specific competencies.

6.63

Third, regulatory authorities also have the obligation to consult transmission system operators.

6.64

371 Article 57(4)(b)(ii) of the Electricity Directive and Article 39(4)(b)(ii) of the Gas Directive recognize that national regulatory authorities may be assigned non-regulatory duties and powers.

285

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.65

6.66

Finally, the Directives indicate that any approvals given by regulatory authorities (or ACER) under the Directives are without prejudice to any duly justified future use of the powers of the regulatory authority or to any penalties imposed by other relevant authorities or the Commission. Here, the Directives limit the legal effects of approval decisions on further decisions or proceedings. For instance, the approval of a network operator’s general terms and conditions, assuming the network operator acted in full compliance with those terms and conditions, would not preclude the regulatory authority from adapting tariffs or their methodologies if the network operator’s costs were found to have been inefficiently incurred. What is more, other relevant authorities, in particular national competition authorities and the Commission, are not bound by decisions of the regulator: Terms and conditions e.g. for the provision of balancing services may, even though approved by the national regulatory authority, still be found to contradict EU competition law. This is in line with the jurisprudence of the ECJ.372 Regulatory authorities enjoy a certain degree of discretionary power when exercising their duties, which has been recognised by the ECJ: “In carrying out those regulatory functions, the NRAs have a broad discretion in order to be able to determine the need to regulate a market according to each situation on a caseby-case basis.”373

5.2 Content of the duties 6.67

Articles 59(1) of the Electricity Directive and 41(1) of the Gas Directive provide, respectively, a list of 26 and 21 duties.374 Regulatory authorities must be assigned additional tasks in case an independent system operator (ISO) or an independent transmission operator (ITO) has been designated. Further tasks are listed in paragraphs 59(7)-(10) and 60(1) of the Electricity Directive and paragraphs 6 to 10 of Article 41 of the Gas Directive. Modifications made from the Third Package Directives to the Electricity Directive entail the removal of the paragraph on incentives to network operators (37(8)) and the addition of paragraph 59(9) on ensuring greater transparency in relation to tariff methodology and underlying costs while nonetheless preserving the necessary confidentiality.

372 Cf. e.g. case C-280/08P Deutsche Telekom v Commission [2010] ECR I-9555, paragraph 84. 373 Case C-424/07 Commission v Germany [2009] ECR I-11431, paragraph 61; see also case C-55/06 Arcor [2008] ECR I-2931, paragraphs 151-159. 374 The Third Package Directives both had 21 duties defined for regulatory authorities which was supplemented by five additional duties in the frame of the amendment of the Electricity Directive.

286

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

Article 59(1) of the Electricity Directive “1. The regulatory authority shall have the following duties: (a) fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies, or both; (b) ensuring the compliance of transmission system operators and distribution system operators and, where relevant, system owners, as well as the compliance of any electricity undertakings and other market participants, with, their obligations under this Directive, Regulation (EU) 2019/943 the network codes and the guidelines adopted pursuant to Articles 59, 60 and 61 of Regulation (EU) 2019/943 and other relevant Union law, including as regards cross-border issues, as well as with ACER’s decisions; (c) in close coordination with the other regulatory authorities, ensuring the compliance of the ENTSO for Electricity and the EU DSO entity with their obligations under this Directive, Regulation (EU) 2019/943, the network codes and guidelines adopted pursuant to Articles 59, 60 and 61 of Regulation (EU) 2019/943 and other relevant Union law, including as regards cross-border issues, as well as with ACER’s decisions, and jointly identifying non-compliance of the ENTSO for Electricity and the EU DSO entity with their respective obligations; where the regulatory authorities have not been able to reach an agreement within a period of four months after the start of consultations for the purpose of jointly identifying non-compliance, the matter shall be referred to the ACER for a decision, pursuant to Article 6(10) of Regulation (EU) 2019/942; (d) approving products and procurement process for non-frequency ancillary services; (e) implementing the network codes and guidelines adopted pursuant to Articles 59, 60 and 61 of Regulation (EU) 2019/943 through national measures or, where so required, coordinated regional or Union-wide measures; (f ) cooperating in regard to cross-border issues with the regulatory authority or authorities of the Member States concerned and with ACER, in particular through participation in the work of ACER’s Board of Regulators pursuant to Article 21 of Regulation (EU) 2019/942;

287

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (g) complying with, and implementing, any relevant legally binding decisions of the Commission and of ACER; (h) ensuring that transmission system operators make available interconnector capacities ¦to the utmost extent pursuant to Article 16 of Regulation (EU) 2019/943; (i) reporting annually on its activity and the fulfilment of its duties to the relevant authorities of the Member States, the Commission and ACER, including on the steps taken and the results obtained as regards each of the tasks listed in this Article; (j) ensuring that there is no cross-subsidisation between transmission, distribution, and supply activities or other electricity or non-electricity activities; (k) monitoring investment plans of the transmission system operators and providing in its annual report an assessment of the investment plans of the transmission system operators as regards their consistency with the Union-wide network development plan; such assessment may include recommendations to amend those investment plans; (l) monitoring and assessing the performance of transmission system operators and distribution system operators in relation to the development of a smart grid that promotes energy efficiency and the integration of energy from renewable sources, based on a limited set of ¦indicators, and publish a national report every two years, including recommendations; (m) setting or approving standards and requirements for quality of service and quality of supply or contributing thereto together with other competent authorities and monitoring compliance with and reviewing the past performance of network security and reliability rules; (n) monitoring the level of transparency, including of wholesale prices, and ensuring compliance of electricity undertakings with transparency obligations; (o) monitoring the level and effectiveness of market opening and competition at wholesale and retail levels, including on electricity exchanges, prices for household customers including prepayment systems, the impact of dynamic electricity price contracts and of the use of smart metering systems, switching rates, disconnection rates, charges for maintenance services, the execution of maintenance 288

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács services, the relationship between household and wholesale prices, the evolution of grid tariffs and levies, and complaints by household customers, as well as any distortion or restriction of competition, including by providing any relevant information, and bringing any relevant cases to the relevant competition authorities; (p) monitoring the occurrence of restrictive contractual practices, including exclusivity clauses which may prevent ¦customers from contracting simultaneously with more than one supplier or restrict their choice to do so, and, where appropriate, informing the national competition authorities of such practices; (q) monitoring the time taken by transmission system operators and distribution system operators to make connections and repairs; (r) helping to ensure, together with other relevant authorities, that the consumer protection measures are effective and enforced; (s) publishing recommendations, at least annually, in relation to compliance of supply prices with Article 5, and providing those recommendations to the competition authorities, where appropriate; (t) ensuring non-discriminatory access to customer consumption data, the provision, for optional use, of an easily understandable harmonised format at national level for consumption data, and prompt access for all customers to such data pursuant to Articles 23 and 24; (u) monitoring the implementation of rules relating to the roles and responsibilities of transmission system operators, distribution system operators, suppliers, customers and other market participants pursuant to Regulation (EU) 2019/943; (v) monitoring investment in generation and storage capacities in relation to security of supply; (w) monitoring technical cooperation between Union and third-country transmission system operators; (x) contributing to the compatibility of data exchange processes for the most important market processes at regional level; (y) monitoring the availability of comparison tools that meet the requirements set out in Article 14; 289

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (z) monitoring the removal of unjustified obstacles to and restrictions on the development of consumption of self-generated electricity and citizen energy communities.

Article 41(1) of the Gas Directive: “The regulatory authority shall have the following duties: (a) fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies; (b) ensuring compliance of transmission and distribution system operators, and where relevant, system owners, as well as of any natural gas undertakings, with their obligations under this Directive and other relevant Community legislation, including as regards cross‑border issues; (c) cooperating in regard to cross‑border issues with the regulatory authority or authorities of the Member States concerned and with the Agency; (d) complying with, and implementing, any relevant legally binding decisions of the Agency and of the Commission; (e) reporting annually on its activity and the fulfilment of its duties to the relevant authorities of the Member States, the Agency and the Commission. Such reports shall cover the steps taken and the results obtained as regards each of the tasks listed in this Article; (f ) ensuring that there are no cross‑subsidies between transmission, distribution, storage, LNG and supply activities; (g) monitoring investment plans of the transmission system operators, and providing in its annual report an assessment of the investment plans of the transmission system operators as regards their consistency with the Community‑wide network development plan referred to in Article  8(3)(b) of Regulation (EC) No 715/2009; such assessment may include recommendations to amend those investment plans;

290

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (h) monitoring compliance with and reviewing the past performance of network security and reliability rules and setting or approving standards and requirements for quality of service and supply or contributing thereto together with other competent authorities; (i) monitoring the level of transparency, including of wholesale prices, and ensuring compliance of natural gas undertakings with transparency obligations; (j) monitoring the level and effectiveness of market opening and competition at wholesale and retail levels, including on natural gas exchanges, prices for household customers including prepayment systems, switching rates, disconnection rates, charges for and the execution of maintenance services and complaints by household customers, as well as any distortion or restriction of competition, including providing any relevant information, and bringing any relevant cases to the relevant competition authorities; (k) monitoring the occurrence of restrictive contractual practices, including exclusivity clauses which may prevent large non-household customers from contracting simultaneously with more than one supplier or restrict their choice to do so, and, where appropriate, informing the national competition authorities of such practices; (l) respecting contractual freedom with regard to interruptible supply contracts as well as with regard to long-term contracts provided that they are compatible with Community law and consistent with Community policies; (m) monitoring the time taken by transmission and distribution system operators to make connections and repairs; (n) monitoring and reviewing the access conditions to storage, linepack and other ancillary services as provided for in Article 33. In the event that the access regime to storage is defined according to Article 33(3), that task shall exclude the reviewing of tariffs; (o) helping to ensure, together with other relevant authorities, that the consumer protection measures, including those set out in Annex I, are effective and enforced; (p) publishing recommendations, at least annually, in relation to compliance of supply prices with Article  3, and providing those to the competition authorities, where appropriate; 291

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (q) ensuring access to customer consumption data, the provision for optional use, of an easily understandable harmonised format at national level for consumption data and prompt access for all customers to such data under point (h) of Annex I; (r) monitoring the implementation of rules relating to the roles and responsibilities of transmission system operators, distribution system operators, suppliers and customers and other market parties pursuant to (the Gas) Regulation; (s) monitoring the correct application of the criteria that determine whether a storage facility falls under Article 33(3) or (4); and (t) monitoring the implementation of safeguards measures as referred to in Article 46; (u) contributing to the compatibility of data exchange processes for the most important market processes at regional level.”

6.68

Based on these comprehensive lists – largely identical for electricity and gas in the Third Package Directives but the amendment of the Electricity Directive has introduced important additions – the duties of regulatory authorities can be grouped as follows: –

Tariffs;

–

Prevention of cross-subsidies;

–

Compliance and enforcement;

–

Cooperation;

–

Monitoring and assessment;

–

Reporting and publication;

–

Consumer protection;

– –

Specific duties vis-à-vis ISOs and ITOs; Specific duties vis-à-vis the ENTSO for Electricity and the EU DSO Entity [Electricity Directive only]; 292

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

–

Specific duties vis-á-vis Regional Coordination Centres [Electricity Directive only].

5.2.1 Tariffs One of the core tasks of national regulatory authorities is the fixing or approval of network tariffs or the pertaining methodologies. A tariff may be regarded as the price of network access, i.e. of connecting to or using a transmission or distribution system. Article 59 of the Electricity Directive and Article 41 of the Gas Directive allow for two approaches, respectively, as regards the type of regulatory intervention: fixing or approving as well as to the subject of regulatory intervention: tariffs or methodologies. As a result, some Member States’ network operators are required to submit their methodologies to regulatory authorities for approval, but they may set tariffs themselves. In other Member States, tariffs are fixed by regulatory authorities. The Third Package Directives were open as regards the specific approach both in terms of the type and the subject, using the word ”or” in the article. The text of the Electricity Directive clarifies that the national regulatory authority may fix or approve the tariffs, their methodologies or “both”. The matter of regulatory authority competence in relation to this matter came to the fore during the negotiations of the network code on gas tariffs. Therefore, while this is a step forward in clarifying the role of the regulatory authority, it is a weaker formulation than the one proposed by the Commission for the Electricity Directive, which insisted on the regulatory authority having to either fix or approve both tariffs and methodologies.

6.69

In any case, the determination of tariffs for transmission services is subject to a set of high-level principles contained in Article 18 of the Electricity Regulation and Article 13 of the Gas Regulation.375 Further harmonised rules on the calculation of tariffs are set out in the network code tariffs in gas.376

6.70

5.2.2 Prevention of cross-subsidies Article  59(1)(j) of the Electricity Directive and Article  41(1)(f ) of the Gas Directive prohibit cross-subsidies between regulated areas (transmission, distribution) and non- or less regulated areas (supply, storage, LNG) and, specifically in the case of the Electricity Directive, “other electricity or non-electricity

375 The issue of network tariffs is analysed in more detail in Chapter 3. 376 Cf. Commission Regulation (EU) 2017/460 of 16 March 2017 establishing a network code on harmonised transmission tariff structures for gas

293

6.71

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Benedikt Ennser

activities”.377 These provisions relate to the unbundling requirements stipulated in the Directives. In particular, they target vertically integrated undertakings attempting to support their activities in competitive markets by using revenues generated in regulated areas. As a result of vertical integration suppliers may thus benefit from additional financing which is not available to competitors. The addition in the Electricity Directive also clarifies that new activities such as electricity storage also fall under the purview of these provisions and need to be addressed adequately. The prevention of cross-subsidies therefore serves a twofold purpose, i.e. to implement the principle of non-discrimination and to avoid distortions of competition.

5.2.3 Compliance and enforcement 6.72

Under Article 59(1)(b) of the Electricity Directive and Article 41(1)(b) of the Gas Directive the regulatory authorities are given the general task to ensure compliance by gas and electricity undertakings378 with any of their obligations under the Directives and any other relevant Union legislation.

6.73

The reference to “other relevant Union law”379 appears rather far reaching; however, it is in effect limited by the “relevance” of a given piece of legislation for a particular behaviour as well as the duties of other authorities. Compliance with taxation rules or environmental standards, for instance, will be typically ensured by other competent authorities. The scope of “other relevant” legislation pursuant to Article 59(1)(b) of the Electricity Directive and Article 41(1)(b) of the Gas Directive therefore is likely to be similar to the reference to “related legislation” contained in Article 57(4) of the Electricity Directive and Article 39(4) of the Gas Directive on independence requirements for regulatory authorities. Crucially, the Electricity Directive now lists explicitly ACER’s decisions under this point in conjunction with compliance, adding weight to the latter’s role.

377 Cf. the specific requirement for gas transmission tariffs (or methodologies) to avoid cross-subsidies pursuant to Article 13 of the Gas Regulation. Reconciling this requirement with that of cost-reflectivity and nondiscrimination is challenging. This requirement was not included in either the Third Package or the new Electricity Directive. 378 See the definitions in Article 2(35) of the Electricity Directive and Article 2(1) of the Gas Directive. The definition specifically excludes final customers. 379 The specific formulation is other relevant Community legislation in the pre-Lisbon (Third Package) Gas Directive.

294

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Benedikt Ennser

5.2.4 Cooperation and coordination Article 59(1)(f ) of the Electricity Directive and Article 41(1)(c) of the Gas Directive place national regulatory authorities under a comprehensive obligation to cooperate among each other and with ACER on cross-border issues. In order to further specify the elusive notion of “cooperation”380 the Electricity Directives adds that the cooperation should be done in particular through participation in the ACER Board of Regulators. This is a very natural supplement of having further underlined the weight of ACER decisions which are taken by the Board of Regulators. Moreover, regulators have the obligation to comply with and implement all relevant legally binding decisions of the Agency and of the Commission (paragraph g in the Electricity Directive and d in the Gas Directives). Regulators must also contribute to the compatibility of data exchange processes for the most important market processes at regional level (paragraphs x and u, respectively, in the Electricity and Gas Directives). In the new Electricity Directive (Article 59(1)(c)) the notion of ‘cooperation’ between regulatory authorities was changed to ‘coordination’ focusing specifically on ensuring the compliance of the ENTSO for Electricity, the EU DSO Entity and the Regional Coordination Centres. Here too a further procedure was introduced to overcome disagreement between regulatory authorities in that their case is to be referred to ACER if no agreement is reached in four months.

6.74

6.75

6.76

5.2.5 Monitoring Monitoring duties may be regarded as ancillary to other duties such as tarification or enforcement; however, in order to detect market failures or misbehaviour by market participants and to identify the need for adapting rules and standards, it is essential for national regulatory authorities to implement a system of comprehensive and continuous monitoring. Roughly half of the duties listed in Articles 59(1) of the Electricity Directive and 41(1) of the Gas Directive are about monitoring. They include the monitoring of 380 Authorities that have national remits and powers are in all likelihood able to cooperate and coordinate well in an informal sense but may face challenges in the context of formal cooperation as that may require certain competences to be given up in conjunction with adopting joint and coordinated decisions. The implementation of the Third Package showed precisely how difficult it is to move from a strong informal cooperation to a formal cooperation on the basis of aligned or joint decisions of regulatory authorities.

295

6.77

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.78

–

investment plans;

–

compliance with past performance of network security and reliability rules;

–

transparency;

–

level and effectiveness of market opening and competition; in the case of electricity the role of dynamic electricity price contract and the use of smart metering systems as well as the relationship between household and wholesale prices and the evolution of grid tariffs and levies;

–

prices for household customers, switching rates, disconnection rates;

–

charges for and execution of maintenance services and complaints, distortion or restriction of competition;

–

restrictive contractual practices;

–

time taken to make connections and repairs;

–

implementation of the Electricity and Gas Regulations;

–

technical cooperation between EU and third-country TSOs;

–

safeguards measures;

–

electricity only: investment in generation capacities, congestion management; development of a smart grid that promotes energy efficiency and the integration of renewable energy; the removal of unjustified obstacles to and restrictions on the development of consumption of self-generated electricity and citizen energy communities;

–

gas only: access conditions to storage, linepack and other ancillary services; application of criteria for negotiated versus regulated access to storage.

Monitoring duties may be carried out by other authorities than the regulatory authority.381 381 Article 59(2) of the Electricity Directive and Article 41(2) of the Gas Directive.

296

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

5.2.6 Reporting and Publication According to Article 59(1)(i) of the Electricity Directive and Article 41(1)(e) of the Gas Directive regulatory authorities are obliged to report annually on their activity and the fulfilment of their duties to the relevant authorities of the Member States (usually the ministries or departments in charge of energy), ACER and the Commission. Such reports must cover the steps taken and the results obtained as regards each of the tasks listed in Article 59 of the Electricity Directive and Article 41 of the Gas Directive. In their annual reports regulators must provide an assessment of the investment plans of the TSOs as regards their consistency with the Union-wide network development plan (TYNDP) developed under the Gas and Electricity Regulations; this assessment may include recommendations to amend those investment plans.

6.79

5.2.7 Consumer protection As regards consumer protection, the regulator is under the duty to “help to ensure”, together with other relevant authorities, that the consumer protection measures of the Directives are effective and enforced.382 Regulators are thus assigned a supporting role in the field of consumer protection. A particular added value of their engagement in this area can be seen in their expertise on the specific features of energy markets including tariffs, quality of service and terms and conditions, which should complement the general tasks of national authorities in charge of consumer protection.383 Regulators should, in particular, help implement the measures listed in Annex I of the Directives. While focusing on the same matters, Annex I of the Electricity Directive has been substantially amended and is now called “Minimum requirements for billing and billing information”.

6.80

According to Article 20 of the Electricity Directive (in the context of smart metering systems) and Annex I point 1(h) of the Gas Directives, consumers must, in particular, have access to their consumption data, and must have the possibility, free of charge, to give any competing supply undertaking access to these data. Member States have the obligation to define a format for the data, i.e. the way the consumption data are presented in particular in the bill. Regulatory authorities are required to implement this provision by ensuring prompt access for all customers to such data, by ensuring that proper access to customer consumption data is given to any other supplier and by providing a harmonised format of presentation for the consumption data at national level.

6.81

382 Article 59(1)(r) of the Electricity Directive, Article 41(1)(o) of the Gas Directive. 383 See Chapter 10.

297

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

5.2.8 Specific duties related to ISOs and ITOs 6.82

To some extent, the intensity of regulatory oversight depends on the unbundling model implemented for a given TSO. Article 59(5) and (6) of the Electricity Directive and Article 41(3) and (5) of the Gas Directive include additional duties for regulators in case an ISO or ITO has been designated. As regard investment planning, in case of ownership unbundled TSOs, national regulatory authorities are confined to monitoring their investment plans and including an assessment, accompanied by recommendations, if necessary, in the regulators’ annual reports. More stringent regulatory intervention, i.e. approval of planning instruments, applies to TSOs certified as ISOs or ITOs.384

6.83

If an ISO or ITO has been designated, the national regulatory authority has additional monitoring obligations, notably as regards the relations between the ITO or ISO and the vertically integrated undertaking, as well as additional enforcement powers such as (unannounced) inspections. Particularly far reaching competences have been granted to regulators in case of an ITO – here the regulator has to approve all commercial and financial agreements between the vertically integrated undertaking and the TSO on the condition that they comply with market conditions.

5.2.9 Specific duties related to the ENTSO for Electricity and the EU DSO Entity 6.84

A new paragraph (59(1)(c) introduced in the Electricity Directive sets out the duty of regulatory authorities to ensure the compliance of the ENTSO for Electricity as well as the newly created EU DSO Entity with their obligations enshrined in all internal electricity market legislation.385 Here too the Directive foresees that the regulatory authorities identify the non-compliance jointly. However, given the experiences with coming to an agreement between regulatory authorities, the provision foresees that the consultation between authorities for the purpose of jointly identifying any such non-compliance must not last longer than four months. Thereafter it is for ACER to take a decision on the matter pursuant to the ACER Regulation.

384 Cf. Chapter 4. 385 This includes the Electricity Directive, the Electricity Regulation, all network codes and guidelines adopted pursuant to the latter as well as ACER’s decisions.

298

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

5.2.10 Specific duties related to the Regional Coordination Centres New Article 62 of the Electricity Directive foresees a series of key tasks for regulatory authorities for the regional coordination centres within the geographic scope.386 Here too a crucial aspect is that regulatory authorities coordinate closely in performing the respective duties. Correspondingly, in case regulatory authorities are not able to agree within four months on the identification of possible non-compliance (paragraph 1(f )), ACER takes over the matter as in the case of the ENTSO for Electricity and the EU DSO Entity. Duties to be performed by the regulatory authorities in relation to regional coordination centres are approving their establishment, costs (which in turn are to be borne by the respective TSOs) and their cooperative decisions-making process (paragraphs 1(a), (b) and (c)); and ensuring their have all necessary resources and the level of independence to carry out their obligations as per the Electricity Directive (paragraph 1(d)). Regulatory authorities are also at liberty to propose to the relevant Member States additional tasks and powers for the regional coordination centres in their purview and must monitor the performance of the regional coordination centres and report their findings to ACER.

6.85

Paragraph 2 of the article gives the regulatory authorities the specific power to oversee the operation of the regional coordination centres. Specifically they are able to request information, carry out (unannounced) inspections and issue joint decisions. These powers are in all likelihood sufficient for regulatory authorities to fulfil their duties vis-á-vis these new entities in an effective manner. They will certainly also further test regulatory cooperation and coordination.

6.86

5.3 Additional duties granted by other legal acts The Electricity and Gas Directives contain the basic duties and powers of national regulatory authorities. Since their entry into force, however, several other legal acts have conferred additional duties on regulators. It should be noted that several provisions contained in the acts of the Third Package are not applicable to duties set out in other legal acts, e.g. the possibility to initiate an ACER review procedure under Article 6 of the ACER Regulation or Article 63 of the Electricity Directive and Article 43 of the Gas Directive.

386 The Directive mentions that the specific duties apply to regulatory authorities of the system operation region within which the regional coordination centre is established.

299

6.87

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.88

The Third Package introduced the establishment of harmonised market and technical rules which are designed to operationalise the provisions of the basic legal acts by adding more detailed rights and obligations. Article 59 of the Electricity Regulation (EC) 2019/943 and Article 6 of the Gas Regulation (EC) 2009/715 provide for the adoption of network codes elaborated by the ENTSOs on the basis of framework guidelines of ACER.387 In addition, the Regulations as well as the Directives enable the Commission to produce guidelines detailing various issues listed in the basic acts. Both network codes and Commission guidelines are adopted as Commission regulations.388 All of them include additional competences for national regulatory authorities typically requiring them to approve specific terms and conditions or methods submitted by TSOs.389 While these tasks generally complement the tasks listed in the Directives in a useful manner, they may turn into a challenge for regulators.

6.89

Regulation (EU) 2011/1227 on wholesale energy market integrity and transparency (REMIT) prohibits abusive practices affecting wholesale energy markets (insider trading, market manipulation). To ensure enforcement follow-through REMIT creates extensive reporting and publishing duties for market participants and requires the Agency, in cooperation with the regulatory authorities, to monitor trading activities and collect data on a regular, standardized basis. While it is primarily for ACER to perform surveillance, data collection and analysis tasks, regulatory authorities do have complementary duties including registration of market participants, monitoring, data collection and the application and enforcement of the prohibitions mentioned above.

6.90

Regulation (EU) 2013/347 on guidelines for trans-European energy infrastructure provides for the designation of selected infrastructure projects as “projects of common interest” (PCI), thereby granting various benefits to such projects. These benefits may include faster and more streamlined approval procedures, allocation of costs among several TSOs, regulatory incentives and additional funding under the “Connecting Europe Facility”. According to the Regulation, national regulatory authorities are involved in the process of selecting PCIs, cost allocation and incentives. In particular, in case of an investment request submit387 See Chapter 12. 388 The exception is the first Guideline on Congestion Management Procedures which is a decision: Commission Decision (EU) 2015/715/EU amending Annex I to Regulation (EC) 715/2009 on conditions for access to the natural gas transmission networks. 389 See for instance the competence to approve specific terms and conditions for surrendering capacity pursuant to point 2.2.4. of Annex I to Regulation (EC) No 715/2009 (Guidelines on congestion management procedures) or the approval of the daily imbalance charge calculation methodology pursuant to Article 20 of Commission Regulation (EU) No 312/2014 establishing a Network Code on Gas Balancing of Transmission Networks.

300

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

ted pursuant to Article 12 of the Regulation, the relevant national regulators must agree on how to share the costs of a certain project based on the benefits it delivers in the Member States concerned.390 Regulatory authorities are also assigned additional responsibilities by the Directive 2012/27/EU391 on energy efficiency. These include a general obligation to pay due regard to energy efficiency in carrying out the regulatory tasks392 as well as, for instance, the provision of incentives for grid operators to make available system services to network users permitting them to implement energy efficiency improvement measures in the context of the continuing deployment of smart grids.

6.91

In the gas sector, Regulation (EU) No 1938/2017 concerning measures to safeguard security of gas supply confers certain tasks on national “competent authorities”. According to Article 3(2) of the Regulation, however, Member States are free to designate either the national regulatory authority or a governmental authority as the competent authority. No change in the 2017 gas security of supply regulation was undertaken from the previous version in relation to the role of regulatory authorities.393

6.92

6.

Powers of regulatory authorities

In order to carry out the duties listed in, respectively, paragraphs 1 and 3 of Article 59 of the Electricity Directive and paragraphs 1 and 4 of Article 41 of the Gas Directive provide for a list of general powers that Member States have to grant to regulatory authorities. Article 59(3) of the Electricity Directive: “Member States shall ensure that regulatory authorities are granted the powers enabling them to carry out the duties referred to in this Article in an efficient and expeditious manner. For this purpose, the regulatory authority shall have at least the following powers:

390 391 392 393

Cf. paragraph 7.112. Amended by Directive (EU) 844/2018. Cf. Article 15 and Annex XI of Directive 2012/27/EU. Regulation (EU) 994/2010

301

6.93

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (a) to issue binding decisions on electricity undertakings; (b) to carry out investigations into the functioning of the electricity markets, and to decide upon and impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market. Where appropriate, the regulatory authority shall also have the power to cooperate with the national competition authority and the financial market regulators or the Commission in conducting an investigation relating to competition law; (c) to require any information from electricity undertakings relevant for the fulfilment of its tasks, including the justification for any refusal to grant third-party access, and any information on measures necessary to reinforce the network; (d) to impose effective, proportionate and dissuasive penalties on electricity undertakings not complying with their obligations under this Directive, Regulation (EU) 2019/.... or any relevant legally binding decisions of the regulatory authority or of ACER, or to propose that a competent court impose such penalties, including the power to impose or propose the imposition of penalties of up to 10 % of the annual turnover of the transmission system operator on the transmission system operator or of up to 10 % of the annual turnover of the vertically integrated undertaking on the vertically integrated undertaking, as the case may be, for non-compliance with their respective obligations pursuant to this Directive; and (e) appropriate rights of investigation and relevant powers of instruction for dispute settlement under Article 60(2) and (3).

Article 41(4) of the Gas Directive: “Member States shall ensure that regulatory authorities are granted the powers enabling them to carry out the duties referred to in paragraph 1, 3 and 6 in an efficient and expeditious manner. For this purpose, the regulatory authority shall have at least the following powers: (a) to issue binding decisions on natural gas undertakings; (b) to carry out investigations into the functioning of the gas markets, and to decide upon and impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market. Where 302

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács appropriate, the regulatory authority shall also have the power to cooperate with the national competition authority and the financial market regulators or the Commission in conducting an investigation relating to competition law; (c) to require any information from natural gas undertakings relevant for the fulfilment of its tasks, including the justification for any refusal to grant third-party access, and any information on measures necessary to reinforce the network; (d) to impose effective, proportionate and dissuasive penalties on natural gas undertakings not complying with their obligations under this Directive or any relevant legally binding decisions of the regulatory authority or of the Agency, or to propose to a competent court to impose such penalties. This shall include the power to impose or propose the imposition of penalties of up to 10 % of the annual turnover of the transmission system operator or of up to 10 % of the annual turnover of the vertically integrated undertaking on the transmission system operator or on the vertically integrated undertaking, as the case may be, for non-compliance with their respective obligations pursuant to this Directive; and (e) appropriate rights of investigations and relevant powers of instructions for dispute settlement under paragraphs 11 and 12.”

The Directives clarify that this list is a minimum set of powers to be granted (“at least”) and that it should enable regulators to carry out the duties assigned to them by the Directives “ in an efficient and expeditious manner”.

6.94

By conferring these powers, the Directives also contribute to harmonising the administrative tools available to regulatory authorities across the Union. One should bear in mind that cooperation between national authorities can only be effective if all of them have a minimum set of regulatory competences at their disposal (in addition to the shared objectives described above).

6.95

In accordance with Recitals 84 of the Electricity Directive and 33 of the Gas Directive, regulatory authorities should also be granted the power to contribute to ensuring high standards of universal and public service in compliance with market opening, the protection of vulnerable customers and the full effectiveness of consumer protection measures. The provision of the Gas Directive (as also of the former Electricity Directive) was an Article in the Commission’s original proposal, softened and transformed into a Recital in the course of the negotiations at the time. While the amended Electricity Directive recital has now been transformed into a more classical text foreshadowing the norms to

6.96

303

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

follow, recital 33 of the Gas Directive is still drafted in a rather prescriptive way and does not have any immediate corresponding provisions in the operative part of the Directive.

6.97

These Recitals do not directly oblige Member States to create additional competences for regulators but do set out that within the framework of regulators’ powers under the Articles mentioned above, regulatory authorities should be able to contribute to the objectives set out in the Recitals.

6.1 Adopting binding decisions 6.98

The first power is of a very general nature: Regulators shall have the power to issue binding decisions on gas and electricity undertakings.394 Seen in conjunction with the general provisions of Article 59(1)(b) of the Electricity Directive and Article 41(1)(b) of the Gas Directive, this power enables regulatory authorities to establish and, if necessary, to enforce compliance with the relevant obligations under EU law. Moreover, binding decisions will have to be adopted, for instance, when approving terms and conditions and when fixing or approving tariffs or methodologies or both.395 Crucially, in view of the increased need to coordinate and the corresponding enhanced role of ACER, the Electricity Directive already mentions ACER’s specific competence to “fix and approve the terms and conditions or methodologies for the implementation of network codes and guidelines under Chapter VII of Regulation (EU) 2019/943 pursuant to Article 5(2) of Regulation (EU) 2019/942 because of their coordinated nature”.

6.99

In terms of procedure, where civil rights and obligations are at stake, regulatory authorities must ensure that the right to a fair trial set out in Article 6(1) of the European Convention on Human Rights (ECHR) is protected, which includes, in particular, the right to a public hearing before an independent and impartial tribunal within a reasonable time. The right to a fair trial is also enshrined in Article 47(2) of the Charter of Fundamental Rights of the European Union 394 According to the definition in Article 2(57) of the Electricity Directive an electricity undertaking means a natural or legal person who carries out at least one of the following functions: generation, transmission, distribution, aggregation, demand response, energy storage, supply or purchase of electricity, and who is responsible for the commercial, technical or maintenance tasks related to those functions. According to Article 2(1) of the Gas Directive a natural gas undertaking means a natural or legal person carrying out at least one of the following functions: production, transmission, distribution, supply, purchase or storage of natural gas, including LNG, which is responsible for the commercial, technical and/or maintenance tasks related to those functions. In both cases, the definition does not include final customers. The amended Electricity Directive added the functions of aggregation, demand response and energy storage to the list in view of the evolving sector. 395 Article 59(7) of the Electricity Directive, Article 41(6) of the Gas Directive.

304

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

(CFR)396 which, in its substance, corresponds to Article 6(1) ECHR but covers any rights granted under Union law.397 Therefore, the fundamental right to a fair trial (and other rights included in the CFR) must be adhered to not only in case of binding decisions affecting “civil rights” as defined by the ECHR but whenever provisions of the Third Package are being implemented. Decisions adopted by regulatory authorities are subject to judicial review according to Articles 60(8) of the Electricity Directive and 41(17) of the Gas Directive.

6.2 Promoting effective competition and ensuring the proper functioning of the market Article 59(3)(b) of the Electricity Directive and Article 41(4)(b) of the Gas Directive provide for the power to carry out investigations into the functioning of the electricity and gas markets and to decide upon and impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the markets.

6.100

The importance of this provision should not be underestimated. Far beyond a role limited to regulating network operators, the Directives require Member States to give the regulators a general power to intervene, inter alia, in production, supply or storage markets.

6.101

In amending Recitals 84 (formerly 37) of the Electricity Directive the legislator shortened it substantially and removed all specific references in relation to the promotion of effective competition, such as virtual power plants.398 However, Recital 33 of the Gas Directive still contains the corresponding reference to gas release programmes399 as a possible measures that can be implemented by the regulatory authorities in order to promote effective competition and to ensure the proper functioning of the market. There continues to be a debate as regards the effectiveness and implications of gas release programmes. The 2019 Madrid Forum invited the Commission to consider their use while several Member States continue to oppose it. It is, as yet, unclear whether gas release programmes will play any prominent role in a planned amendment of the Gas Directive.400

6.102

396 397 398 399

The Charter became legally binding with the entry into force of the Treaty of Lisbon on 1 December 2009. Cf. Article 51 CFR. This modification was already done by the Commission in submitting its proposal. A virtual power plant or gas release programme may be defined as a release programme whereby an undertaking is obliged, either to sell or make available a certain volume of electricity or gas or to grant access to part of its generation capacity to interested suppliers for a certain period of time. 400 Cf. Conclusions of the October 2019 Madrid Forum: “The Forum invites the Commission to consider capacity and/or commodity release programs as part of targeted measures applicable to specific situations in order to achieve overall improvements of the market.”

305

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.103

Where appropriate, a regulatory authority must have the power to cooperate with the national competition authority and the financial market regulators or the Commission in conducting an investigation relating to competition law. The Commission’s Interpretative Note regards the power to carry out investigations as a law enforcement power, which includes carrying out inspections on the premises of electricity and gas undertakings.401

6.3 Information provision 6.104

Under Article  (3)(c) of the Electricity Directive and Article  41(4)(c) of the Gas Directive, regulators are given a general power to require any information from gas and electricity undertakings relevant for the fulfilment of their tasks, including the justification for any refusal to grant third-party access, and any information on measures necessary to reinforce the network.

6.105

In practice, this is a highly important competence since regulators are usually dependent on information provided by market participants. While the exact scope and of a data request and/or of its legal basis needs to be determined (and justified) on a case-by-case basis, electricity and gas undertakings, in principle, cannot refuse to provide data (including commercially sensitive data) if the regulatory authority demonstrates that the data are relevant to the fulfilment of its duties. It should, however, be kept in mind that Article 52(8) of the Electricity Directive and 10(8) of the Gas Directives obliges regulatory authorities to preserve the confidentiality of commercially sensitive information.

6.106

Where an issue of cross border relevance requires cooperation between two or more regulatory authorities, information gathered from market participants may be exchanged between the authorities concerned in accordance with Article 61 of the Electricity Directive and Article 42 of the Gas Directive.

6.4 Penalties 6.107

Article  59(3)(d) of the Electricity Directive and Article  41(4)(d) of the Gas Directive confer a general right on regulators to impose penalties on gas and electricity undertakings not complying with their obligations under the Directives or any relevant legally binding decisions of the regulatory authority or of ACER. To meet constitutional concerns raised by some Member States, as an alternative option, regulators may be given the right to propose that a competent 401 Cf. the Commission’s Interpretative Note on regulatory authorities, p. 17.

306

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

court impose such penalties instead of imposing the penalty themselves.402 New articles on penalties introduced by the Electricity Directive ensure that regulatory authorities also have the powers to impose proportionate and dissuasive penalties on the ENTSO for Electricity and the EU DSO Entity (Article 59(4)) as well as the regional coordination centres (Article 62(3)). In both cases it is the regulatory authority located in the member states in which the latter entities are established that has the power to impose those penalties. Naturally, as set out above, the decision to ultimately levy any fine must be a coordinated one. The penalties have to be effective, proportionate and dissuasive. The rule applies to all gas and electricity undertakings. In addition to this, as regards non-compliance of TSOs and vertically integrated undertakings, the Directives grant national regulatory authorities the power to impose or propose the imposition of penalties of up to 10 % of the annual turnover of the TSO on the TSO or of up to 10 % of the annual turnover of the vertically integrated undertaking on the vertically integrated undertaking, as the case may be.

6.108

The threshold of 10 % is taken from EU competition rules.403 This is of course a ceiling which, as under competition law, should have a deterrent effect, but is rather unlikely to be reached in practice. It should be emphasized that the Directives focus on the calculation of fines; other elements of penalties including fault or liability of natural versus legal persons are not addressed and therefore to be determined on the national level.

6.109

While the wording of the provisions mentioned covers vertically integrated undertakings of any kind, the Commission’s Interpretative Note reveals a more targeted interpretation. Following the objective of the provisions as well as their history, the reference to vertically integrated undertakings aims to include the situation where an ITO is appointed, whereas the reference to TSOs is designed to apply to TSOs certified as ownership unbundled or as ISOs.404 In the first case, the fine imposed on the ITO or the vertically integrated undertaking can be up to 10% of the annual turnover of the entire vertically integrated undertaking. This means that an ITO can face a fine of up to 10% of the annual turnover of the overall vertically integrated undertaking, not just of the ITO. Although the 10% rule only provides for a ceiling, the reference to the turnover of the verti-

6.110

402 It should be noted that, strangely, the wording of the (English translation of the) Gas Directive (“or to propose to a competent court to impose such penalties”) is slightly more precise than the wording of the Electricity Directive (“or to propose that a competent court impose such penalties...”). 403 Cf. Article 23(2) of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 101 and 102 of the Treaty. 404 Interpretative Note on regulatory authorities, p. 18.

307

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

cally integrated undertaking implies that the turnover of the vertically integrated undertaking should be taken as a reference point when calculating the fines to be imposed on an ITO. This means that if the regulator decides to impose a fine of say 1% of the turnover for serious discriminatory conduct of a network operator, in the case of an ownership unbundled TSO or ISO that this would result in a fine of 1% of the turnover of the TSO. In the case of an ITO, it would result in a fine of 1% of the turnover of the vertically integrated undertaking).

6.5 Investigations and instructions 6.111

According to the analysis of the Council of European Energy Regulators (CEER) of 9 October 2017, national legislations provide for sufficient investigatory and sanctioning regimes to national regulators and their powers are complementary with those of ACER.405

6.112

Under Article 59(3)(e) of the Electricity Directive and Article 41(4)(e) of the Gas Directive regulators must be given the powers necessary to enable them to effectively conduct investigations and relevant powers of instructions for dispute settlement mechanisms provided under Article 60(11) and (12) of the Electricity Directive and paragraphs 11 and 12 of Article 41 of the Gas Directive.

6.113

Outside the Electricity and Gas Directives, specific investigatory and enforcement powers are conferred upon regulatory authorities by Article 13 REMIT. These powers were regarded as necessary to effectively enforce the prohibitions of insider trading and market manipulation.

7.

Procedural issues

7.1 Dispute settlement 6.114

Article 60(2) of the Electricity Directive and Article 41(11) of the Gas Directive provide for a specific procedure regarding complaints from third parties against a transmission, storage, LNG or distribution system operator. The provision in the amended Electricity Directive is identical, save for linguistics, to the provision set out in the Directives of the Second Package.

405 https://www.ceer.eu/documents/104400/-/-/77e728b7-b7ed-c463-e01d-4b7ece8b6a24

308

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

Article 60(2) of the Electricity Directive and Article 41(11) of the Gas Directive: “Any party having a complaint against a transmission [storage, LNG]406 or distribution system operator in relation to that operator’s obligations under this Directive may refer the complaint to the regulatory authority which, acting as dispute settlement authority, shall issue a decision within two months of receipt of the complaint. That period may be extended by two months where additional information is sought by the regulatory authority. That extended period may be further extended with the agreement of the complainant. The regulatory authority’s decision shall have binding effect unless and until overruled on appeal.”

Third parties have the right to refer a complaint against a transmission or distribution (gas: also storage or) system operator to the regulatory authority. The regulator then acts as a dispute settlement authority. When dealing with consumer disputes regulatory authorities also have to act in line with the relevant legal framework on alternative dispute resolution and online dispute resolution.407

6.115

In terms of timing, the regulatory authority must in principle decide within two months unless it seeks additional information. In that case the deadline is extended by a further two months. The four-month deadline can be further extended as long as the complainant agrees. Especially in complex cases therefore, the regulatory authority may inform the complainant that the issue at hand requires additional data or more extensive investigations and will correspondingly necessitate a longer timeframe.

6.116

In the absence of a particular provision in the Directives, Member States will have to consider whether a dispute settlement procedure may be initiated while a formal action against the system (or storage or LNG) operator is pending before a court. Article 5(4)(c) of the ADR Directive grants Member States the discretion to enable ADR entities to refuse to deal with a dispute because it is being or has previously been considered by a court. In order to avoid parallel proceedings on the same subject matter (and, possibly, diverging outcomes) it would seem most efficient to prohibit a formal action as long as the dispute settlement procedure has not been concluded (and vice versa), or to require a dispute settlement decision by the national regulatory authority before an action can be brought before a court.

6.117

406 Article 41(11) of the Gas Directive. 407 Directive 2013/11/EU on alternative dispute resolution for consumer disputes (ADR Directive); Regulation (EU) No 524/2013 on online dispute resolution for consumer disputes.

309

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.118

The regulatory authority’s decision has binding effect upon the parties to the procedure unless and until overruled on appeal. According to Article 60(6) of the Electricity Directive and Article  41(15) of the Gas Directive complaints initiating a dispute settlement procedure under, respectively, Articles 60(2) or 37(11) of the two Directives are without prejudice to the exercise of rights of appeal under Union or national law.

7.2 Complaints against tariffs or methodologies 6.119

Article 60(3) of the Electricity Directive and Article 41(12) of the Gas Directive provide for procedural rules in case of appeal against the decisions, or proposed decisions, of the regulators on tariffs or the methodologies underlying the tariffs. Article 60(3) of the Electricity Directive and Article 41(12) of the Gas Directive: “Any party who is affected and who has a right to complain concerning a decision on methodologies taken pursuant to Article 59 or, where the regulatory authority has a duty to consult, concerning the proposed tariffs or methodologies, may, within two months, or within a shorter period as provided for by Member States, after publication of the decision or proposal for a decision, submit a complaint for review. Such a complaint shall not have suspensive effect.”

6.120

The purpose of this paragraph is not to establish whether undertakings or individuals can take legal action against regulators’ decisions on methodologies.408 It only lays down procedural restrictions for the submission of complaints. These restrictions relate to the deadline for complaints (two months or less following publication) and their legal effects (not suspensive). The objective of this provision therefore is to ensure that, while any affected party must have suitable legal instruments at its disposal,409 complaints should only be possible for a limited period of time in order to avoid long periods of legal uncertainty and they should not prevent the application of (new) tariffs. This is to maintain the regulatory authorities’ capacity to act while legal proceedings are pending.

408 Article 60(6) of the Electricity Directive and Article 41(15) of the Gas Directive explicitly state that complaints referred to in, respectively Articles 60(2) and (3) and Articles 37(11) and (12) of the Directives are without prejudice to the exercise of rights of appeal under [Union] or national law. 409 Cf. Article 60(8) of the Electricity Directive and Article 41(17) of the Gas Directive.

310

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

Where the regulator has an obligation to consult before adopting a decision on tariffs or methodologies, those wishing to complain about the proposed decision by the regulator must do so within two months (or a shorter time period as provided by Member States). At this stage the complaint will not constitute a fully-fledged legal action because no decision has yet been adopted; it will rather be (similar to) a written comment or observation. In spite of this, it requires the regulatory authority to take into account the arguments brought forward, review its proposal and justify its final decision.

6.121

7.3 Judicial review Paragraphs 6, 7 and 8 of Article 60 of the Electricity Directive and 15, 16 and 17 of Article 41 of the Gas Directive contain general principles concerning a party’s right of appeal against the decision of the regulator:

6.122

“6/15. Complaints referred to in paragraphs 2[11] and 3[12] shall be without prejudice to the exercise of rights of appeal under Union or national law. 7/16. Decisions taken by regulatory authorities shall be fully reasoned and justified to allow for judicial review. The decisions shall be available to the public while preserving the confidentiality of commercially sensitive information. 8/17. Member States shall ensure that suitable mechanisms exist at national level under which a party affected by a decision of a regulatory authority has a right of appeal to a body independent of the parties involved and of any government.”

Paragraphs 60(6) and 37(15), respectively, of the Electricity and Gas Directives clarify that the complaints aimed at initiating a dispute settlement procedure referred to in paragraphs 60(2) and 37(11) and the specific procedure for tariffs or methodologies under paragraphs 60(3) and 37(12) are without prejudice to the exercise of rights of appeal under Union or national law. In this context it should be noted that the ECJ has developed the principle of effective judicial protection of the rights derived from the EU acquis.410 In general, when implementing EU legislation, Member States must provide for access to a court and must ensure proper judicial review in case of a (suspected) violation of rights conferred by EU law. Extensive case law on various aspects of this principle has 410 ECJ, Case C-222/84 Johnston [1986] ECR 1651, paragraph 18, referring to the European Convention for the Protection of Human Rights and Fundamental Freedoms; Case C-50/00 P, Unión de Pequeños Agri‑ cultores v Council [2002] ECR I-6677, paragraph 39; Case C-263/02 P, Jégo-Quéré [2004] ECR I-3425, paragraph 29.

311

6.123

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

been developed. In addition to this, Article 47 CFR guarantees the fundamental right to an effective remedy and to a fair trial for all rights and freedoms guaranteed by EU law.411

6.124

Under paragraphs 60(7) and 37(16), respectively, the decisions taken by regulatory authorities must be fully reasoned and justified so as to allow for judicial review. This requirement expresses another element of effective judicial protection as recognised by the case law of the ECJ.412 In particular, the Court has ruled that “where it is a question of securing the effective protection of a right conferred by European Union law, interested parties must also be able to defend that right under the best possible conditions and have the possibility of deciding, with a full knowledge of the relevant facts, whether there is any point in applying to the courts. Consequently, in such circumstances, the competent national authority is under a duty to inform them of the reasons on which its decision is based, either in the decision itself or in a subsequent communication made at their request”.413 For reasons of transparency, the decisions of national regulatory authorities must also be published, while preserving the confidentiality of commercially sensitive information.

6.125

Under paragraph 60(8) and 37(17), respectively, Member States must ensure that there are suitable mechanisms at national level under which a party affected by a decision of the regulatory authority has a right of appeal to a body independent of the parties involved and of any government. This is in line with the general provision of Article 19(1) TEU requiring Member States to provide remedies sufficient to ensure effective legal protection in the fields covered by Union law. According to the case law of the ECJ, in the absence of EU rules, it is for the Member States to designate courts having jurisdiction and to determine the procedural conditions governing actions at law intended to ensure the protection of the rights derived from EU legislation (principle of procedural autonomy of the Member States). However, under the principles of equivalence and effectiveness, the national mechanisms and conditions may not be less favourable than those governing similar domestic actions and may not render virtually impossible or successively difficult the exercise of these rights conferred by EU law.414

411 412 413 414

See below in this Section on procedural guarantees for legal remedies. Cf. ECJ, Case C-222/86, Heylens [1987] ECR 4097, paragraph 15. ECJ, Case C-182/10, Solvay [2012] EU:C:2012:82, paragraph 59. ECJ, Cases C-33/76, Rewe [1976] ECR 1989, paragraph 5; C-312/93, Peterbroeck [1995] ECR I-4599, paragraph 12; C-431/93 van Schijndel [1995] ECR I-4705, paragraph 17.

312

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

8.

Regulatory regime for cross-border issues

A key objective of the internal electricity and gas market legislation is to create an integrated internal market, not a series of disparate national ones. The provisions in the Directives recognise that issues of cross border relevance can only be dealt with effectively through close cooperation and coordination between the regulators concerned. Cooperation requirements stipulated by the Directives must be seen as complementary to the obligation to cooperate within ACER.415

6.126

Articles 61 of the Electricity Directive and 42 of the Gas Directive, impose a general obligation on regulatory authorities to closely consult and cooperate with each other. Regulatory authorities are also under the obligation to provide each other and the ACER with any information necessary for the fulfilment of their tasks under the Directives. The Directives thus emphasise the importance of sharing information required to enable regulators to cooperate effectively. As regards the protection of confidential data the Directives stipulate that the receiving authority must ensure the same level of confidentiality as that required of the originating authority which, in turn, requires the originating authority to designate information as confidential when sharing it with other regulatory authorities. Furthermore, national regulatory authorities are granted a general right to enter into cooperative arrangements with each other to foster regulatory cooperation.416

6.127

Because of its importance, a specific obligation to cooperate at regional level is created. Article 61(2) of the Electricity Directive and Article 42(2) of the Gas Directive sets out an obligation of at least regional level cooperation to:

6.130

(a) foster the creation of operational arrangements in order to enable an optimal management of the network, promote joint electricity [gas] exchanges and the allocation of cross-border capacity, and to enable an adequate level of interconnection capacity, including through new interconnection, within the region and between regions to allow for development of effective competition and improvement of security of supply, without discriminating between supply undertakings in different Member States;

415 See Chapter 7 of this book. 416 Paragraph 3 of Articles 61 of the Electricity Directive and 42 of the Gas Directive.

313

6.128

6.129

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (b) coordinate the joint oversight of entities performing functions at regional level [only Electricity Directive]; (c) coordinate, in cooperation with other involved authorities, the joint oversight of national, regional and European resource adequacy assessments [only Electricity Directive]; (d) coordinate the development of all network codes for the relevant transmission system operators and other market actors; and (e) coordinate the development of the rules governing the management of congestion.417

6.131

The Commission is given the right to adopt guidelines on the extent of the duties of the regulatory authorities to cooperate with each other and with ACER.418 As explained above, regulatory cooperation has in general terms been successful and has intensified since the adoption of the Third Package. The Development of framework guidelines preceding network codes and the corresponding scrutiny of the network codes has established a relatively efficient procedure for regulatory cooperation.419

6.132

The Electricity Directive adds to new areas of regulatory cooperation. First this entails the regional coordination centres set up under the Electricity Regulation as well as the newly established obligation for resource adequacy assessment at national, regional and European level. Both areas will necessitate flexibility on the part of the regulatory authorities and will be an important litmus test as to whether such coordination can function as a going concern or whether the general rule that directs cases to ACER for lack of agreement within four months between regulatory authorities will prevail more and more.

6.133

In case the regulatory authorities concerned have not been able to reach an agreement on an issue related to cross border infrastructure within a period of four months from when the case was referred to the last of those regulatory authorities, the Agency becomes competent to decide upon the matter according to Article 6 of the ACER Regulation. Regulatory authorities may also decide to 417 Paragraph 4 clarifies that these actions shall be carried out, as appropriate, in close consultation with other relevant national authorities and without prejudice to their specific competencies. 418 Paragraph 5 of Articles 38 of the Electricity Directive and 42 of the Gas Directive. 419 This regulatory cooperation within the folds of ACER was however tested heavily in the course of the scrutiny of the network code on harmonized transmission tariff structures for gas which the Commission ultimately had to take upon itself to drafting as there was no agreement between the regulatory authorities.

314

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

submit a joint request to the Agency, thereby transferring the issue directly to the Agency.

9.

ACER review

The Third Package introduced a particular feature to cooperation between the national regulatory authorities and ACER which enable the Agency to review decisions taken by national regulatory authorities. This is also taken forward in the Electricity Directive. In fact, it provides for two different procedures allowing for such ‘Agency reviews’, one set out in Article 6 of the ACER Regulation, the other in Article  63 of the Electricity Directive and Article 43 of the Gas Directive. While these provisions differ in terms of scope and procedure, they both enable the ACER to deliver an opinion on whether a regulatory authority s decision complies with legal provisions of the Directives.420 Regulators may solicit a review by the Agency of both the decisions of other regulators and their own decisions.421

6.134

Article 6 of the ACER Regulation essentially empowers the Agency to provide an opinion at the request of a regulatory authority or of the Commission, on whether a decision taken by a regulatory authority complies with the Electricity or Gas Directives or Regulations (including guidelines referred to in these acts). By contrast, under Article 63 of the Electricity Directive and Article 43 of the Gas Directive, ACER may only assess the conformity of a regulator s decision with the guidelines adopted on the basis of the Directives or Regulations

6.135

420 Cf. paragraphs 7.91-7.92 on the differences and the relation between the two procedures. 421 Since this procedure has been put in place ACER has taken a few key decisions already in its role as arbitrator between regulatory authorities. ACER Decision No 11/2018 on the capacity booking platform to be used at the Mallnow interconnection point between Germany and Poland put an end to the long-lasting standoff between the German and the Polish regulatory authority both of which were promoting the respective platforms already in use in their systems. The revised Capacity Allocation Network Code (Commission Regulation 2017/459/EU) specifically introduced the procedure whereby ACER was given the opportunity to decide on the matter in case regulatory authorities did not reach an agreement after a sufficiently long period of time. The matter was however further complicated when the ACER Board of Appeals by decision of 14 February 2019 annulled the ACER decision that gave the Polish platform operator GSA the right to operate the platform at Mallnow. By contrast the ACER decision No 6/2016 on capacity calculation regions was upheld by the Board of Appeals in its decision of 17 March 2017 against which the Austrian regulatory authority and several key players of the Austrian electricity sector appealed. Finally, in another contentious and long-running case between regulators before ACER as regards capacity allocation procedures for gas on the border between Austria and Hungary, the Agency has, in its Decision 05/2019 of 9 April 2019, taken a decision as the two regulatory authorities have not been able to find an amicable solution. However, this case has now been taken further to the European Court of Justice with the Hungarian TSO FGSZ challenging the ACER decision (Case T-704/19).

315

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

mentioned. However, such a review procedure may result in a decision by the Commission requiring the regulatory authority concerned to withdraw its decision on the basis that that the Guidelines have not been complied with. Such a decision is binding upon the regulatory authority.

6.136

The procedure for Agency review under Articles 63 of the Electricity Directive and 43 of the Gas Directive is as follows: 1. Any regulatory authority and the Commission may request the opinion of ACER on the compliance of a decision taken by a regulatory authority with the network codes and guidelines referred to in [the Gas and Electricity] Directive or in [the Gas and Electricity] Regulation. 2. ACER shall provide its opinion to the regulatory authority which has requested it or to the Commission, respectively, and to the regulatory authority which has taken the decision in question within three months of the date of receipt of the request. 3. Where the regulatory authority which has taken the decision does not comply with ACER s opinion within four months of the date of receipt of that opinion, ACER shall inform the Commission accordingly. 4. Any regulatory authority may inform the Commission where it considers that a decision relevant for cross-border trade taken by another regulatory authority does not comply with the network codes and guidelines referred to in [the Gas and Electricity] Directive or in [the Gas and Electricity] Regulation within two months of the date of that decision. 5. Where the Commission, within two months of having been informed by ACER in accordance with paragraph 3, or by a regulatory authority in accordance with paragraph 4, or, on its own initiative, within three months of the date of the decision, finds that the decision of a regulatory authority raises serious doubts as to its compatibility with the network codes and guidelines referred to in this Directive or in [the Gas and Electricity] Regulation the Commission may decide to examine the case further. In such a case, it shall invite the regulatory authority and the parties to the proceedings before the regulatory authority to submit observations. 6. Where the Commission takes a decision to examine the case further, it shall, within four months of the date of such decision, issue a final decision: 316

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács (a) not to raise objections against the decision of the regulatory authority; or (b) to require the regulatory authority concerned to withdraw its decision on the basis that network codes and guidelines have not been complied with. 7. Where the Commission has not taken a decision to examine the case further or a final decision within the time-limits set in paragraphs 5 and 6 respectively, it shall be deemed not to have raised objections to the decision of the regulatory authority. 8. The regulatory authority shall comply with the Commission decision requiring it to withdraw its decision within two months and shall inform the Commission accordingly. 9. The Commission is empowered to adopt delegated acts in accordance with Article 67 [gas: Article 51(3)] supplementing [the Gas and Electricity] Directive by establishing guidelines setting out the details of the procedure to be followed for the application of this Article.

Any regulatory authority and the Commission may therefore request an opinion of ACER on the compliance of a decision taken by a regulatory authority with any of the guidelines adopted under the Directives or Regulations.

6.137

The Agency must, within three months from the date of receipt of the request, provide its opinion, either to the regulatory authority which has requested it or to the Commission, as well as to the regulatory authority which has taken the decision in question.

6.138

This opinion of the Agency is not binding on the regulator in question although it is understood that it should have a strong political weight especially in the context of the Board of Regulators of ACER, where all national regulators are represented. In any event, a binding second step procedure is provided for in the event that the regulator does not comply with the Agency s opinion.

6.139

Where the regulatory authority which has taken the decision does not comply with ACER s opinion within four months from the date of receipt of that opinion, the Agency must inform the Commission. In addition, any regulatory authority may inform the Commission where it considers that a decision relevant for cross-border trade taken by another regulatory authority does not comply with the guidelines adopted under the Directives or the Regulations within two months from the date of that decision.

6.140

317

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

6.141

Where the Commission, within two months after having been informed by the Agency or by a regulatory authority, or on its own initiative (then within three months from the date of the decision), finds that a decision of a regulatory authority raises serious doubts as to its compatibility with a guideline, the Commission may decide to examine the case further.

6.142

Where the Commission takes a decision to examine the case further, it must, within four months of the date of such decision, issue a final decision:

6.143 6.144

(a)

not to raise objections against the decision of the regulatory authority, either through an express decision or a tacit decision; or

(b)

to require the regulatory authority concerned to withdraw its decision on the basis that the guidelines have not been complied with.

Before taking the decision, the Commission invites the regulatory authority and the parties to the proceedings to submit observations. The Commission’s decision to require the regulatory authority concerned to withdraw its decision is binding. The regulatory authority must comply with this decision and withdraw its decision within a period of two months. It must inform the Commission accordingly. If the regulatory authority does not comply, the Commission can start an infringement proceeding against the Member State concerned. The Commission may adopt guidelines to set out the details of the procedure to be followed.

10. Conclusion 6.145

In 2009 the Third Package clearly constituted a step change as regards the EU framework for electricity and gas regulatory authorities at EU level. It strengthened their independence and increased their duties and powers but also added enhanced requirements on cooperation and judicial review. The 2019 amendment of the Electricity Directive is a more incremental change in the institutional set-up of regulatory authorities aimed at building on the experiences gained throughout the years of implementation of the Directives. It also aimed at ensuring that regulatory authorities are given the proper tools and duties to function in the internal electricity market of the future which builds on news services and much greater cross-border coordination and cooperation. 318

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

As regards their institutional set-up, the Third Package Directives obligated Member States to establish a single regulatory authority and to ensure its independence not only from the energy industry but also from any political influence. Additional requirements on budget and management rotation were designed to enable regulators to exercise their duties in an independent manner with a view to realising the policy objectives of the Third Package.

6.146

Notwithstanding the new differences between the Electricity and Gas Directives elaborated in this chapter, the Directives now provide for a comprehensive set of duties, while at the same time conferring on regulators the necessary powers to fulfil their tasks, including as regards network tariffs, ensuring compliance of market participants and market monitoring. Strong investigatory and enforcement powers are also granted to ensure that those powers are effective. Additional duties and competences are foreseen in case of unbundling solutions for TSOs other than ownership unbundling (ISO, ITO). Further new duties and powers are also vested with regulatory authorities in conjunction with the ENTSO for electricity, the EU DSO entity and the regional coordination centres. Even more tasks and powers are conferred by further legal acts, including network codes and guidelines adopted by the Commission and other acts including Regulation (EU) No 1227/2011 on wholesale energy market integrity and transparency (REMIT), Regulation (EU) No 347/2013 on guidelines for trans-European energy infrastructure and Directive 2012/27/EU on energy efficiency.

6.147

Enhanced independence, duties and powers are accompanied by comprehensive and increasing obligations to coordinate both among regulators and with the Agency on cross border issues. This also includes the possibility for ACER to review decisions taken by national regulators and, in the absence of an agreement or upon a joint request, to take decisions instead of the national regulatory authorities concerned. What is more, regulators must act as dispute settlement bodies in order to resolve conflicts between market participants without (or at least before) an action being brought before a court. The Directives also contain general principles on the handling of complaints and on judicial review, even though the latter aspect is largely determined by the case law of the ECJ; and the basic right to an effective remedy and to a fair trial guaranteed by the Charter of Fundamental Rights of the European Union and the European Convention on Human Rights.

6.148

More recent legislation especially on infrastructure, security of supply, renewable energy and energy efficiency points towards a changing role of national regulatory authorities. While their core duties related to, inter alia, tariffs, unbundling, market monitoring and enforcement appear likely to remain stable in

6.149

319

Chapter 6 National Regulatory Authorities Emmanuel Cabau, revised and updated by Kristóf Kovács

the foreseeable future, the overall objectives of energy and climate policy will require an active role of regulators in accompanying and enabling the transformation of energy systems in the long run. These new policy areas and duties are spelled out in the Electricity Directive.

320

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER)422

1.

Introduction

The liberalisation of the national energy markets and the creation of an internal market in electricity and gas rests on a regulatory framework in which national regulatory authorities have been playing a key role. Their core competence is to regulate their national markets. However, with electricity and gas markets extending beyond national borders, regulatory action has an impact also on cross-order market activities and needs to address also specific cross-border issues. Obviously, cooperation between the national regulatory authorities and coordinated regulatory action is necessary to develop effectively an integrated European market in electricity and gas.

7.1

In 2003, the European Commission therefore set up an independent advisory group for electricity and gas: the ‘European Regulator Group for Electricity and Gas’ (ERGEG).423 ERGEG was made up of representatives of the national regulatory authorities. It was meant to advise and assist the Commission in consolidating the internal energy market, and to facilitate consultation, coordination and cooperation between the regulatory bodies in Member States, and between those bodies and the Commission, with a view to consolidating the internal market in electricity and natural gas.424

7.2

422 This chapter is based on and updates the one by Ermacora/Tremmel, ‘The Agency for the Cooperation of Energy Regulators (ACER)’, in Jones (ed.), EU Energy Law I, 2016 ed., p. 277 et seq. It focuses on the organisation, tasks and procedure of ACER. The opinions expressed in this chapter are those of the author and do not necessarily represent the position of the EU Agency for the Cooperation of Energy Regulators. 423 Commission Decision 2003/796/EC of 11 November 2003 on establishing the European Regulators Group for Electricity and Gas, OJ L 296/34, 14.11.2003. 424 Article 1(2) of Decision 2003/796/EC.

321

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.3

Over time, it became clear that ERGEG was not a suitable structure to establish common solutions and to tackle the cross-border issues of an increasingly complex energy sector. In 2007, especially with regard to the need for harmonising the technical rules for the operation of transmission systems (network codes), the Commission advocated a stronger cooperation structure in its proposals for the Third Energy Package. Having considered various options, such as harmonisation by the Commission itself, by a more powerful network of national regulatory authorities or by a European System of Central Banks-like mechanism, the Commission finally came to the conclusion that an agency should be established which is independent and separate from the Commission, whose structure provides a framework for national regulatory authorities to cooperate as well as to bundle their expertise, whose tasks complement at European level the regulatory activities of the national regulatory authorities, and which can take binding individual decisions.425

7.4

As a consequence, in 2009 the Agency for the Cooperation of Energy Regulators (ACER) was constituted by law with the aim to fill a regulatory gap at Union level and to contribute towards the effective functioning of the internal markets in electricity and natural gas. ACER is fully operational since 3 March 2011 and has its seat in Ljubljana, Slovenia.426

2.

The legal basis

2.1 Overview 7.5

Regulation (EC) No 713/2009 establishing an agency for the cooperation of the energy regulatory authorities427 laid the foundations of ACER. It established ACER as a Community agency with legal personality, specifying its purpose, the acts it could take, its tasks, its organisational set-up and its financial framework. 425 Commission Proposal for a Regulation of the European Parliament and of the Council establishing an Agency for the Cooperation of Energy Regulators, COM(2007)530 final, pp. 10, 11, 41, 42 (p. 41: ‘Regula‑ tory activities require highly technical skills, notably knowledge of the physics of the grid, levels of investment needed in the sector (generation and transmission), a scale of access tariffs and a dispute settlement mecha‑ nism.’). 426 Decision taken by common agreement between the Representatives of the Governments of Member States of 7 December 2009 on the location of the seat of the Agency for the Cooperation of Energy Regulators, OJ L 322/39, 9.12.2009. See also Article 16(4) of Regulation (EU) 2019/942 (ACER Regulation). 427 Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators, OJ L 211/1, 14.8.2009.

322

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

With regard to ACER’s tasks, Regulation (EC) No  713/2009 was complemented by Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for crossborder exchanges in electricity,428 Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks (Gas Regulation),429 Directive 2009/72/ EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity,430 and Directive 2009/73/ EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas (Gas Directive);431 the provisions of the founding statute largely mirrored the relevant sector-specific rules.

7.6

Later, Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT),432 Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy infrastructure (TEN-E Regulation)433 and Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply (Security of Gas Supply Regulation),434 as well as several Commission Regulations establishing network codes and guidelines on the basis of Regulation (EC) No 714/2009 and Regulation (EC) No  715/2009 added essentially to the legal basis of ACER by assigning new tasks to ACER. Though those tasks enlarged ACER’s remit significantly, they were not incorporated into Regulation (EC) No 713/2009 and resulted only in marginal textual amendments of Regulation (EC) No 713/2009.435

7.7

With effect of 4 July 2019, Regulation (EC) No 713/2009 was amended and replaced by Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators (ACER Regulation),436 as part of the legislative project ‘Clean energy for all Europeans’ (Clean Energy Package).

7.8

428 429 430 431 432 433 434 435

OJ L 211/15, 14.8.2009. OJ L 211/36, 14.8.2009. OJ L 211/55, 14.8.2009. OJ L 211/94, 14.8.2009. OJ L 326/1, 8.12.2011. OJ L 115/39, 25.4.2013. OJ L 280/1, 28.10.2017. Following Regulation (EU) No 347/2013, Article 22 was amended to cover also fees for ACER decisions on cross border cost allocation according to Article 12 of Regulation (EU) No 347/2013. 436 OJ L 158/22, 14.6.2019.

323

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.9

As part of the same legislative package, ACER’s tasks have been redefined also by Regulation (EU) 2019/941 of the European Parliament and of the Council of 5 June 2019 on risk-preparedness in the electricity sector (Risk Preparedness Regulation),437 by Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (Electricity Regulation),438 amending and repealing Regulation (EC) No 714/2009 as of 1 January 2020, and by Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity (Electricity Directive),439 amending and repealing Directive 2009/72/EC as of 1 January 2021.

2.2 The new legal framework of ACER 7.10

Following a public consultation on a new energy market design in 2015, which indicated a support for increasing the legal powers of ACER, e.g. its oversight of the activities of the European Network of Transmission System Operators for Electricity (ENTSO-E) or its decision powers for swifter alignment of national regulatory authorities’ positions, and a need for making ACER’s decisions more independent from national interests,440 the Commission presented by the end of November 2016 a proposal for a recast of Regulation (EC) No 713/2009.441

7.11

The Commission’s proposal was driven by the concern over fragmented regulatory oversight: while market actors cooperated across borders and decided on certain matters concerning grid operation and electricity trading with qualified majority at regional or even Union level, there was no equivalent for these regional decision-making procedures at regulatory level. Instead, national regulatory authorities took all main regulatory decisions even in situations where a common regional or a Union-wide solution was needed.442 To address this discrepancy and the risk of diverging decisions and unnecessary delays, reinforced regulatory oversight beyond borders, with more effective decision-making, was considered necessary. To that end, according to the Commission, strengthening ACER on the basis of the existing legislative framework by enhancing its powers with new tasks and with the authority to directly approve certain terms and conditions or methodologies was the most appropriate solution.443 437 438 439 440

OJ L 158/1, 14.6.2019. OJ L 158/54, 14.6.2019. OJ L 158/125, 14.6.2019. https://ec.europa.eu/energy/sites/ener/files/documents/First%20Results%20of%20Market%20Design%20Consultation.pdf, p. 3. 441 Proposal for a Regulation of the European Parliament and of the Council establishing a European Union Agency for the Cooperation of Energy Regulators (recast), COM(2016) 863 final. 442 Commission Proposal, p. 7 and 8. 443 Commission Proposal, p. 17. In that context, the Commission discarded the ‘ legislative option transforming

324

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

After the Council had reached its general approach on the Commission’s proposal in June 2018, the European Parliament adopted its position on the draft regulation governing ACER at first reading in March 2019, and the Council approved the European Parliament’s position at first reading in May 2019. As a consequence, Regulation (EU) 2019/942 (ACER Regulation) entered into force on 4 July 2019.

7.12

The ACER Regulation consolidates ACER’s role, updates its remit and tasks (including existing duties in the area of wholesale market surveillance under REMIT and cross-border infrastructure under the TEN-E Regulation), adds new responsibilities and refines its functioning. New important elements introduced by the ACER Regulation are:

7.13

–

Competence to request information from regulated entities and regulatory authorities;444

–

Regulatory oversight of EU entities (ENTSO-E, the EU DSO entity and regional coordination centres (RCCs);445

–

More responsibility in elaborating and submitting the final proposal for a network code to the Commission;446

–

Direct competence for the approval of terms and conditions or methodologies for the implementation of network codes and guidelines where those terms and conditions or methodologies apply EU-wide;447

–

Approval of methodologies related to generation adequacy and risk preparedness;448

–

Requirement for rules of procedure for ACER’s decision-making process;449

–

Explicit recognition of working groups;450

444 445 446 447 448 449 450

ACER to something closer to a pan-European regulator’. Article 3(2). Article 4. Article 5(1). Article 5(2). Article 9(1) and (3). Article 14(5). Article 30.

325

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.14

–

Readjustment of the interaction between the Director and the Board of Regulators for the adoption of opinions, recommendations and decisions.451

3.

Purpose and objectives

ACER was established to fill the regulatory gap at Union level, to contribute towards the effective functioning of the internal markets for electricity and natural gas, and to enable regulatory authorities to enhance their cooperation at Union level and participate, on a mutual basis, in the exercise of Union-related functions.452 ACER provides a framework for facilitating the uniform application of the internal market legislation for electricity and natural gas throughout the Union.453 The key pillars of ACER’s mission are laid out as follows: Article 1 ACER Regulation “2. The purpose of ACER shall be to assist the regulatory authorities referred to in Article 57 of Directive (EU) 2019/944 and Article 39 of Directive 2009/73/ EC in exercising, at Union level, the regulatory tasks performed in the Member States and, where necessary, to coordinate their action and to mediate and settle disagreements between them in accordance with Article 6(10) of this Regulation. ACER shall also contribute to the establishment of high-quality common regulatory and supervisory practices, thus contributing to the consistent, efficient and effective application of Union law in order to achieve the Union’s climate and energy goals. 3. When carrying out its tasks, ACER shall act independently, objectively, and in the interest of the Union. ACER shall take autonomous decisions, independently of private and corporate interests.”

7.15

Accordingly, ACER pursues three main objectives: –

assisting the regulatory authorities in exercising, at Union level, the regulatory tasks performed in the Member States and, where necessary, coordinating the action of the regulatory authorities;

451 Article 24(2). 452 Recital 10 of the ACER Regulation. 453 Recital 16 of the ACER Regulation.

326

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

–

mediating and settling disagreements between regulatory authorities as regards situations concerning more than one Member States, where regulatory issues having effects on cross-border trade or cross-border system security require a joint decision by at least two regulatory authorities; and

–

contributing to the establishment of high-quality common regulatory and supervisory practices, in or to achieve consistent, efficient and effective application of Union legal acts and the Union’s climate and energy goals.

The guiding principles for realising these objectives are independence, objectivity and the Union’s interests. Those principles are underpinned by specific obligations of and protections for the bodies of ACER, i.e. the Administrative Board, the Board of Regulators, the Director and the Board of Appeal.454

4.

7.16

Types of acts

The acts that ACER can adopt follow in principle from the typology established by Article 288 TFEU. In accordance with that provision, ACER can adopt opinions and recommendations,455 which have no binding force, and decisions, which specify those to whom they are addressed and which are binding upon those addressees.

7.17

Beside those typical administrative acts, the Third Energy Package introduced a special concept of a non-binding act for the electricity and gas sectors, namely framework guidelines. Those guidelines, developed upon a request of the Commission, set out non-binding principles on the basis of which binding technical and market rules are established.

7.18

Article 2 of the ACER Regulation lists types of acts that ACER can adopt.

7.19

454 Articles 18(7), 22(3), 23(1), 26(2) and 27(4) of the ACER Regulation. 455 See Order of 19 October 2016, T-671/15, E-Control v ACER, where the Court, with regard to the previous version of Article 6(5) of the ACER Regulation, i.e. ex-Article 7(4), held that this provision constituted a legal basis for the adoption of non-binding opinions and that the contested opinion, given its wording, content and context, was indeed an opinion, non-binding and not a challengeable act under Article 263 TFEU (ECLI:EU:T:2016:626, esp. paras. 59 and 92).

327

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 2 ACER Regulation “ACER shall: (a) issue opinions and recommendations addressed to transmission system operators, the ENTSO for Electricity, the ENTSO for Gas, the EU DSO Entity, regional coordination centres and nominated electricity market operators; (b) issue opinions and recommendations addressed to regulatory authorities; (c) issue opinions and recommendations addressed to the European Parliament, the Council, or the Commission; (d) issue individual decisions on the provision of information in accordance with Article 3(2), point (b) of Article 7(2) and point (c) of Article 8; on approving the methodologies, terms and conditions in accordance with Article 4(4), Article 5(2), (3) and (4); on bidding zones reviews as referred to in Article 5(7); on technical issues as referred to in Article 6(1); on arbitration between regulators in accordance with Article 6(10); related to regional coordination centres as referred to in point (a) of Article 7(2); on approving and amending methodologies and calculations and technical specifications as referred to in Article 9(1); on approving and amending methodologies as referred to in Article 9(3); on exemptions as referred to in Article 10; on infrastructure as referred to in point (d) of Article 11; and on matters related to wholesale market integrity and transparency pursuant to Article 12. (e) submit non-binding framework guidelines to the Commission in accordance with Article 59 of Regulation (EU) 2019/943 of the European Parliament and of the Council […] and Article 6 of Regulation (EC) No 715/2009 of the European Parliament and of the Council […].”

7.20

Article 2 lists the types of acts by, on the one hand, categorising opinions and recommendations according to their addressees and, on the other hand, detailing individual decisions and framework guidelines with reference to their specific legal basis.

328

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Its title and structure suggest that Article 2 defines generally which acts ACER can adopt, instead of determining exhaustively when ACER is required or permitted to adopt the listed acts. The authority to issue a certain act ensues within the context of the specific legal provisions assigning a particular task and competence to ACER. Those provisions are in Articles 3 et seq. of the ACER Regulation, as well as in the sector specific legislation, such as the Electricity and Gas Regulations, the Electricity and Gas Directives, and the Risk Preparedness Regulation and the Security of Gas Supply Regulation. Deliverables not explicitly mentioned in Article 2 can be found, for instance, in Article 15 (2) and (4) of the ACER Regulation referring to reports, or Article 37(5) of the Electricity Regulation referring to a decision not listed in Article 2 (and no other provision) of the ACER Regulation.

7.21

As regards decisions, it has been emphasised that they are of individual scope of application and adopted in the defined circumstances.456

7.22

In practice, the vast majority of the acts adopted by ACER in the past were nonbinding, most of which were opinions. The decisions related mainly to two areas: terms and conditions or methodologies for the implementation of network codes and guidelines, and REMIT.457

7.23

5.

Tasks of ACER

The tasks of ACER are set out partly by the legal act establishing ACER, partly by specific legislation for the electricity and natural gas sectors.

7.24

ACER’s founding act distinguished in principle between tasks regarding the (then) Community institutions, the cooperation of transmission system operators (TSOs), the national regulatory authorities, consultations and transparency, and the monitoring of and reporting on the electricity and natural gas markets. It defined those tasks to a large extent by referring to and mirroring provisions of the sector specific rules in the regulations and directives concerning electricity and natural gas. In addition, the latter regulations and directives established tasks for ACER that were not included in Regulation (EC) No 713/2009.

7.25

456 See Recitals 16 and 29 of the ACER Regulation. 457 In particular according to Article 10(1) of REMIT on the access of regulatory authorities to data sharing.

329

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.26

Subsequent legislation, such as REMIT, the TEN-E Regulation, and Commission Regulation (EU) No 543/2013 on submission and publication of data in electricity markets (Transparency Regulation)458 added further tasks, without those tasks being incorporated in Regulation (EC) No 713/2009.

7.27

The ACER Regulation consolidates the existing tasks and complements them with new tasks assigned by the Clean Energy Package.459 The vast majority of the tasks are distinguished in part according to the entities concerned and in part according to the subject area governed. The former group comprises the tasks regarding the Union institutions,460 the (TSOs) and distribution system operators (DSOs),461 the regulatory authorities,462 the RCCs,463 and the nominated electricity market operators (NEMOs);464 the latter category includes tasks concerning the development and implementation of network codes and guidelines,465 generation adequacy and risk preparedness,466 exemptions for new interconnectors and new gas infrastructure,467 infrastructure plans and projects of Union-wide relevance,468 wholesale market integrity and transparency,469 and monitoring and reporting on the electricity and natural gas sectors.470 In addition, there are tasks with a procedural context, related to the collection of information471 and to consultations, transparency as well as decision-making procedures.472

7.28

The scope of these tasks is still defined only partially by autonomous rules in the ACER Regulation, the latter relying on numerous cross-references to rules in other legal acts specifying the relevant task. However, the ACER Regulation also omits tasks assigned to ACER under other legal acts.473 458 Commission Regulation (EU) No 543/2013 of 14 June 2013 on submission and publication of data in electricity markets and amending Annex I to Regulation (EC) No 714/2009 of the European Parliament and of the Council, OJ L 163/12, 15.6.2013. 459 Articles 3 to 15. 460 Article 3(1). 461 Article 4. 462 Article 6. 463 Article 7. 464 Article 8. 465 Article 5. 466 Article 9. 467 Article 10. 468 Article 11. 469 Article 12. 470 Article 15. 471 Article 3(2). 472 Article 14. 473 E.g. Article 37(5) of the Electricity Regulation.

330

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

As regards their nature, some of those tasks involve merely advisory and supervisory competences, while others entail decision-making competence.

7.29

Member States were concerned that new competences, in particular for decision-making, could be granted without adequate involvement of the Council. To avoid this risk and to ensure that ACER adopts decisions only in clearly defined circumstances,474 two safeguards have been installed:

7.30

First, Article 5(2), Article 5(3) and Article 6(10) of the ACER Regulation allow conferring decision-making powers for new cross-border issues, including the terms and conditions or methodologies under network codes and guidelines, in principle only through legislation adopted under the ordinary legislative procedure or through implementing acts.

7.31

Second, Article 13 of the ACER Regulation allows entrusting additional tasks for issues related to the purpose for which ACER has been established, in circumstances clearly defined by the Commission in network codes adopted according to Article 59 of the Electricity Regulation and guidelines adopted according to Article 61 of the Electricity Regulation or Article 23 of the Gas Regulation, on the condition that those tasks do not involve decision-making powers.

7.32

5.1 General competences 5.1.1 Advice to the EU institutions Given its coordinating role and its overview of the regulatory authorities as well as of the developments on the markets for electricity and gas, ACER is capable to provide advice, in particular to other Union institutions involved in policy and law making.475

7.33

Article 3(1) of the ACER Regulation recognises this potential and provides that ACER issues opinions and recommendations to the European Parliament, the Council and the Commission on all issues related to its purpose.

7.34

474 See also Recital 29 of the ACER Regulation. 475 Recital 22 of the ACER Regulation.

331

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 3 ACER Regulation “1. ACER may, upon a request of the European Parliament, the Council or the Commission, or on its own initiative, provide an opinion or a recommendation to the European Parliament, the Council and the Commission on any of the issues relating to the purpose for which it has been established.”

7.35

Contrary to its heading (‘general tasks’), Article 3(1) does not establish a task but rather a general competence, as it does not define an activity or piece of work to be done. It empowers ACER to issue an opinion or a recommendation – ACER may issue them –, and does not oblige ACER to do so, even if requested by the European Parliament, the Council or the Commission.

7.36

The scope of this competence is defined by the purpose for which ACER has been established. That purpose follows in the first place from Article 1(2) of the ACER Regulation, i.e. assisting the regulatory authorities in exercising, at Union level, the regulatory tasks and coordinating their action, mediating and settling disagreements between them, and contributing to the establishment of high-quality common regulatory and supervisory practices as well as to the consistent, efficient and effective application of Union law in order to achieve the Union’s climate and energy goals. In addition, the purpose ensues from all specific tasks of ACER, and the requirements how to carry out those tasks, as set out in the specific legal provisions.

5.1.2 Request for information 7.37

To ensure that ACER has access to the information needed to fulfil its tasks, ACER must be able to obtain that information from the relevant bodies.476

7.38

To that end Article 3(2) of the ACER Regulation, contrary to its title which refers to tasks, introduces a general power for ACER to request the relevant information from the regulatory authorities, ENTSO-E, the ENTSO for Gas (ENTSOG), the RCCs, the EU DSO entity, the TSOs and the NEMOs, and complements it with the corresponding obligation of those entities to provide the requested information.

476 Recital 14 of the ACER Regulation.

332

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 3 ACER Regulation “2. At ACER’s request, the regulatory authorities, the ENTSO for Electricity, the ENTSO for Gas, the regional coordination centres, the EU DSO entity, the transmission system operators and the nominated electricity market operators shall provide to ACER the information necessary for the purpose of carrying out ACER’s tasks under this Regulation, unless ACER has already requested and received such information.

For the purpose of information requests as referred to in the first subparagraph, ACER shall have the power to issue decisions. In its decisions, ACER shall specify the purpose of its request, shall make a reference to the legal basis under which the information is requested, and shall state a time limit within which the information is to be provided. That time limit shall be proportionate to the request.



ACER shall use confidential information received pursuant to this Regulation only for the purpose of carrying out the tasks assigned to it in this Regulation. ACER shall ensure the appropriate data protection of the information pursuant to Article 41.”

The first subparagraph defines the scope of a request for information as well as the duty of the entity concerned to provide the requested information. Both, scope and duty, are governed and limited by the purpose of carrying out tasks under the ACER Regulation. In principle, any of those tasks can serve as a relevant subject-matter, covering potentially a very wide range of information. In practice, this will be especially relevant for ACER’s supervisory tasks, for monitoring and reporting on the electricity and natural gas sector. The particular request must be based on necessity: the piece of information should be necessary for the task concerned, and ACER should not have received that information otherwise.

7.39

The second subparagraph clarifies the form of the request for information. It can be a decision, but it can also be a simple request.477 Only the former is legally binding and enforceable with sanctions by the competent national regulatory authorities. Given its legal consequences, a decision is explicitly required to identify the purpose of the request, to indicate the legal basis under which the information is requested, and to set a proportionate time limit within which the

7.40

477 According to Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU Energy Law XIII, 2020 ed., para. 7.35, the co-legislators intended requests for information to take only exceptionally the form of a decision.

333

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

information is to be provided. In any event, it should be clear to the addressee which information is required and why ACER requires it. For transparency and legal certainty reasons, it seems appropriate to apply the same specifications to a simple request for information.

7.41

A decision requesting information under Article 3(2) does not require a favourable opinion of the Board of Regulators in accordance with Article 24(2) of the ACER Regulation.

7.42

The third subparagraph obliges ACER to preserve the confidentiality of the information received and, in accordance with Article 41 of the ACER Regulation, protect personal data. While confidentiality and privacy are reasons for a particularly protective treatment of the information concerned, they do not justify withholding information requested by ACER.

7.43

In addition to Article 3(2), the ACER Regulation provides a special legal basis for requesting information from RCCs and NEMOs, in its Article 7(2)(b) and Article 8(c) respectively. Those requests, too, can take the form of a decision, as indicated in Article 2(d) of the ACER Regulation. In such case, however, contrary to a decision under Article 3(2), they do require the Board of Regulators’ favourable opinion according to Article 24(2) of the ACER Regulation.

5.2 Cooperation of transmission system operators and distribution system operators 7.44

One key element of the Third Energy Package was the creation of new and reinforced cooperation bodies between TSOs, i.e. ENTSO-E for electricity and ENTSOG for gas.478 Therefore, from the beginning, ACER was assigned a number of tasks concerning the cooperation of TSOs, relating to the establishment of the ENTSOs as well as to the execution of their tasks.

7.45

The Clean Energy Package enhanced the cooperation of and coordination between system operators by providing for the establishment of an entity of distribution system operators in the Union (the EU DSO entity) and of RCCs. Accordingly, ACER’s tasks have been enlarged to cover also those entities. Moreover, ACER’s tasks have been intensified by supervisory responsibilities in relation to ENTSO-E, the EU DSO entity and the RCCs as well as by approval powers regarding ENTSO-E’s methodology on the use of congestion income according to Article 19(4) of the Electricity Regulation. 478 See Chapter 12, para 12.61, et seq.

334

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.2.1 Establishment of the ENTSOs and the EU DSO entity ACER has an advisory role in the formation of the ENTSO-E, the ENTSO-G and the EU DSO entity. The general scope of this task is set out in Article 4(1) of the ACER Regulation as reviewing the draft statutes of those entities, their list of members and their draft rules of procedure and providing an opinion to the Commission.

7.46

Article 4 ACER Regulation “1. ACER shall provide an opinion to the Commission on the draft statutes, list of members and draft rules of procedure of the ENTSO for Electricity in accordance with Article 29(2) of Regulation (EU) 2019/943 and on those of the ENTSO for Gas in accordance with Article 5(2) of Regulation (EC) No 715/2009 and on those of the EU DSO entity in accordance with Article 53(3) of Regulation (EU) 2019/943.”

The details of how ACER is to perform this function are specified in Article 29(2) of the Electricity Regulation with regard to ENTSO-E, in Article 5(2) of the Gas Regulation with regard to ENTSO-G, and in Article 53(3) of the Electricity Regulation with regard to the EU DSO entity. Those provisions lay down in almost identical terms a procedure for the delivery of ACER’s opinion. Article 29 Electricity Regulation “2. Within two months of receipt of the draft amendments to the statutes, list of members or rules of procedure, ACER, after consulting the organisations representing all stakeholders, in particular the system users, including customers, shall provide an opinion to the Commission on these draft amendments to the statutes, list of members or rules of procedure. 3. The Commission shall deliver an opinion on the draft amendments to the statutes, list of members or rules of procedures taking into account ACER’s opinion as provided for in paragraph 2 and within three months of receipt of ACER’s opinion. 5. The documents referred to in paragraph 1 shall be submitted to the Commission and to ACER where there are changes thereto or upon the reasoned request of either of them. The Commission and ACER shall deliver an opinion in accordance with paragraphs 2, 3 and 4.” 335

7.47

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.48

Under the procedure of Article 29(2) of the Electricity Regulation, Article 5(2) of the Gas Regulation, and Article 53(3) of the Electricity Regulation, the relevant entity has to submit the required document(s) to ACER, then ACER has to consult the organisations representing all stakeholders and issue an opinion on the document(s) to the Commission within two months. As such, ACER’s opinion provides input for the opinion of the Commission, on the basis of which the statutes and the rules of procedure are finally to be adopted.479

7.49

The wording of Article 29(2) of the Electricity Regulation differs slightly from both Article 5(2) of the Gas Regulation and Article 53(3) of the Electricity Regulation in that it refers to ‘draft amendments to the statutes, list of members or rules of procedure’, whilst the latter provisions still concern the original version of these documents. This difference is due to the fact that ENTSO-E has already been established (following the opinions of ACER and the Commission), that the Gas Regulation was not updated to take into account the establishment of ENTSOG, and that the EU DSO entity is still to be established.

7.50

With regard to future amendments of the relevant documents, Article 29(5) and Article 53(6) of the Electricity Regulation require that ‘the documents re‑ ferred to in [Article 29(1), respectively Article 53(2)] shall be submitted to the Commission and to ACER where there are changes thereto or upon the reasoned request of either of them. The Commission and ACER shall deliver an opinion in accordance with paragraphs 2, 3 and 4’. It is clear from this wording that where the entities intend to change a relevant document that was subject to an opinion by ACER and the Commission, such revision has to undergo the same procedure as for the original document, and the proposed amendment has to be submitted to ACER and the Commission for their opinions. By contrast, it is less clear what the referred submission upon reasoned request of the Commission or ACER should imply. If this alternative were to mean that the Commission or ACER can request the documents which ENTSO-E and the EU DSO entity have to submit in any case because of Article 29(2) and Article 53(3) of the Electricity Regulation, the reasoned request would actually be redundant. If, on the other hand, the reasoned request was interpreted, in view of its context, to refer to and enable changes which the Commission and ACER deem necessary and ask for, a submission upon such request would indeed make sense. The purpose of subjecting the founding documents of ENTSO-E and the EU DSO entity to an opinion by ACER and the Commission before their adoption holds true also for changes to these documents which the Commission and ACER deem 479 Article 29(3) of the Electricity Regulation; Article 5(3) of the Gas Regulation; Article 53(4) of the Electricity Regulation.

336

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

necessary. Bearing this in mind, it is consistent to conclude from Article 29(5) and Article 53(6) of the Electricity Regulation that both ACER and the Commission can request ENTSO-E and the EU DSO entity to submit amended documents. As regards ENTSOG, there is no provision similar to Article 29(5) and Article 53(6) of the Electricity Regulation. Read in their textual context, Article 29(2) of the Electricity Regulation, Article 5(2) of the Gas Regulation, and Article 53(3) of the Electricity Regulation determine the scope of the relevant documents and, hence, of the review to be carried out by ACER. The rules of procedure should include the procedure rules for the consultation of stakeholders;480 the EU DSO entity is also explicitly required to submit the financial rules.481 For the EU DSO entity, the draft statutes are further specified: they have to comply with a list of specific requirements and to include a code of conduct.482

7.51

5.2.2 Performance of the ENTSOs and the EU DSO entity ‘To ensure that the cooperation between transmission system operators […] pro‑ ceed in an efficient and transparent way for the benefit of the internal markets for electricity and natural gas’,483 ACER has wide-ranging monitoring duties with regard to the execution of the tasks of ENTSO-E, ENTSOG and the EU DSO entity as well as with regard to regional cooperation between TSOs in the electricity and gas sectors.

7.52

Article 4(2) of the ACER Regulation outlines the monitoring duties with regard to ENTSO-E, ENTSO-G and the EU DSO entity. As far as ENTSO-E and ENTSOG are concerned, it mirrors the first subparagraph of Article 32(1) of the Electricity Regulation and the first subparagraph of Article 9(1) of the Gas Regulation.

7.53

Article 4 ACER Regulation “2. ACER shall monitor the execution of the tasks of the ENTSO for Electricity in accordance with Article 32 of Regulation (EU) 2019/943, of the ENTSO for Gas in accordance with Article 9 of Regulation (EC) No 715/2009 and of the EU DSO entity as set out in Article 55 of Regulation (EU) 2019/943.” 480 For ENTSO-E see also Article 5(1) of Regulation (EC) No 714/2009. 481 Article 29(1) of the Electricity Regulation; Article 5(1) of the Gas Regulation; Article 53(2) of the Electricity Regulation. 482 Article 53(2) and Article 54 of the Electricity Regulation. 483 Recital 12 of the ACER Regulation.

337

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.54

The specific scope of these monitoring duties results from Article 30 in conjunction with Article 32 of the Electricity Regulation, from Article 8 in conjunction with Article 9 of the Gas Regulation, and from Article 55 of the Electricity Regulation. The relevant tasks of ENTSO-E, ENTSOG and the EU DSO entity are set out in Article 30 of the Electricity Regulation, Article  8 of the Gas Regulation, and Article 55 of the Electricity Regulation, respectively. They include, e.g. for ENTSO-E and ENTSO-G, the development of network codes, and the adoption of common network operation tools, of a non-binding Unionwide 10-year network development plan (TYNDP), of recommendations on the coordination of technical cooperation between Union and third-country TSOs, of an annual work programme, or of an annual report.

7.55

ACER must report on its monitoring to the Commission.484

7.56

Under this umbrella, Article 4(3) and (5) of the ACER Regulation single out specific deliverables of ENTSO-E, ENTSOG and the EU DSO entity to which ACER can respond with an opinion and, under the circumstances of paragraph 5, must issue a reasoned opinion and recommendations: Article 4 ACER Regulation “3. ACER may provide an opinion: (a) to the ENTSO for Electricity in accordance with point (a) of Article 30(1) of Regulation (EU) 2019/943 and to the ENTSO for Gas in accordance with Article 8(2) of Regulation (EC) No 715/2009 on the network codes; (b) to the ENTSO for Electricity in accordance with the first subparagraph of Article 32(2) of Regulation (EU) 2019/943, and to the ENTSO for Gas in accordance with the first subparagraph of Article 9(2) of Regulation (EC) No 715/2009 on the draft annual work programme, on the draft Unionwide network development plan and other relevant documents referred to in Article 30(1) of Regulation (EU) 2019/943 and Article 8(3) of Regulation (EC) No 715/2009, taking into account the objectives of non-discrimination, effective competition and the efficient and secure functioning of the internal markets for electricity and natural gas; (c) to the EU DSO entity on the draft annual work programme and other relevant documents referred to in Article 55(2) of Regulation (EU) 2019/943, 484 See also Article 32(1) of the Electricity Regulation and Article 9(1) of the Gas Regulation.

338

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel taking into account the objectives of non-discrimination, effective competition and the efficient and secure functioning of the internal market for electricity. 5. ACER shall, based on matters of fact, provide a duly reasoned opinion as well as recommendations to the ENTSO for Electricity, the ENTSO for Gas, the European Parliament, the Council and the Commission, where it considers that the draft annual work programme or the draft Union-wide network development plan submitted to it in accordance with the second subparagraph of Article 32(2) of Regulation (EU) 2019/943 and the second subparagraph of Article 9(2) of Regulation (EC) No 715/2009 do not contribute to non-discrimination, effective competition and the efficient functioning of the market or a sufficient level of cross-border interconnection open to third-party access, or do not comply with the relevant provisions of Regulation (EU) 2019/943 and Directive (EU) 2019/944 or Regulation (EC) No 715/2009 and Directive 2009/73/EC.”

Point (a) of Article 4(3) concerns the development of non-binding network codes by the ENTSOs. Here, ACER may issue an opinion to the relevant ENTSO.485

7.57

Point (b) and (c) of Article 4(3) cover essentially all relevant mandatory deliverables of ENTSO-E, ENTSOG and the EU DSO entity, point (b) of Article 4(3) mirroring the first subparagraph of Article 32(2) of the Electricity Regulation as well as the first subparagraph of Article 9(2) of the Gas Regulation. Here, again, ACER may issue an opinion to the entity whose deliverable is at stake.

7.58

By contrast, Article 4(5) addresses a special case of draft annual work programmes and draft Union-wide network development plans of ENTSO-E and ENTSOG, mirroring the second subparagraph of Article 32(2) of the Electricity Regulation and the second subparagraph of Article 9(2) of the Gas Regulation. Where, in ACER’s view, the proposed annual work programmes or the prosed Union-wide TYNDPs do not contribute to non-discrimination, effective competition and the efficient functioning of the market or a sufficient level of cross-border interconnection open to third-party access, or do not comply with the relevant provisions of the Electricity Regulation and the Electricity Directive or the Gas Regulation and the Gas Directive, ACER must react on such shortcomings and failures. It must issue an opinion and also recommendations, and bring them also to the attention of the European Parliament, the Council and the Commission. ACER must do so within only two months, according to

7.59

485 See below section 5.6.3.

339

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

the second subparagraph of Article 32(2) of the Electricity Regulation and the second subparagraph of Article 9(2) of the Gas Regulation.

7.60

Finally, to ensure that the cooperation between TSOs in the electricity and gas sectors proceed in an efficient and transparent way for the benefit of the internal markets for electricity and natural gas, ACER has been explicitly tasked to monitor also the regional cooperation between TSOs.486 Article 5 ACER Regulation “8. ACER shall monitor the regional cooperation of transmission system operators referred to in Article 34 of Regulation (EU) 2019/943 and Article 12 of Regulation (EC) No 715/2009, and shall take into account the outcome of that cooperation when formulating its opinions, recommendations and decisions.”

5.2.3 Regulatory oversight of European and regional entities 7.61

With the expansion of the operational responsibilities of ENTSO-E, the EU DSO entity and the RCCs, it was considered necessary to strengthen and enhance the regulatory oversight of those bodies operating at Union-wide or regional level.487 While the Third Energy Package did not consider the imposition of effective sanctions for ENTSO-E’s or ENTSOG’s failure to comply with their obligations, the Clean Energy Package introduced a legal basis for sanctions regarding ENTSO-E, the EU DSO entity and the RCCs. Remarkably, ENTSOG was not included in this regulatory framework.

7.62

The enforcement of EU legislation and ACER decisions against national entities is a task of the national regulatory authorities. This principle has been applied to ENTSO-E, the EU DSO entity and the RCCs accordingly. The primary responsibility for the oversight of those EU and regional entities rests with the national regulatory authorities, which have to coordinate for that purpose.488 According to Article  59(1)(c) and Article  62(1)(f ) of the Electricity Directive, the relevant regulatory authorities should, in close coordination with each other, ensure compliance with the entity’s obligations under the regulatory framework of the internal energy market and with ACER’s decisions and jointly identify any non-compliance with the respective obligations. If non-compliance has been identified, then, according to Article 59(4) and Article 62(3) of the 486 Recital 12 of the ACER Regulation. 487 Recital 13 of the ACER Regulation. 488 Recital 13 of the ACER Regulation.

340

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Electricity Directive, the regulatory authority located in the Member State in which the entity has its seat is mandated to impose effective, proportionate and dissuasive penalties.

7.63

In addition to the national regulatory authorities, ACER is also overseeing ENTSO-E, the EU DSO entity and the RCCs. Article 4(6) to (8) of the ACER Regulation establishes a framework for this concurrent oversight and ACER’s participation in identifying non-compliance and remedying it.

7.64

Article 4 ACER Regulation “6. The relevant regulatory authorities shall coordinate in order to jointly identify whether there is non-compliance of the EU-DSO entity, the ENTSO for Electricity or regional coordination centres with their obligations under Union law, and shall take appropriate action in accordance with point (c) of Article 59(1) and point (f ) of Article 62(1) of Directive (EU) 2019/944.

At the request of one or more regulatory authorities or at its own initiative, ACER shall issue a reasoned opinion as well as a recommendation to the ENTSO for Electricity, the EU DSO entity or the regional coordination centres with regard to compliance with their obligations.

7. Where a reasoned opinion of ACER identifies a case of potential non-compliance of the ENTSO for Electricity, the EU DSO entity or a regional coordination centre with their respective obligations, the regulatory authorities concerned shall unanimously take coordinated decisions establishing whether there is non-compliance with the relevant obligations and, where applicable, determining the measures to be taken by the ENTSO for Electricity, the EU DSO entity or the regional coordination centre to remedy that non-compliance. Where the regulatory authorities fail to take such coordinated decisions unanimously within four months of the date of receipt of ACER’s reasoned opinion, the matter shall be referred to ACER for a decision pursuant to Article 6(10). 8. Where the non-compliance by the ENTSO for Electricity, the EU DSO entity or a regional coordination centre that was identified pursuant to paragraph 6 or 7 of this Article has not been remedied within three months, or where the regulatory authority in the Member State in which the entity has its seat has not taken action to ensure compliance, ACER shall issue a recommendation to the regulatory authority to take action in accordance with point (c) of Article 59(1) and point (f ) of Article 62(1) of Directive (EU) 2019/944, in order to ensure 341

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel that the ENTSO for Electricity, the EU DSO entity or the regional coordination centre comply with their obligations, and shall inform the Commission.”

7.65

For identifying non-compliance, paragraphs 6 and 7 envisage a two-stage involvement of ACER:

7.66

In a first stage, according to paragraph 6, ACER can get active on its own initiative or upon request of at least one regulatory authority. It issues a reasoned opinion as well as a recommendation to ENTSO-E, the EU DSO entity or the RCCs with regard to potential non-compliance. The reasoned opinion addresses the question whether the relevant entity is in breach of its obligations, and the recommendation deals with the question which measures that entity should take to remedy the breach. Given that ACER’s findings are non-binding and that it is the regulatory authorities’ prerogative to decide, the non-compliance detected by ACER is only a potential one and the remedial measures envisaged by ACER are only a proposal to ENTSO-E, the EU DSO entity or the RCCs.

7.67

If ACER identified a case of potential non-compliance in a reasoned opinion, it has to inform the concerned regulatory authorities so that they are in a position, according to paragraph 7, to take coordinated decisions to confirm noncompliance and, if so, determine the appropriate remedial actions. The competent regulatory authorities are not bound by the reasoned opinion and the recommendation that ACER addresses to the relevant entity. If the regulatory authorities do not endorse ACER’s finding of non-compliance, ACER has no means legally to enforce such non-compliance.

7.68

In the second stage, according to paragraph 7, ACER becomes competent to decide instead of the regulatory authorities where the regulatory authorities failed to take ‘coordinated decisions unanimously within four months’. Given that the regulatory authorities’ decisions cover both the question whether or not there is non-compliance and, in case of non-compliance, the question which measures are to be taken by the relevant entity to remedy that non-compliance, it would be conclusive for ACER to also address these two issues. ACER’s decision will be in accordance with Article 6(10) of the ACER Regulation. This means that here, deviating from the usual arbitration procedure under Article 6(10) of the ACER Regulation, an extension of the period within which the regulatory authorities have to reach an agreement is excluded, according to third subparagraph of Article 6(10), and consequently ACER has to decide within four months (instead of usually six), according to Article 6(12)(a) of the ACER Regulation. 342

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Paragraph 7 seems to suggest that ACER can assume decision-making competence only in a matter for which it had issued already a reasoned opinion. However, regulatory authorities are not required to obtain such opinion from ACER before finding non-compliance. For that reason, Article 59(1)(c) and Article 62(1)(f ) of the Electricity Directive call on ACER to decide in accordance with Article 6(10) of the ACER Regulation where the regulatory authorities have not been able to reach an agreement within a four months period that does not refer to a reasoned opinion of ACER, but to the start of consultations for jointly identifying non-compliance. Such consultations can indeed commence and take place without a reasoned opinion of ACER.

7.69

The fact that ACER’s decision-making competence derives from the responsibilities of more than one regulatory authorities entails a significant limitation. Even where the relevant entity does not comply with an obligation vis-a-vis ACER only, ACER would not be entitled to ascertain such non-compliance by means of a decision.

7.70

Regarding the remedial of non-compliance, it falls to the regulatory authority of the Member State in which the relevant entity has its seat to enforce compliance. Paragraph 8 expects ACER to become active in two instances: first, when the identified non-compliance has not been remedied within three months; and second, when the regulatory authority competent to impose sanctions has not taken action to redress the identified non-compliance. In those cases, ACER should support the competent authority with recommendations for the actions to take in accordance with Article 59(1)(c) and Article 62(1)(f ) of the Electricity Directive and inform the Commission. Interestingly, the latter provisions do not refer to an action other than ensuring compliance and identifying non-compliance.

7.71

5.2.4 Methodology for the use of congestion income The amount to be paid for cross-border access to the system varies depending on the transmission system operator involved and the tarification system applicable, and can result in distortions of trade. To avoid negative effects, harmonized rules are necessary.489 To that end, Article 19 of the Electricity Regulation lays down rules on the use of revenues from congestion management procedures.

7.72

Article 19(2) of the Electricity Regulation defines two priority purposes for which the revenues resulting from the allocation of cross-zonal capacity should be used: (a) for ‘guaranteeing the actual availability of the allocated capacity

7.73

489 Recitals 37 and 38 of the Electricity Regulation.

343

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

including firmness compensation’, and (b) for ‘maintaining or increasing crosszonal capacities through optimisation of the usage of existing interconnectors by means of coordinated remedial actions, where applicable, or covering costs result‑ ing from network investments that are relevant to reduce interconnector conges‑ tion’. Where those priority purposes have been adequately fulfilled, according to Article 19(3) of the Electricity Regulation, the revenues may be used as income to be taken into account by the regulatory authorities when approving the methodology for calculating network tariffs or fixing network tariffs, and the remainder should be placed on a separate internal account line for future use for the priority purposes.

7.74

Article 19(4) of the Electricity Regulation requires a methodology which governs the use of revenues from the allocation of cross-zonal capacity. According to third subparagraph of this provision, this methodology ‘shall set out at least the conditions under which the revenues can be used for the [priority] purposes re‑ ferred to in paragraph 2, the conditions under which those revenues may be placed on a separate internal account line for future use for those purposes, and for how long those revenues may be placed on such an account line’.

7.75

The role of ACER in this context is to approve the congestion income methodology which the TSOs have to propose. Article 4(4) of the ACER Regulation outlines ACER’s competences, which Article 19(4) of the Electricity Regulation details within the procedural framework. Article 4 ACER Regulation “4. ACER, where appropriate, after requesting updates to the drafts submitted by transmission system operators, shall approve the methodology regarding the use of revenues from congestion income pursuant to Article 19(4) of Regulation (EU) 2019/943.

Article 19 Electricity Regulation 4. The use of revenues in accordance with point (a) or (b) of paragraph 2 shall be subject to a methodology proposed by the transmission system operators after consulting regulatory authorities and relevant stakeholders and after approval by ACER. The transmission system operators shall submit the proposed methodology to ACER by 5 July 2020 and ACER shall decide on the proposed methodology within six months of receiving it.

344

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

ACER may request transmission system operators to amend or update the methodology referred to in the first subparagraph. ACER shall decide on the amended or updated methodology not later than six months after its submission.”

The first subparagraph of Article 19(4) of the Electricity Regulation defines when the TSOs have to submit their initial proposal for the congestion income methodology and within which period ACER has to decide on that proposal.

7.76

Unlike for other proposals,490 ACER has not been entrusted with the power to revise or amend itself the proposed methodology in order to approve it. In case of concerns, ACER can only ask the TSOs to reconsider their proposal and amend it in accordance with ACER’s views, or otherwise reject it.

7.77

The second subparagraph of Article 19(4) of the Electricity Regulation appears to take account of such scenario by explicitly recognising ACER’s right to request from the TSOs amendments or updates of the methodology. From the wording, it is not fully clear whether those amendments or updates aim at the proposed methodology submitted by the TSOs, or rather at the methodology already approved by ACER, or even at both the proposed methodology and the approved methodology. By contrast, the corresponding provision of Article 4(4) of the ACER Regulation aims at changes to pending proposals for the methodology when it refers to ‘requesting updates to the drafts’.

7.78

One might argue that even in the absence of an explicit permissive provision, ACER would not be prevented by law to request amendments or updates. The critical factor is the enforcement of such request. In that regard, the second subparagraph of Article 19(4) of the Electricity Regulation and Article 4(4) of the ACER Regulation give rise to uncertainty as they do not lay the ground for a clear time frame within which the TSOs have to resubmit an amended or updated methodology.

7.79

5.2.5 Certification of transmission system operators Under the Electricity and Gas Directives, the TSOs need a certification by national regulatory authorities that they comply with the unbundling requirements. Article 51 of the Electricity Regulation and Article 3 of the Gas Regulation provide for a review of those certification decisions by the Commission and sets out the procedure for this review. In the review process, ACER may play a role. 490 See Article 5(2) and (6) of the ACER Regulation.

345

7.80

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 51 Electricity Regulation491 “1. The Commission shall examine any notification of a decision on the certification of a transmission system operator as laid down in Article 52(6) of Directive (EU) 2019/944 as soon as it is received. Within two months of receipt of such notification, the Commission shall deliver its opinion to the relevant regulatory authority as to its compatibility with Article 43 and either Article 52(2) or Article 53 of Directive (EU) 2019/944.

When preparing the opinion referred to in the first subparagraph, the Commission may request ACER to provide its opinion on the regulatory authority’s decision. In such a case, the two-month period referred to in the first subparagraph shall be extended by two further months.”

7.81

While Article 9(2) of Regulation (EC) No 713/2009 included a reference to ACER’s role in the specific review process for national decisions on the certification of TSOs according to the Electricity and Gas Regulations, the ACER Regulation is silent in that regard. Accordingly, now ACER’s competence to participate in the specific review process derives solely from Article 51 of the Electricity Regulation and Article 3 of the Gas Regulation.

7.82

ACER’s competence is twofold limited: ACER can act only upon request of the Commission, and it can act only through an opinion.

7.83

The Commission is not obliged to involve ACER or, when it has done so, to follow ACER’s opinion.492 Conversely, if requested by the Commission, ACER must issue an opinion on the national certification decision.

7.84

Article 51 of the Electricity Regulation and Article 3 of the Gas Regulation do not set an explicit time period for ACER to issue its opinion. Considering however that according to those provisions the Commission’s two-month period to deliver its opinion shall be extended by two further months in the event of an ACER opinion, ACER will have to provide its opinion within less than two months so the Commission can take into account ACER’s opinion and still deliver on time. 491 Article 3(1) of the Gas Regulation mirrors Article 51(1) of the Electricity Regulation. According to Article 53(6) of the Electricity Directive and Article 11(6) of the Gas Directive the Commission may request the views of ACER also in the context of examining certifications of transmission system operators in relation to third countries. See Chapter 4, para. 4.108 et seq., for details on the certification procedure. 492 See Ermacora, ‘The Agency for the Cooperation of Energy Regulators (ACER)’, in Jones (ed.), EU Energy Law I, The Internal Energy Market, 2010 ed., para. 7.62.

346

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.3 Regulatory authorities 5.3.1 Frame for the cooperation and coordination of regulatory authorities In accordance with its designation as a cooperation body and its statutory objectives, ACER’s core functions in relation to the national regulatory authorities are assisting them in exercising regulatory tasks at Union level and in coordinating their actions.493 Article 6(2) and Article 6(4) of the ACER Regulation provide for the fundamentals of ACER’s mission.

7.85

Article 6 ACER Regulation “2. ACER may, in accordance with its work programme, at the request of the Commission or on its own initiative, make recommendations to assist regulatory authorities and market participants in sharing good practices. 4. ACER shall provide a framework within which the regulatory authorities can cooperate in order to ensure efficient decision-making on issues with cross-border relevance. It shall promote cooperation between the regulatory authorities and between regulatory authorities at regional and Union level and shall take into account the outcome of such cooperation when formulating its opinions, recommendations and decisions. Where ACER considers that binding rules on such cooperation are required, it shall make the appropriate recommendations to the Commission.”

Article 6(2) exemplifies how ACER can assist national regulatory authorities, but also market participants, with regard to the sharing of good practices. To this end, ACER may issue recommendations on its own initiative, or upon the Commission’s request, provided the activity is in line with ACER’s work programme.

7.86

Since the practices which can be relevant in this context are not limited to a specific type, ACER’s recommendations may cover in principle the full range of practices pertinent to the regulatory tasks of national regulatory authorities. An example of such practice are the incentives and the risk assessment concerning projects of common interest according to Article 13(5) of the TEN-E Regulation.494 In this context also technical rules concerning the connection to the system according to Article 8 of the Gas Directive could be relevant.

7.87

493 Article 1(2) of the ACER Regulation. 494 See Section 5.9.5 below.

347

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.88

Article 6(4) outlines the central function for which ACER has been established: providing an ‘ integrated framework which enables the regulatory authorities to participate and cooperate’ and which ‘ facilitates the uniform application of the legislation on the internal markets for electricity and natural gas throughout the Union’.495 The tasks associated with this function have been described rather programmatically: ACER has to enable cooperation among national regulatory authorities, foster it and take into account the outcome for its own opinions, recommendations and decisions. This leaves in practice considerable room of how to implement those tasks. A significant factor to effect cooperation is ACER’s Board of Regulators, given its composition and role.496 Similarly relevant are ACER’s working groups which bring together experts of the national regulators and ACER staff to prepare ACER’s deliverables.

7.89

ACER’s cooperation function is not considered as unilateral and supporting only. The Electricity497 and Gas Directives498 as well as the Gas Regulation499 oblige also the national regulatory authorities to cooperate with ACER.

5.3.2 Review of decisions of national regulatory authorities 7.90

Article 6(5) of the ACER Regulation gives ACER the competence to review the compliance of a national regulatory authority’s decision with sector specific Union legislation. It is complemented by Article 63 of the Electricity Directive and Article 43 of the Gas Directive, which provide for a similar review procedure. Article 6 ACER Regulation “5. ACER shall provide a factual opinion at the request of one or more regulatory authorities or of the Commission, on whether a decision taken by a regulatory authority complies with the network codes and guidelines referred to in Regulation (EU) 2019/943, Regulation (EC) No 715/2009, Directive (EU) 2019/944 or Directive 2009/73/EC or with other relevant provisions of those directives or regulations.

495 Recital 16 of the ACER Regulation. 496 See also Ermacora, ‘The Agency for the Cooperation of Energy Regulators (ACER)’, in Jones (ed.), EU Energy Law I, The Internal Energy Market, 2010 ed., para. 7.56. 497 Article 59(1)(f ). 498 Article 41(1)(c). 499 Article 24.

348

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 6. Where a regulatory authority does not comply with the opinion of ACER referred to in paragraph 5 within four months of the date of receipt, ACER shall inform the Commission and the Member State concerned accordingly.”

Article 63 Electricity Directive500 “1. Any regulatory authority and the Commission may request the opinion of ACER on the compliance of a decision taken by a regulatory authority with the network codes and guidelines referred to in this Directive or in Chapter VII of Regulation (EU) 2019/943. 2. ACER shall provide its opinion to the regulatory authority which has requested it or to the Commission, respectively, and to the regulatory authority which has taken the decision in question within three months of the date of receipt of the request. 3. Where the regulatory authority which has taken the decision does not comply with ACER’s opinion within four months of the date of receipt of that opinion, ACER shall inform the Commission accordingly.”

The scope of ACER’s opinion covers the question whether a decision taken by a national regulatory authority complies with the network codes and guidelines referred to in the Electricity and Gas Directives and the Electricity and Gas Regulations or with other relevant provisions of those Directives or Regulations.

7.91

The basis for ACER’s review are, on the hand, the relevant legal provisions in the Directives and Regulations referred to, as well the network codes and guidelines adopted thereunder, and, on the other hand, the facts of the decision at issue. Though one would assume that a decision of a national regulatory authority will naturally rest on facts and therefore cannot be reasonably assessed without considering the facts which led to the decision, Article 6(5) reinforces the importance of the factual context. In practice, ACER’s assessment will bear on the specific facts and the relevant legal provisions.

7.92

ACER can enter into a formal review of a regulatory authority’s decision only if requested by a national regulatory authority or by the Commission. It is not in the position to undertake a compliance review upon request of other parties or on its own initiative.

7.93

500 For the gas sector, see the equivalent provision in Article 43 of the Gas Directive.

349

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.94

Article 6(5) does not prescribe any consultation requirements. However, in accordance with Article 14 of the ACER Regulation and the principle of good administration, ACER will generally have to give due consideration to the interests of the applicant and the regulatory authority whose decision is under scrutiny, and consult them. Formally, such consultation is different from hearing the parties to a decision-making procedure, as the latter results in a legally binding act, whereas the opinion is non-binding.

7.95

Article 6(5) does not specify any time limit for issuing the opinion, nor any addressees. By contrast, Article 63(2) of the Electricity Directive and Article 43(2) of the Gas Directive do provide clarity on those aspects. They require the opinion to be issued within three months, and to be sent to the requester as well as to the regulatory authority whose decision was under review.

7.96

Given the absence of legally binding effects,501 the opinion cannot be challenged before the Board of Appeal or the Court of Justice, nor can it be directly enforced vis-a-vis the national regulatory authority concerned. Nevertheless, Article 6(6) aims to ensure that it does not remain unnoticed if the regulatory authority concerned would ignore ACER’s finding of non-compliance. It points to a followup process in which the Commission would take the lead role in enforcing potential non-compliance. To that end, ACER has to inform the Commission and the respective Member State if the regulatory authority does not comply with its opinion within four months. It is then up to the Commission and the Member State to take any further measures. For instance, the Commission may launch infringement proceedings under Article 258 TFEU if it considers the action or inaction of the national regulatory authority as against Union law.

7.97

In that regard, Article 63(5) to (8) of the Electricity Directive and Article 43(5) to (8) of the Gas Directive set out a more specific process of how the Commission has to proceed if, following a non-compliance notice by ACER, the Commission finds that the decision raises serious doubts as to its compatibility and decides to examine the case further.

501 See case T-671/15, E-Control v ACER, where the Court, with regard to the previous version of Article 6(5) of the ACER Regulation, i.e. Article 7(4) of Regulation (EC) No 713/2009, held that this provision constitutes a legal basis for the adoption of non-binding opinions and that the contested opinion, given its wording, content and context, is indeed an opinion, non-binding and not a challengeable act under Article 263 TFEU (ECLI:EU:T:2016:626, esp. paras. 59 and 92).

350

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.3.3 Advice on the application of Guidelines Article 6(7) of the ACER Regulation assigns an advisory role to ACER in cases where national regulatory authorities have difficulties with the application of network codes and guidelines adopted according to the Electricity and Gas Directives or the Electricity and Gas Regulations.

7.98

Article 6 ACER Regulation “7. Where, in a specific case, a regulatory authority encounters difficulties with the application of the network codes and guidelines referred to in Regulation (EU) 2019/943, Regulation (EC) No 715/2009, Directive (EU) 2019/944 or Directive 2009/73/EC it may request ACER to provide an opinion. ACER shall deliver its opinion, after consulting the Commission, within three months of the date of receipt of such a request.”

The reference to ‘difficulties with the application of network codes and guidelines’ suggests that ACER can be asked for an interpretation of provisions of the Guidelines. Unlike under Article 6(5) of the ACER Regulation, the other provisions of the Electricity and Gas Directives, and of the Electricity and Gas Regulations, are not mentioned as the subject-matter of such interpretation. Nevertheless, this should not prevent considering also these provisions where they are relevant for the network codes and guidelines as the latter need to be interpreted in consistency with the legal framework on which they are based.

7.99

ACER can issue an opinion only upon request of a national regulatory authority, and only with regard to a specific case. As a consequence, ACER cannot adopt an interpretative opinion at the request of market participants (even if they are parties to proceedings before a national regulatory authority), or on its own initiative. Nor can ACER provide an opinion when the regulatory authority’s request was on an abstract basis and unrelated to a concrete case.

7.100

Before issuing its opinion, ACER must consult the Commission. ACER is not obliged to follow the view expressed by the Commission, though. In addition, it may be appropriate and necessary to consult also on the specificities of the case, in particular the facts to which the relevant legal provision is to apply.

7.101

The opinion needs to be delivered within three months after receipt of the national regulatory authority’s request. ACER’s opinion is not binding.

7.102

351

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.3.4 Operational assistance in REMIT investigations 7.103

Regulatory authorities are responsible for ensuring that the rules prohibiting abusive practices affecting wholesale energy markets under REMIT are enforced. To do so, they must be in a position to effectively investigate potential abusive practices. Therefore, and since market abuse on wholesale energy markets often affects more than one Member State, ACER has been assigned a role in ensuring that investigations of potential REMIT breaches are carried out in an efficient and coherent way, and has been enabled to request cooperation and to coordinate investigation.

7.104

It is this context, to which Article 6(8) of the ACER Regulation refers: Article 6 ACER Regulation “8. Upon the request of a regulatory authority, ACER may provide operational assistance to that regulatory authority regarding investigations pursuant to Regulation (EU) No 1227/2011.”

7.105

More specifically, the second subparagraph of Article 16(2) of REMIT provides that a national regulatory authority may request ACER to take certain actions if that authority suspects that acts affecting wholesale energy markets or the price of wholesale energy products in that Member State are being carried out in another Member State.

7.106

To that end, in accordance with Article 16(4) of REMIT, ACER can request national regulatory authorities to supply any information related to the suspected breach, to commence an investigation of the suspected breach, and to take appropriate action to remedy any breach found, and it can establish and coordinate an investigatory group consisting of representatives of the concerned national regulatory authorities (and possibly also of other relevant authorities) to investigate a potential breach.

7.107

Where ACER has reasonable grounds to suspect that the suspected acts constitute market abuse within the meaning of Directive 2003/6/EC and affect financial instruments subject to Article 9 of that Directive, ACER has to inform the European Securities and Markets Authority (ESMA) and the competent financial authority according to Article 16(3) of REMIT.

352

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.3.5 Reduction of cross-zonal capacities or deviation from ­coordinated actions Cross-zonal capacities are calculated by RCCs in a coordinated way on the basis of data provided by the TSOs.502 Where the calculation does not result in capacity equal to or above the minimum capacities required by the Electricity Regulation,503 RCCs should consider all available remedial actions to further increase capacity up to the minimum capacities.504 Allocating reduced capacity or curtailing allocated capacity should only occur as last resort measures.505 Accordingly, it should be for reasons of operational security when RCCs reduce cross-zonal capacities or when TSOs deviate from the coordinated capacity calculation during the validation of the latter’s outcome.506

7.108

To prevent abuse of last resort measures and to ensure that cross-zonal capacities are not limited to solve congestion inside a bidding zone,507 Article 16(3) of the Electricity Regulation requires the RCCs’ ‘coordinated actions reducing the cross-zonal capacities’ and the TSOs’ ‘[deviations] from coordinated actions in respect of coordinated capacity calculation and coordinated security analysis’ to be monitored. Unjustified reductions or deviations are enforced by the national regulatory authorities.

7.109

To support the national regulatory authorities, ACER participates in the monitoring, as laid down in Article 6(9) of the ACER Regulation and, more specifically, in the third subparagraph of Article 16(3) of the Electricity Regulation:

7.110

Article 6 ACER Regulation “9. ACER shall submit opinions to the relevant regulatory authority and to the Commission pursuant to Article 16(3) of Regulation (EU) 2019/943.”

Article 16 Electricity Regulation “3. […] By  3 months after the entry into operation of the regional coordination centres pursuant to Article  35(2) of this Regulation and every three months 502 503 504 505 506

See Article 16(3) and Article 37(1)(a) of the Electricity Regulation. See Article 15(2) and Article 16(8) of the Electricity Regulation. Recital 20 and Article 16(3) of the Electricity Regulation. Article 16(2) and (3) of the Electricity Regulation. Recital 21 and Article 16(3) of the Electricity Regulation; Article 26(3) of Commission Regulation (EU) 2015/1222. 507 Recital 21 of the Electricity Regulation.

353

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel thereafter, the regional coordination centres shall submit a report to the relevant regulatory authorities and to ACER on any reduction of capacity or deviation from coordinated actions pursuant to the second subparagraph and shall assess the incidences and make recommendations, if necessary, on how to avoid such deviations in the future. If ACER concludes that the prerequisites for a deviation pursuant to this paragraph are not fulfilled or are of a structural nature, ACER shall submit an opinion to the relevant regulatory authorities and to the Commission. The competent regulatory authorities shall take appropriate action against transmission system operators or regional coordination centres pursuant to Article 59 or 62 of Directive (EU) 2019/944 if the prerequisites for a deviation pursuant to this paragraph were not fulfilled.”

7.111

According to the legal text, the RCCs report on ‘any reduction of capacity or deviation from coordinated actions to the second subparagraph’ and recommend ‘ how to avoid such deviations in the future’, and ACER assesses whether ‘the prerequisites for a deviation pursuant to this paragraph are […] fulfilled or are of a structural nature’. Thus, the reporting obligation of RCCs refers to both kind of incidences under the second subparagraph of Article 16(3) of the Electricity Regulation, namely capacity reductions by the RCCs and deviations by TSOs, while ACER’s assessment concerns ‘deviations’. Comparing the wording of those obligations, one could wonder whether the term ‘deviations’ was meant to exclude capacity reductions by RCCs from ACER’s assessment. In fact, the last sentence of the third subparagraph of Article 16(3) of the Electricity Regulation, which holds RCCs liable for breach of the prerequisites of a deviation, confirms that the term ‘deviation’ can indeed be meant in a generic sense, as a departure from the capacity calculation and allocation standard. In addition, the purpose of the monitoring, to ensure cross-zonal capacities be not reduced excessively or because of internal congestions, is relevant also for reductions of capacity by RCCs. This context suggests that ACER’s assessment covers reductions of cross-zonal capacities by RCCs as well as deviations from coordinated actions in respect of coordinated capacity calculation and coordinated security analysis by TSOs.

7.112

ACER has to submit its opinion only where it finds that the prerequisites for the deviations were not fulfilled or that structural congestions were the cause of the deviations. A specific time limit for submitting the opinion to the regulatory authorities and the Commission has not been set.

354

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.3.6 Decisions on technical issues Article 6 ACER Regulation “1. ACER shall adopt individual decisions on technical issues where those decisions are provided for in Regulation (EU) 2019/943, Regulation (EC) No 715/2009, Directive (EU) 2019/944 or Directive 2009/73/EC.”

Article 6(1) of the ACER Regulation tasks ACER with decision-making on technical issues referred to in the Electricity and Gas Directives and the Electricity and Gas Regulations. As such, it does not itself establish any decision-making competence, instead this competence originates from the relevant provisions in the Electricity and Gas Directives and the Electricity and Gas Regulations.

7.113

The Electricity and Gas Directives and the Electricity and Gas Regulations specify several cases in which ACER has the power to adopt decisions. Among those cases, however, only two are not listed in the ACER Regulation and do not refer to the general mediation and settlement competence under Article 6(10) of the ACER Regulation. This is, first, the approval of new tasks for RCCs according to Article 37(5) of the Electricity Regulation and, second, the approval of compliance programmes for joint undertakings through which vertically integrated TSOs cooperate at regional level according to Article 7(4) of the Gas Directive. Even for these two instances, one may wonder to which extent they can qualify as ‘technical issues’.

7.114

Against that background, Article 6(1) is currently of little relevance in practice.

7.115

5.3.7 Decisions on regulatory issues of cross-border trade or cross-border system security From the outset, ACER had a decision-making role in cross-border issues involving more than one regulatory authority, substituting the regulatory authorities in case they could not agree on the decision to be adopted by them or in case they jointly requested ACER to decide.508

7.116

This concept of subsidiary decision-making has been preserved also under the ACER Regulation. In fact, the subsidiary decision making role has been recognised as a core function of ACER, Article 1(2) of the ACER Regulation referring to mediation and settlement of disagreements between regulatory authori-

7.117

508 Article 8(1) of Regulation (EC) No 713/2009.

355

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

ties and Article 2(d) of the ACER Regulation pointing to arbitration between regulators, even though such terminology puts emphasis on the controversial issues and neglects the voluntarily referred ones. The central rules are in Article 6(10) to (13) of the ACER Regulation, establishing the general framework for the operation of the subsidiary decision-making mechanism. Article 6 ACER Regulation “10. ACER shall be competent to adopt individual decisions on regulatory issues having effects on cross-border trade or cross-border system security which require a joint decision by at least two regulatory authorities, where such competences have been conferred on the regulatory authorities under one of the following legal acts: (a) a legislative act of the Union adopted under the ordinary legislative procedure; (b) network codes and guidelines adopted before 4 July 2019 and subsequent revisions of those network codes and guidelines; or (c) network codes and guidelines adopted as implementing acts pursuant to Article 5 of Regulation (EU) No 182/2011.

ACER shall be competent to adopt individual decisions as specified in the first subparagraph in the following situations: (a) where the competent regulatory authorities have not been able to reach an agreement within six months of referral of the case to the last of those regulatory authorities, or within four months in cases under Article 4(7) of this Regulation or under point (c) of Article (59)(1) or point (f ) of Article 62(1) of Directive (EU) 2019/944; or (b) on the basis of a joint request from the competent regulatory authorities.



The competent regulatory authorities may jointly request that the period referred to in point (a) of the second subparagraph of this paragraph be extended by a period of up to six months, except in cases under Article 4(7) of this Regulation or under point (c) of Article 59(1) or point (f ) of Article 62(1) of Directive (EU) 2019/944.

356

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Where the competences to decide on cross-border issues referred to in the first subparagraph have been conferred on the regulatory authorities in new network codes or guidelines adopted as delegated acts after 4 July 2019, ACER shall only be competent on a voluntary basis pursuant to point (b) of the second subparagraph of this paragraph, upon a request from at least 60 % of the competent regulatory authorities. Where only two regulatory authorities are involved, either one may refer the case to ACER.



By 31 October 2023, and every three years thereafter, the Commission shall submit a report to the European Parliament and to the Council on the possible need to further enhance ACER’s involvement in solving cases of disagreement between regulatory authorities concerning joint decisions on matters for which the competences were conferred on those regulatory authorities by a delegated act after 4 July 2019. Where appropriate, the report shall be accompanied by a legislative proposal to modify such powers or to transfer the necessary powers to ACER.

11. When preparing its decision pursuant to paragraph 10, ACER shall consult the regulatory authorities and transmission system operators concerned and shall be informed of the proposals and observations of all the transmission system operators concerned. 12. Where a case has been referred to ACER under paragraph 10, ACER: (a) shall issue a decision within six months of the date of referral, or within four months thereof in cases pursuant to Article 4(7) of this Regulation or point (c) of Article (59)(1) or point (f ) of Article 62(1) of Directive (EU) 2019/944; and (b) may, if necessary, provide an interim decision to ensure that security of supply or operational security is protected. 13. Where the regulatory issues referred to in paragraph 10 include exemptions within the meaning of Article 63 of Regulation (EU) 2019/943, or Article 36 of Directive 2009/73/EC, the deadlines provided for in this Regulation shall not be cumulative with the deadlines provided for in those provisions.”

Article 6(10) establishes a competence for ACER to decide on regulatory issues having effects on cross-border trade or cross-border system security. It bases this competence on joint competences of at least two regulatory authorities, which are primarily competent, and it defines under which conditions the competence to decide must accrue to ACER and under which it can be delegated. 357

7.118

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.119

The relevant regulatory issues, which have effects on cross-border trade or crossborder system security and on which regulatory authorities have to decide jointly, follow essentially from other legal provisions than Article 6 of the ACER Regulation. In that regard, the first and fourth subparagraph of Article 6(10) distinguish four categories of relevant legal acts: legislative acts of the Union adopted under the ordinary legislative procedure, network codes and guidelines adopted before 4 July 2019 and subsequent revisions of those network codes and guidelines, and network codes and guidelines adopted after 4 July 2019 either as implementing acts according to Article 5 of Regulation (EU) No 182/2011 or as delegated acts. Thus, the regulatory authorities’ competence for a particular case needs to derive from Union law, ACER cannot be assigned purely national competencies.

7.120

Explicit examples for regulatory issues in Union legislation adopted under the ordinary legislative procedure are the identification of non-compliance of PanEuropean and regional entities under Article 4(7) of the ACER Regulation or Article (59)(1)(c) and Article 62(1)(f ) of the Electricity Directive, and the derogation from the minimum interconnection capacity to be made available under Article 16(9) of the Electricity Regulation; those provisions expressly refer to Article 6(10) and the decision-making procedure defined therein.

7.121

Furthermore, Article 5(3) and (4) of the ACER Regulation provides for joint competences of regulatory authorities and subsidiary competences of ACER with regard to the approval of terms and conditions or methodologies for implementing network codes or guidelines and in that regard refers also to Article 6(10). Those approval competences are, however, framed in abstract terms, referring to situations where corresponding competences have been granted by a specific legal act of the four categories distinguished in Article 6(10). Given this structure, the approval competences addressed by Article 5(3) and (4) of the ACER Regulation do not genuinely originate from the ordinary legislative procedure.

7.122

Provisions in Union law adopted under the ordinary legislative procedure which do not refer to Article 6(10) but do follow the concept of subsidiary competence concern the exemption of new interconnectors and new infrastructure under, respectively, Article 63(5) of the Electricity Regulation and Article 36(4) of the Gas Directive, the cross-border allocation of investment cost for projects of common interest under Article 12(6) of the TEN-E Regulation, and the approval of methodologies and assumptions for the bidding zone review and alternative bidding zone configurations under Article 14(5) of the Electricity Regulation. 358

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Those provisions do also specify the conditions under which ACER becomes competent and has to decide, thereby partly deviating from Article 6(10). To the extent they conflict with Article 6(10), they prevail as the more specific rules. The deviations leave in fact hardly room for a genuine application of Article 6(10).

7.123

Typical examples of regulatory issues in network codes and guidelines are the approval of terms and conditions or methodologies implementing requirements of those network codes and guidelines and applying supra-nationally. For those Pan-European and regional terms and conditions or methodologies, Article 5(2), (3) and (4) of the ACER Regulation provides for a special competence regime, partly referring to Article 6(10).509 To the extent covered by this special competence regime, the Pan-European or regional terms and conditions or methodologies are to be approved under this specific framework and not directly under Article 6(10). This context suggests that the regulatory issues under network codes or guidelines to which Article 6(10) applies directly will in principle concern other matters than terms and conditions or methodologies.

7.124

The conferral of the decision-making competence from the regulatory authorities to ACER can be mandatory or voluntary, depending on the nature of the legal act from which the regulatory issue and the regulatory authorities’ competences arise.

7.125

The distinction regarding the relevant legal acts is the result of concerns regarding Member States’ involvement in the adoption of new legal acts defining new decision-making issues for which ACER is or might be responsible.510 The concerns targeted in particular the assignment of new issues and competences through network codes and guidelines adopted as delegated acts. To that end, delegated acts have been treated differently: if they concern revisions of network codes or guidelines existing on 4 July 2019 and introduce only ‘amendments which are necessary to take into account the evolution of the market without substantially changing those network codes and guidelines or creating new com‑ petences of ACER’, 511 they are caught by point (b) of the first subparagraph of Article 6(10);512 if they establish new network codes and guidelines after that date, they fall under the special rule of the fourth subparagraph of Article 6(10).

7.126

509 See below section 5.6.6. 510 See Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU En‑ ergy Law XIII, 2020 ed., paras. 7.67 et seq. 511 Recital 17 of the ACER Regulation. 512 See Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU En‑ ergy Law XIII, 2020 ed., para. 7.68.

359

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.127

Thus, where Union legislation adopted under the ordinary legislative procedure, network codes and guidelines adopted before 4 July 2019 and their subsequent revisions, or network codes and guidelines adopted as implementing acts according to Article 5 of Regulation (EU) No 182/2011 are at stake, both a mandatory and a voluntary conferral can apply. Where network codes and guidelines adopted as delegated acts after 4 July 2019 are at issue, only a voluntary conferral, which differs from the one for the other categories of legal acts, is available.

7.128

The mandatory conferral of competence is governed by point (a) of the second subparagraph of Article 6(10). The regulatory authorities lose the decisionmaking competence to ACER if they could not reach an agreement within a certain period of time on how to decide the case brought before them. This period is usually six months with the possibility of an extension by up to additional six months upon a joint request of the regulatory authorities; in a case of noncompliance according to Article 4(7) of the ACER Regulation as well as Article (59)(1)(c) and Article 62(1)(f ) of the Electricity Directive, this period is only four months, without an extension being possible. The six-month period begins once the last of the relevant regulatory authorities received the case; the fourmonth period starts either once the last relevant regulatory authority received a reasoned opinion of ACER according to Article 4(7) of the ACER Regulation or, in the absence thereof, once the relevant regulatory authorities started their consultations for identifying non-compliance according to Article (59)(1)(c) or Article 62(1)(f ) of the Electricity Directive.

7.129

The voluntary conferral of competence is addressed by point (b) of the second subparagraph and by the fourth subparagraph of Article 6(10). Regardless of any disagreement, the regulatory authorities may renounce their decision-making competence and refer the case to ACER for a decision. In principle, this requires, according to point (b) of the second subparagraph of Article 6(10), a joint request of the competent regulatory authorities, i.e. all of them have to agree to refer the case to ACER and to ask ACER for a decision. As an exemption to this rule, unanimity is not required for regulatory issues under new network codes or guidelines adopted as delegated acts after 4 July 2019. For those issues, it is sufficient, according to the fourth subparagraph of Article 6(10), that the request is supported by at least 60 % of the competent regulatory authorities, or, where only two regulatory authorities are competent, by one of them.

7.130

In conclusion, the rules on the mandatory and voluntary conferral render it impossible for a single regulatory authority, and difficult for the minority of the competent regulatory authorities, to halt the decision-making process and in360

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

hibit a decision by ACER.513 Moreover, the mandatory conferral prevents that the regulatory authorities’ decision-making process reaches a deadlock. Conversely, the voluntarily conferral does not address this risk, which could be particularly critical for regulatory issues under new network codes and guidelines adopted as delegated acts after 4 July 2019: in case of disagreement there might not be the required majority, or the will, to refer the case to ACER in accordance with the fourth subparagraph of Article 6(10). Article 6(11) sets out the key principles for ACER’s process. Typically, the underlying proceedings before the regulatory authorities are initiated by TSOs, so that the TSOs’ observations should be made available to ACER and ACER should consult the relevant TSOs and the concerned regulatory authorities before taking its decision. The same principles should apply per analogy if other parties are involved, e.g. NEMOs submitting a proposal for approval, given that the rationale of Article 6(11) applies equally to those parties. In any case, Article 14(5) and (6) of the ACER Regulation establishes a more detailed procedural framework and requires to follow specific rules of procedure, ensuring in particular that any party concerned is heard.

7.131

In accordance with Article 6(12)(a), ACER has to take its decision in general within six months, i.e. within the same amount of time initially available to the regulatory authorities for reaching an agreement. A shorter period, namely four months, applies for decisions in matters of non-compliance of Pan-European and regional entities according to Article 4(7) of the ACER Regulation and Article (59)(1)(c) or Article 62(1)(f ) of the Electricity Directive.514 The decisionmaking period starts with the referral of the case to ACER under Article 6(10), i.e. when the regulatory authorities referred the case to ACER because of their disagreement or with their joint request. An extension of ACER’s decision-­ making period has not been provided for.515

7.132

To ensure protection of security of supply or of operational security, ACER may provide an interim decision according to Article 6(12)(b).

7.133

513 See Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU En‑ ergy Law XIII, 2020 ed., para. 7.72. 514 While not expressly related to Article 6(10) of the ACER Regulation, but conceptually framed as a subsidiary competence, ACER has to decide on an investment request according to Article 12(6) of the TEN-E Regulation and on the methodology and assumptions for a bidding zone review as well as the alternative bidding zone configurations according to Article 14(5) of the Electricity Regulation within only three months. 515 Remarkably, according to the third subparagraph of Article 12(6) of the TEN-E Regulation the threemonth decision making period can be extended in case ACER seeks further information by an additional period of two months, which begins on the day following receipt of the complete information.

361

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.4 Regional coordination centres 7.134

Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation (System Operation Guideline)516 furthered the regional coordination and integration of system operation by formalising the coordination between TSOs. It required them to participate in regional security coordinators, established upon a proposal of the TSOs of a capacity calculation region and with the approval of the national regulatory authorities in those regions, however without imposing a specific regulatory oversight.517

7.135

To further enhance this coordination, the Electricity Regulation established a framework under which the regional security coordinators are replaced by RCCs and under which this coordination is put under direct regulatory oversight. In this oversight ACER is involved given that the RCCs cover several Member States and such coverage calls for supra-national monitoring.518

7.136

In addition to Article 4(6) to (8) of the ACER Regulation, which defines ACER’s part in overseeing the RCCs’ compliance with their obligations under Union law, Article 7 of the ACER Regulation summarises ACER’s responsibilities with regard to RCCs, based on the specific tasks set out in the Electricity Regulation. Article 7 ACER Regulation “1. ACER, in close cooperation with the regulatory authorities and the ENTSO for Electricity, shall monitor and analyse the performance of regional coordination centres, taking into account the reports provided for in Article 46(3) of Regulation (EU) 2019/943. 2. To carry out the tasks referred to in paragraph 1 in an efficient and expeditious manner, ACER shall in particular: (a) decide on the configuration of system operation regions pursuant to Article 36(3) and (4) and issue approvals pursuant to Article 37(2) of Regulation (EU) 2019/943;

516 OJ L 220/1, 25.8.2017. 517 Articles 76 and 77 of the System Operation Guideline. 518 Recital 8 of the ACER Regulation.

362

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel (b) request information from regional coordination centres where appropriate pursuant to Article 46 of Regulation (EU) 2019/943; (c) issue opinions and recommendations to the European Parliament, the Council and the Commission; (d) issue opinions and recommendations to regional coordination centres.”

Article 7 distinguishes between the principal task of monitoring and analysing the RCCs’ performance (para. 1) and the tasks of deciding on the configuration of system operations regions as well as on new assignments to the RCCs, of requesting information from them, and of issuing opinions and recommendations (para. 2). From a systematic point of view, it is the geographical scope of the RCCs that first needs to be defined, by determining the configuration of system operation regions, before those centres can be established according to Article 35 of the Electricity Regulation; following their establishment, ACER can monitor and analyse the RCCs and in that context request information and issue opinions or recommendations.

7.137

5.4.1 Decision on the geographical scope of regional coordination ­centres RCCs cover geographically system operation regions and are established upon a proposal of all TSOs of a system operation region and with the approval of the regulatory authorities of the system operation region, in accordance with Article 35(1) and (2) of the Electricity Regulation. To that end, ENTSO-E makes a proposal for the configuration of the system operation regions, and ACER decides on it. Article 36(1) and (2) of the Electricity Regulation prescribes the requirements for this proposal and the configuration of the system operation regions, Article 36(3) and (4) of the Electricity Regulation frames the decisionmaking procedure of ACER.

7.138

According to Article 36(1) of the Electricity Regulation, ENTSO-E had to develop a proposal specifying which TSOs, bidding zones, bidding zone borders, capacity calculation regions and outage coordination regions are covered by each of the system operation regions and submit it for approval to ACER by 5 January 2020.

7.139

For ACER’s decision on proposed system operation regions, Article 36(3) and (4) specifies the procedure as follows:

7.140

363

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 36 Electricity Regulation “3. Within three months of receipt of the proposal in paragraph 1, ACER shall either approve the proposal defining the system operation regions or propose amendments. In the latter case, ACER shall consult the ENTSO for Electricity before adopting the amendments. The adopted proposal shall be published on ACER’s website. 4. The relevant transmission system operators may submit a proposal to ACER for the amendment of system operation regions defined pursuant to paragraph 1. The process set out in paragraph 3 shall apply.”

7.141

Article 36(3) defines a procedure which applies not only to the first decision on the configuration of system operations regions, but according to Article 36(4) also to any subsequent decision amending the initial configuration. In either case, ACER is not forced to adhere to the proposal, but can amend the proposal in order to approve it (or all the more ask for the submission of amendments of the pending proposal). It has to adopt its decision within three months.

7.142

In that regard it is to note that the decision-making procedures under Article 36(3) and (4) are the same, though they are initiated by different parties: the initial configuration is proposed by ENTSO-E, amendments thereto are suggested by the relevant system operators.

7.143

Remarkably, ACER has not been empowered to prompt changes of the approved configuration of system operation regions. Instead, Article 36(4) assigns such initiative only to the relevant TSOs.

5.4.2 Approval of tasks 7.144

Article 37(1) in conjunction with Annex I of the Electricity Regulation defines the minimum tasks of regional relevance which each RCC should carry out in the entire system operation region where it is established. Where those tasks are not already covered by network codes or guidelines, their execution is conditional upon an approval procedure involving ACER, specified in Article 37(5) of the Electricity Regulation. Similarly, the assignment of additional advisory tasks is subject to a procedure requiring the approval by ACER in accordance with Article 37(2) of the Electricity Regulation.

364

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 37 Electricity Regulation “2. On the basis of a proposal by the Commission or a Member State, the Committee established by Article 68 of Directive (EU) 2019/944 shall issue an opinion on the assignment of new advisory tasks to regional coordination centres. Where that Committee issues a favourable opinion on the assignment of new advisory tasks, the regional coordination centres shall carry out those tasks on the basis of a proposal developed by the ENTSO for Electricity and approved by ACER in accordance with the procedure set out in Article 27. 5. For the tasks set out in this Article and not already covered by the relevant network codes or guidelines, the ENTSO for Electricity shall develop a proposal in accordance with the procedure set out in Article 27. Regional coordination centres shall carry out those tasks on the basis of the proposal following its approval by ACER.”

In both approval proceedings, ENTSO-E has to make a proposal and ACER has to decide on it in accordance with Article 27 of the Electricity Regulation. It follows from of Article 27 of the Electricity Regulation that ACER has to take its decision within three months, and that it is not bound by ENTSO-E’s proposal but can amend it before approving it.519

7.145

5.4.3 Monitoring The performance of RCCs is subject to a multiple monitoring mechanism. First, according to Article 46(1), (3) and (4) of the Electricity Regulation, RCCs themselves have to monitor their operational performance, the implementation and outcome of the coordinated actions and recommendations issued by them and the effectiveness and efficiency of the tasks for which they are responsible, and they have to report on the outcome of this monitoring and the shortcomings found to, inter alia, ENTSO-E, the regulatory authorities in the system operation region and ACER. Second, according to Article 30(2) of the Electricity Regulation, ENTSO-E should identify any shortcomings regarding the performance of RCCs and report them to ACER. Third, according to Article 62(1)(g) of the Electricity Directive, the regulatory authorities of the relevant system operation region should, in close coordination with each other, monitor the performance of system coordination and report annually to ACER in accordance with Article 46 of the Electricity Regulation. Fourth, according to Article 7(1) of the ACER Regulation, ACER has to monitor and analyse the performance of RCCs. 519 See also below section 5.7.1.

365

7.146

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.147

The performance to be monitored and analysed by ACER has not been predefined and, thus, needs to be viewed in the context of the RCCs’ legal tasks as well as of their purpose of coordinating TSOs and ensuring the efficient, secure and reliable operation of the interconnected transmission system. Relevant parameters will be effectiveness and efficiency. Relevant information will be provided in the first place directly by the RCCs, through their monitoring reports and replies to specific requests for information.

7.148

Neither the ACER Regulation nor the Electricity Regulation set a specific time and format for ACER to carry out and complete its monitoring and analysis. The fact that the RCCs and the relevant regulatory authorities should report the findings of their monitoring activities annually, according to Article 46(3) of the Electricity Regulation and Article 62(1)(g) of the Electricity Directive respectively, suggests that ACER’s monitoring cycle should be at least also annual.

5.4.4 Request for information 7.149

Point (b) of Article 7(2) establishes the legal basis for ACER to obtain from the RCCs the information needed to effectively monitor and analyse their performance.

7.150

If the request takes the form of a decision in accordance with Article 2(d) of the ACER Regulation, it requires a favourable opinion of the Board of Regulators according to Article 24(2) of the ACER Regulation.

5.4.5 Opinions and recommendations 7.151

Points (c) and (d) of Article 7(2) provide a specific legal basis for ACER to issue opinions and recommendations concerning the activities of RCCs.

7.152

On the one hand, opinions and recommendations can be addressed to the European Parliament, the Council and the Commission, which allows to bring forward policy issues and proposals for legislative improvements. On the other hand, they can be directed to the RCCs, thereby targeting implementation and regulatory issues immediately. A case for a recommendation specifically considered in the Electricity Regulation concerns incidents where the threshold has been surpassed above which the impact of actions of one or more TSOs in the emergency, blackout or restoration states is deemed significant for other interconnected transmission system: according to point 6.2 of Annex I of the Electricity Regulation ACER may issue recommendations aiming to prevent similar incidents in future. 366

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.5 Nominated electricity market operators Commission Regulation (EU) 2015/1222 establishing a guideline on capacity allocation and congestion management (CACM Regulation) created an institutional and governance framework for power exchanges by requiring the designation of market operators (NEMOs) carrying out tasks related to single day-ahead or single intraday coupling and by subjecting them to regulatory oversight. Given the Union-wide dimension of the NEMOs’ functions, the CACM Regulation integrated ACER into the regulatory framework with monitoring the NEMOs’ progress in establishing and performing the market coupling operator functions, in particular their effectiveness and efficiency, and with approving their proposals for terms and conditions or methodologies where national regulatory authorities could not agree or wanted ACER to decide.520

7.153

Given the Union-wide dimension of the NEMOs’ functions,521 updated by requirements under the Electricity Regulation,522 Article 8 of the ACER Regulation consolidates ACER’s regulatory oversight of NEMOs.

7.154

Article 8 ACER Regulation “In order to ensure that nominated electricity market operators carry out their functions under the Regulation (EU) 2019/943 and Commission Regulation (EU) 2015/1222 (21), ACER shall: (a) monitor the nominated electricity market operators’ progress in establishing the functions under Regulation (EU) 2015/1222; (b) issue recommendations to the Commission in accordance with Article 7(5) of Regulation (EU) 2015/1222; (c) request information from nominated electricity market operators where appropriate.”

Article 8 identifies three types of ACER activities vis-à-vis the NEMOs, namely monitoring, recommending, and requesting information, which are partly predefined by Article 7(5) of the CACM Regulation.

520 Articles 7(5) and 9(11) of the CACM Regulation. 521 Recital 12 of the ACER Regulation. 522 Articles 7 et seq. of the Electricity Regulation.

367

7.155

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 7 Regulation 2015/1222 “5. The Agency shall monitor NEMOs’ progress in establishing and performing the MCO functions, in particular regarding the contractual and regulatory framework and regarding technical preparedness to fulfil the MCO functions. By 12 months after entry into force of this Regulation, the Agency shall report to the Commission whether progress in establishing and performing single day-ahead or intraday coupling is satisfactory.

The Agency may assess the effectiveness and efficiency of establishment and performance of the MCO function at any time. If that assessment demonstrates that the requirements are not fulfilled, the Agency may recommend to the Commission any further measures needed for timely effective and efficient delivery of single day-ahead and intraday coupling.”

5.5.1 Monitoring 7.156

The monitoring under point (a) of Article 8 of the ACER Regulation covers all functions of NEMOs under the CACM Regulation. Those functions follow notably from Article 7 of that Regulation, which defines the NEMOs’ tasks. Most notably, the NEMOs have to implement the market coupling operator (MCO) functions523 which, according to Article 7(2) of the CACM Regulation, should include the following: (i) developing and maintaining the algorithms, systems and procedures for single day-ahead and intraday coupling, (ii) processing input data on cross-zonal capacity and allocation constraints provided by coordinated capacity calculators, (iii)operating the price coupling and continuous trading matching algorithms, and (iv) validating and sending single day-ahead and intraday coupling results to the NEMOs. In accordance with Article 7(5) of the CACM Regulation, ACER should monitor the MCO functions in particular with regard to the contractual and regulatory framework, the technical preparedness, and the effectiveness and efficiency of their establishment and performance.

5.5.2 Request for information 7.157

Point (c) of Article 8 of the ACER Regulation enables ACER to obtain information directly from the NEMOs where appropriate. Under which circumstances such request can be considered as appropriate seems not obvious from 523 According to Article 2(30) of the CACM Regulation, ‘market coupling operator function’ means the task of matching orders from the day-ahead and intraday markets for different bidding zones and simultaneously allocating cross-zonal capacities.

368

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

the legal text. The wording of the first sentence of Article 8 seems to suggest that the request and the requested information are necessary to ensure that the NEMOs carry out their functions under the Electricity Regulation and the CACM Regulation. Yet, neither the request nor the requested information can achieve this objective on their own. It is rather through its monitoring and its recommendations that ACER can contribute to ensuring NEMOs’ compliance with their duties. Accordingly, where ACER needs information from NEMOs to effectively monitor them under point (b) or issue recommendations under point (c), a request for such information is certainly appropriate. If such request for information takes the form of a decision in accordance with Article 2(d) of the ACER Regulation, it requires the Board of Regulators’ favourable opinion according to Article 24(2) of the ACER Regulation. By contrast, a decision requesting information from NEMOs under Article 3(2) of the ACER Regulation is not subject to such favourable opinion of the Board of Regulators.

7.158

5.5.3 Recommendations The recommendations that ACER can issue to the Commission under point (b) are determined by Article 7(5) of the CACM Regulation, setting their prerequisites and subject-matter. According to that provision, if ACER’s assessment shows that the effectiveness and efficiency of the establishment and performance of the MCO function is not fulfilled, ACER can recommend measures for the timely effective and efficient delivery of the single day-ahead and intraday coupling.

7.159

5.6 Development and implementation of network codes and ­guidelines A critical tool for the integration of the markets in electricity and natural gas are network codes and guidelines. They provide for ‘the stepwise implementation and further refinement of common regional and Union-wide rules’.524 Those instruments are typically intended to establish binding, generally applicable rules. Given this nature, ACER was not granted any binding decision-making power for those rules. Still, ACER participates in the development of network codes and guidelines.

524 Recital 19 of the Electricity Regulation.

369

7.160

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 5 ACER Regulation “1. ACER shall participate in the development of network codes in accordance with Article 59 of Regulation (EU) 2019/943 and Article 6 of Regulation (EC) No 715/2009 and of guidelines in accordance with Article 61(6) of Regulation (EU) 2019/943[.]”

7.161

With regard to network codes, ACER is responsible mainly for drafting framework guidelines, which form the basis for network codes envisaged for adoption as Union law acts, for reviewing the proposals for such network codes prepared by the ENTSOs on the basis of the framework guidelines, and for submitting the proposals to the Commission for adoption.525 ACER also reviews those network rules proposed by the ENTSOs which are not meant to be adopted as Union law acts.526 Further, ACER deals with proposals for modifications of binding network codes527 and monitors the implementation of network codes and non-binding network rules.528

7.162

For guidelines, ACER plays a less prominent role, being one of the parties which the Commission needs to consult before adopting or amending guidelines and which can provide its views on the Commission’s intentions.529

5.6.1 Framework guidelines 7.163

ACER’s first important contribution to the development of network codes is to develop the underlying non-binding framework guidelines in an area identified by the Commission as a priority matter.530 Article 5 ACER Regulation “1. ACER […] shall in particular: (a) submit non-binding framework guidelines to the Commission where it is requested to do so under Article 59(4) of Regulation (EU) 2019/943 or Ar525 526 527 528 529 530

Article 59 of the Electricity Regulation and Articles 6 and 8(1) of the Gas Regulation. Article 59(15) of the Electricity Regulation and Article 8(2) of the Gas Regulation. Article 60 of the Electricity Regulation and Article 7 of the Gas Regulation. Article 32(1) of the Electricity Regulation and Article 9(1) of the Gas Regulation. Article 61(6) of the Electricity Regulation and Articles 6(12) and 23(1) of the Gas Regulation. According to Article 59(3) of the Electricity Regulation, the Commission establishes every three years a list of priority areas in which network codes are to be established, according to Article 6(1) of the Gas Regulation it does so each year. Before establishing this priority list the Commission has to consult ACER, the ENTSOs and the relevant stakeholders.

370

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel ticle 6(2) of Regulation (EC) No 715/2009. ACER shall review the framework guidelines and re-submit them to the Commission where requested to do so under Article 59(7) of Regulation (EU) 2019/943 or Article 6(4) of Regulation (EC) No 715/2009;”

The process for developing framework guidelines is set out in Article 59(4) to (8) of the Electricity Regulation, and similarly in Article 6(2) to (5) of the Gas Regulation. Article 59 Electricity Regulation531 “4. The Commission shall request ACER to submit to it within a reasonable period not exceeding six months of receipt of the Commission’s request non-binding framework guidelines setting out clear and objective principles for the development of network codes relating to the areas identified in the priority list (framework guideline). The request of the Commission may include conditions which the framework guideline shall address. Each framework guideline shall contribute to market integration, non-discrimination, effective competition, and the efficient functioning of the market. Upon a reasoned request from ACER, the Commission may extend the period for submitting the guidelines. 5. ACER shall consult the ENTSO for Electricity, the EU DSO entity, and the other relevant stakeholders in regard to the framework guideline, during a period of no less than two months, in an open and transparent manner. 6. ACER shall submit a non-binding framework guideline to the Commission where requested to do so under paragraph 4. 7. If the Commission considers that the framework guideline does not contribute to market integration, non-discrimination, effective competition and the efficient functioning of the market, it may request ACER to review the framework guideline within a reasonable period and resubmit it to the Commission. 8. If ACER fails to submit or resubmit a framework guideline within the period set by the Commission under paragraph 4 or 7, the Commission shall develop the framework guideline in question.”

531 See also the mirror provisions for gas in Article 6(2) to (5) of the Gas Regulation.

371

7.164

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.165

As exemplified by Article 59 of the Electricity Regulation, ACER’s competence for drafting framework guidelines hinges on the Commission, namely its request to prepare a specific framework guideline (para. 4).

7.166

Following such request, ACER has to prepare a framework guideline setting out clear and objective principles for the development of a network code in the relevant area and contributing to market integration532, non-discrimination, effective competition and the efficient functioning of the market (para. 4). For this purpose, ACER must consult the concerned ENTSO and other relevant stakeholders, which includes for the electricity sector in any event the EU DSO entity, during a period of no less than two months, in an open and transparent manner (para. 5), and it must adopt the framework guideline and submit it to the Commission within a reasonable period of time not exceeding six months, which the Commission may extend upon ACER’s reasoned request (para. 4).

7.167

If the Commission considers the framework guideline submitted by ACER as not contributing to market integration,533 non-discrimination, effective competition and the efficient functioning of the market, it can request ACER to review it within a reasonable period of time and re-submit it (para. 7).

7.168

If ACER fails to submit or re-submit the framework guideline on time, the Commission is obliged to elaborate itself the framework guideline (para. 8). In such case, the framework guideline will be adopted by the Commission, and not by ACER.

7.169

The adoption of the framework guideline by ACER does not require a favourable opinion of the Board of Regulators according to Article 24(2) of the ACER Regulation.

5.6.2 Proposals for binding network codes 7.170

The preparation of a network code on the basis of a framework guideline lies primarily with the ENTSOs and, where applicable, the EU DSO entity. Accordingly, ACER’s involvement in this process consists in the first place in reviewing the proposal of a network code prepared by one of those entities and in the second place, where they fail to do so, in developing itself such proposal.

532 This aspect is not yet included in the Gas Regulation. 533 This aspect is not yet included in the Gas Regulation.

372

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

The extent of ACER’s review varies in electricity and natural gas matters. Though ACER assesses in both fields the proposed network code with regard to its consistency with the relevant framework guideline and with regard to the necessary degree of harmonisation, it can only issue an opinion to ENTSO-G, which the latter may or may not comply with, whereas it has the power to amend a proposal for electricity sector network codes and then send the amended proposal directly to the Commission for adoption. The reason for this difference is that ‘[e]xperience with the development and adoption of network codes has shown that it is useful to streamline the development procedure by clarifying that ACER has the right to revise draft electricity network codes before submitting them to the Commission’, 534 and that the Clean Energy Package implemented this experience in the Electricity Regulation, but not in the Gas Regulation. This adjustment is highlight in Article 5 of the ACER Regulation. Article 5 ACER Regulation “1. ACER […] shall in particular:

[…] (b) provide a reasoned opinion to the ENTSO for Gas on the network code in accordance with Article 6(7) of Regulation (EC) No 715/2009; (c) revise the network code in accordance with Article 59(11) of Regulation (EU) 2019/943 and Article 6(9) of Regulation (EC) No 715/2009. In its revision, ACER shall take account of the views provided by the parties involved during the drafting of that revised network code led by the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity, and shall consult the relevant stakeholders on the version to be submitted to the Commission. For this purpose, ACER may use the committee established under the network codes where appropriate. ACER shall report to the Commission on the outcome of the consultations. Subsequently, ACER shall submit the revised network code to the Commission in accordance with Article 59(11) of Regulation (EU) 2019/943 and Article 6(9) of Regulation (EC) No 715/2009. Where the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity have failed to develop a network code, ACER shall prepare and submit a draft network code to the Commission where it is requested to do so under Article 59(12) of Regulation (EU) 2019/943 or Article 6(10) of Regulation (EC) No 715/2009;”

534 Recital 62 of the Electricity Regulation.

373

7.171

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.172

The process for proposing network codes is set out in Article 59(9) to (14) of the Electricity Regulation, and, subject to the deviation in terms of review powers, similarly in Article 6(6) to (11) of the Gas Regulation. Article 59 Electricity Regulation535 “9. The Commission shall request the ENTSO for Electricity or, where provided for in the priority list referred to in paragraph 3, the EU DSO entity in cooperation with the ENTSO for Electricity, to submit a proposal for a network code in accordance with the relevant framework guideline, to ACER within a reasonable period, not exceeding 12 months, of receipt of the Commission’s request. 10. The ENTSO for Electricity, or where provided for in the priority list referred to in paragraph 3 the EU DSO entity, in cooperation with the ENTSO for Electricity, shall convene a drafting committee to support it in the network code development process. The drafting committee shall consist of representatives of ACER, the ENTSO for Electricity, where appropriate the EU DSO entity and NEMOs, and a limited number of the main affected stakeholders. The ENTSO for Electricity or where provided for in the priority list pursuant to paragraph 3 the EU DSO entity, in cooperation with the ENTSO for Electricity, shall develop proposals for network codes in the areas referred to in paragraphs 1 and 2 where so requested by the Commission in accordance with paragraph 9. 11. ACER shall revise the proposed network code to ensure that the network code to be adopted complies with the relevant framework guidelines and contributes to market integration, non-discrimination, effective competition, and the efficient functioning of the market and, submit the revised network code to the Commission within six months of receipt of the proposal. In the proposal submitted to the Commission, ACER shall take into account the views provided by all involved parties during the drafting of the proposal led by the ENTSO for Electricity or the EU DSO entity and shall consult the relevant stakeholders on the version to be submitted to the Commission. 12. Where the ENTSO for Electricity or the EU DSO entity have failed to develop a network code within the period set by the Commission under paragraph 9, the Commission may request ACER to prepare a draft network code on the basis of the relevant framework guideline. ACER may launch a further consultation in the course of preparing a draft network code under this paragraph. ACER shall submit a draft network code prepared under this paragraph to the Commission and may recommend that it be adopted. 535 See also the mirror provision for gas in Article 6(6) to (11) of the Gas Regulation.

374

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 13. The Commission may adopt, on its own initiative, where the ENTSO for Electricity or the EU DSO entity have failed to develop a network code, or ACER has failed to develop a draft network code as referred to in paragraph 12, or upon the proposal of ACER under paragraph 11, one or more network codes in the areas listed in paragraphs 1 and 2. 14. Where the Commission proposes to adopt a network code on its own initiative, the Commission shall consult ACER, the ENTSO for Electricity and all relevant stakeholders in regard to the draft network code during a period of no less than two months.”

As illustrated by Article 59 of the Electricity Regulation, ACER’s involvement in the preparation of network codes depends on ENTSO-E’s or, where applicable, the EU DSO entity’s proposal, or the absence of such proposal (paras. 11 and 12).

7.173

Following the submission of a proposal for a network code by ENTSO-E, or by the EU DSO entity in cooperation with ENTSO-E, ACER has to assess whether the proposal complies with the relevant framework guideline and contributes to market integration, non-discrimination, effective competition, and the efficient functioning of the market, to revise, where necessary, the proposal to ensure the required compliance and contribution, and to submit the proposal to the Commission within six months of its receipt (para. 11). To that end, ACER must take into account the views provided by all involved parties during the drafting of the initial proposal and must consult the relevant stakeholders on the version to be submitted to the Commission (para. 11).

7.174

If ENTSO-E or the EU DSO entity failed to develop the network code within the time frame fixed by the Commission, the Commission can request ACER to prepare the network code (paras. 12). In that case, ACER may, but is not obliged to, consult stakeholders, and must submit its proposal for the network code to the Commission. A minimum time limit for this submission has not been set by law.

7.175

The Commission is not obliged to adopt a network code submitted by ACER or to follow ACER’s opinion. If the Commission adopts the submitted network code, the network code becomes legally binding.

7.176

Article 6 of the Gas Regulation deviates from this process in terms of ACER’s review power, which is narrower. Under this regime, ACER has to issue a reasoned

7.177

375

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

opinion on the proposed network code to ENTSO-G within three months (paras. 6 and 7). For this opinion, ACER is not obliged to consult stakeholders. Where ACER considers the proposed network code as not in line with the framework guideline, the Gas Regulation does not explicitly require ACER to take or refrain from a specific action. In particular, there is no legal provision expressly preventing ACER from submitting to the Commission a network code which it deems as not in line with the framework guideline. In this context it is however relevant that ENTSO-G may amend the network code in the light of ACER’s opinion and re-submit it to ACER (para. (8). While ENTSO-G should be able to make use of this right and to modify its proposed network code in accordance with ACER’s opinion, there may also be cases where ENTSO-G does not want to re-submit a network code which addresses ACER’s concerns or where it re-submits a network code which is again not line with the framework guideline, and explicitly or implicitly waives its right of amendment. One could argue that in such cases, also in the interest of an overall effective process, ACER may submit the network code to the Commission without depriving ENTSOG of its right of amendment. When ACER is satisfied that the network code is in line with the relevant framework guideline, it must submit the network code to the Commission and, in addition, can recommend to the Commission the adoption of the network code within a reasonable time period (para. 9).

5.6.3 Proposals for non-binding network rules 7.178

ACER’s role in the ENTSOs’ development of non-binding rules in areas relevant for network codes is not mandatory and confined to providing an opinion to the ENTSOs. Article 4 ACER Regulation “3. ACER may provide an opinion: (a) to the ENTSO for Electricity in accordance with point (a) of Article 30(1) of Regulation (EU) 2019/943 and to the ENTSO for Gas in accordance with Article 8(2) of Regulation (EC) No 715/2009 on the network codes;”

376

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 30 Electricity Regulation “1. The ENTSO for Electricity shall: (a) develop network codes in the areas set out in Article 59(1) and (2) with a view to achieving the objectives set out in Article 28;

Article 8 Gas Regulation 2. The ENTSO for Gas may elaborate network codes in the areas set out in paragraph 6 with a view to achieving the objectives set out in Article 4 where those network codes do not relate to areas covered by a request addressed to it by the Commission. Those network codes shall be submitted to the Agency for an opinion. That opinion shall be duly taken into account by the ENTSO for Gas.”

Article 8(2) of the Gas Regulation concerns network codes which have been adopted by ENTSOG and consequently are not binding Union law. For Article 30(1) of the Electricity Regulation, this context is less clear. Point (a) of Article 30(1) provides that ENTSO-E ‘shall […] develop network codes in the areas set out in Article 59(1) and (2) with a view to achieving the objectives set out in Article 28’, thereby imposing a requirement on ENTSO-E to develop network codes. It is not obvious that this requirement concerns non-binding network codes, similar to Article 8(2) of the Gas Regulation. Interestingly, Article 4(3) (b) of the ACER Regulation, like Article 5(1)(d) of the ACER Regulation, assumes that ENTSO-E can indeed elaborate non-binding network codes ‘ in ac‑ cordance with point (a) of Article 30(1) of Regulation (EU) 2019/943’, such as ENTSO-G can do ‘ in accordance with Article 8(2) of Regulation (EC) No 715/2009’.

7.179

Accordingly, the ENTSOs may elaborate also on their own initiative, without a Commission’s request, rules in the areas identified for network codes, in order to promote the completion and functioning of the internal electricity and natural gas markets and cross-border trade, and to ensure the optimal management, coordinated operation and sound technical evolution of the European electricity and natural gas transmission networks.536

7.180

Before adopting such network rules, the relevant ENTSO must submit it to ACER for an opinion. It is then at ACER’s discretion whether it assesses the proposed network rules and issues an opinion thereon, or not. Article 4(3)(a)

7.181

536 Article 28(1) of the Electricity Regulation and Article 4 of the Gas Regulation.

377

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

of the ACER Regulation, Article30(1) of the Electricity Regulation and Article 8(2) of the Gas Regulation do not specify any criteria which ACER has to consider for its assessment and opinion, nor any time limit within which to conclude its assessment. In view of the specific purpose to promote the completion and functioning of the internal market and cross-border trade and to ensure the optimal management, coordinated operation and sound technical evolution of the European transmission network, it seems reasonable that ACER verifies whether the proposed non-binding network rules meet this purpose. In terms of timing, a reasonable reference point could be the six-month period within which ACER has to review network codes proposed by the ENTSOs for adoption by the Commission.

7.182

In addition, Article 59(15) of the Electricity Regulation refers to a ‘non-binding guidance’ by ENTSO-E, and provides for a similar approach as for non-binding network codes. Article 59 Electricity Regulation “15. This Article shall be without prejudice to the Commission’s right to adopt and amend the guidelines as laid down in Article 61. It shall be without prejudice to the possibility for the ENTSO for Electricity to develop non-binding guidance in the areas set out in paragraphs 1 and 2 where such guidance does not relate to areas covered by a request addressed to the ENTSO for Electricity by the Commission. The ENTSO for Electricity shall submit any such guidance to ACER for an opinion and shall duly take that opinion into account.”

7.183

According to Article 59(15) of the Electricity Regulation, ENTSO-E may elaborate guidance documents on rules in the areas identified for network codes, and must submit any such guidance before its adoption to ACER for opinion. Also here, ACER is not required to issue an opinion.

5.6.4 Amendments of network codes 7.184

Both the Electricity Regulation and the Gas Regulation provide for a specific procedure for the amendment of network codes adopted by the Commission, involving also ACER. While this procedure was identical under both regulations before the adoption of the Clean Energy Package, it now slightly differs, Article 60 of the Electricity Regulation reflecting an update of Article 7 of the Gas Regulation.

378

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 60 Electricity Regulation “1. The Commission is empowered to amend the network codes within the areas listed in Article 59(1) and (2) in accordance with the relevant procedure set out in that Article. ACER may also propose amendments to the networks codes in accordance with paragraphs 2 and 3 of this Article. 2. Persons who are likely to have an interest in any network code adopted under Article 59, including the ENTSO for Electricity, the EU DSO entity, regulatory authorities, transmission system operators, distribution system operators, system users and consumers, may propose draft amendments to that network code to ACER. ACER may also propose amendments on its own initiative. 3. ACER may make reasoned proposals to the Commission for amendments, explaining how such proposals are consistent with the objectives of the network codes set out in Article 59(3) of this Regulation. Where it considers an amendment proposal to be admissible and where it proposes amendments on its own initiative, ACER shall consult all stakeholders in accordance with Article 14 of Regulation (EU) 2019/942.”

Article 7 Gas Regulation “1. Draft amendments to any network code adopted under Article 6 may be proposed to the Agency by persons who are likely to have an interest in that network code, including the ENTSO for Gas, transmission system operators, network users and consumers. The Agency may also propose amendments of its own initiative. 2. The Agency shall consult all stakeholders in accordance with Article 10 of Regulation (EC) No 713/2009. Following this process, the Agency may make reasoned proposals for amendments to the Commission, explaining how such proposals are consistent with the objectives of the network codes set out in Article 6(2) of this Regulation. 3. The Commission may adopt, taking account of the Agency’s proposals, amendments to any network code adopted under Article 6. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 28(2).

379

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 4. Consideration of proposed amendments under the procedure set out in Article 28(2) shall be limited to consideration of the aspects related to the proposed amendment. Those proposed amendments are without prejudice to other amendments which the Commission may propose.”

7.185

ACER’s role in the amendment procedure is to collect proposals for amendments from persons who are likely to have an interest in the respective network code, to assess those proposals, and on that basis, but also on its own initiative, propose amendments to the Commission. The Commission then decides whether or not to introduce the relevant procedure for adopting amendments.

7.186

Despite textual differences between Article 60(3) of the Electricity Regulation and Article 7(2) of the Gas Regulation, the essentials for ACER’s proposals are in principle the same for electricity and natural gas. The proposals have to undergo consultation with all stakeholders in accordance with Article 14 of the ACER Regulation before they are submitted to the Commission, and they have to be supported by an explanation how the proposals are consistent with the objectives of the relevant network code.

7.187

As regards proposals of persons who are likely to have an interest in the network code, Article 60(3) of the Electricity Regulation indicates an admissibility requirement that needs to be fulfilled in order to trigger a mandatory consultation. Criteria for the admissibility are not defined. From the context it is clear though that a proposal, to be formally relevant, must stem from a person who is likely to have an interest in the network code and that it must be suitable for consultation, i.e. be so clear, specific and substantiated that ACER is able to provide the consulted parties with a reasonable opportunity to comment on the proposed amendment.537 An amendment proposal not satisfying those criteria (in terms of person and content) could be considered inadmissible by ACER.

7.188

Article 7 of the Gas Regulation does not expressly mention admissibility. However, paragraphs 1 and 2 thereof do also link third party proposals to persons who are likely to have an interest in the network code and to consultations. Implicitly, these two aspects entail admissibility considerations equivalent to Article 60(3) of the Electricity Regulation.

7.189

In any event, ACER is entitled, but not obliged to submit amendment proposals to the Commission. 537 Recital 25 of the ACER Regulation.

380

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.6.5 Monitoring the implementation of network codes and guidelines ‘The effective monitoring of network codes and guidelines is a key function of ACER and is crucial to the implementation of internal market rules.’ 538 ACER has to monitor the implementation not only of network codes and guidelines adopted as Union law acts but also of network codes that were finally not adopted by the Commission or, according to their purpose, were adopted merely by the ENTSOs. Article 5 ACER Regulation “1. ACER […] shall in particular: (d) provide a duly reasoned opinion to the Commission, in accordance with Article 32(1) of Regulation (EU) 2019/943 or Article 9(1) of Regulation (EC) No 715/2009, where the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity has failed to implement a network code elaborated under point (a) of Article 30(1) of Regulation (EU) 2019/943 or Article 8(2) of Regulation (EC) No 715/2009 or a network code which has been established in accordance with Article 59(3) to (12) of Regulation (EU) 2019/943 and Article 6(1) to (10) of Regulation (EC) No 715/2009 but which has not been adopted by the Commission under Article 59(13) of Regulation (EU) 2019/943 and under Article 6(11) of Regulation (EC) No 715/2009. (e) monitor and analyse the implementation of the network codes adopted by the Commission in accordance with Article 59 of Regulation (EU) 2019/943 and Article 6 of Regulation (EC) No 715/2009 and the guidelines adopted in accordance with Article 61 of Regulation (EU) 2019/943, and their effect on the harmonisation of applicable rules aimed at facilitating market integration as well as on non-discrimination, effective competition and the efficient functioning of the market, and report to the Commission.”

538 Recital 19 of the ACER Regulation.

381

7.190

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 32 Electricity Regulation “1. […]

ACER shall monitor the implementation by the ENTSO for Electricity of network codes developed under Article 59. Where the ENTSO for Electricity has failed to implement such network codes, ACER shall request the ENTSO for Electricity to provide a duly reasoned explanation as to why it has failed to do so. ACER shall inform the Commission of that explanation and provide its opinion thereon.



ACER shall monitor and analyse the implementation of the network codes and the guidelines adopted by the Commission as laid down in Article 58(1), and their effect on the harmonisation of applicable rules aimed at facilitating market integration as well as on non-discrimination, effective competition and the efficient functioning of the market, and report to the Commission.”

Article 9 Gas Regulation “1. […] The Agency shall monitor the execution of the tasks referred to in Article 8(1), (2) and (3) of the ENTSO for Electricity and report to the Commission.

7.191



The Agency shall monitor the implementation by the ENTSO for Gas of network codes elaborated under Article 8(2) and network codes which have been developed in accordance with Article 6(1) to (10) but which have not been adopted by the Commission under Article 6(11). Where the ENTSO for Gas has failed to implement such network codes, the Agency shall request the ENTSO for Gas to provide a duly reasoned explanation as to why it has failed to do so. The Agency shall inform the Commission of that explanation and provide its opinion thereon.



The Agency shall monitor and analyse the implementation of the network codes and the Guidelines adopted by the Commission as laid down in Article 6(11), and their effect on the harmonisation of applicable rules aimed at facilitating market integration as well as on non-discrimination, effective competition and the efficient functioning of the market, and report to the Commission.”

Article 5(1)(e) of the ACER Regulation governs the monitoring of network codes and guidelines adopted as legally binding acts by the Commission. It mirrors partly the third subparagraph of Article 32(1) of the Electricity Regulation and partly the third subparagraph of Article 9(1) of the Gas Regulation. 382

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

The scope of the implementation monitoring covers network codes adopted by the Commission in the area of electricity and national gas, as well as Commission Guidelines concerning the electricity areas listed in Article 61 of the Electricity Regulation.

7.192

The elements that ACER has to analyse have been specified as the effects of network codes and guidelines on the harmonisation of the relevant rules, on nondiscrimination, on effective competition and on the efficient functioning of the market. The form of output has been defined as a report. On the other hand, the frequency of the monitoring and of the report has not been determined by law. This allows focused monitoring, taking into account progress in the implementation of the different network codes and Guidelines and considering relevant market developments.

7.193

In addition, Article 5(1)(d) of the ACER Regulation requires to monitor the implementation of network codes which did not become Union law acts, be it that they were adopted by ENTSO-E or ENTSO-G or be it that they were developed by ENTSO-E, the EU DSO entity or ENTSO-G upon request of the Commission and for adoption by the Commission, but failed to obtain this adoption. This requirement seems to mirror partly the second subparagraph of Article 32(1) of the Electricity Regulation and partly the second subparagraph of Article 9(1) of the Gas Regulation.

7.194

Yet, those two provisions do differ considerably in their wording: the second subparagraph of Article 32(1) of the Electricity Regulation refers to ‘network codes developed in accordance with Article  59’, thereby rather indicating network codes to be adopted by the Commission; the second subparagraph of Article 9(1) of the Gas Regulation concerns ‘network codes elaborated under Article 8(2) and network codes which have been developed in accordance with Article 6(1) to (10) but which have not been adopted by the Commission under Article 6(11)’, i.e. only non-binding acts.

7.195

Nevertheless, from Article 5(1)(d) of the ACER Regulation it is clear that ACER should monitor the implementation of non-binding network codes by the ENTSOs, ask for a duly reasoned explanation in case of failed implementation, and inform the Commission of that explanation and provide an opinion thereon. Also here, the frequency of the monitoring and of the reasoned opinion has not been set by law.

7.196

383

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.197

As already mentioned, Article 59(15) of the Electricity Regulation also provides for a kind of non-binding network rules, which is labelled as ‘non-binding guidance’. For the implementation of this guidance, ACER has not been assigned a specific monitoring role.

5.6.6 Approval of Union-wide or regional terms and conditions or methodologies for the implementation of network codes and guidelines 7.198

The development of the first network codes showed that it would be difficult to establish an exhaustive ‘all-inclusive’ set of rules that would not require implementing measures. Initially drafted as network codes, those rules were finally adopted as guidelines triggering a process of further specification for a number of requirements. Terms and conditions or methodologies had to be adopted. The adoption process has been set out in the guidelines established before the Clean Energy Package as follows (in accordance with Article 8(1) of Regulation (EC) No 713/2009):

7.199

The terms and conditions have to be developed and proposed by the relevant market actors, which are in most of the cases the TSOs, and be approved within a certain period, in principle six months. Depending on their scope of application (national, regional or Union-wide), they are approved by the relevant national regulatory authority, by the regulatory authorities of the relevant region or by all regulatory authorities. If the proposal is not fit for approval, the regulatory authority(ies) can ask the relevant market actors to amend the proposal accordingly. Where in case of regional or Union-wide proposals the regulatory authorities cannot reach an agreement on the approval in time, ACER has to decide on the proposal. In addition, the regulatory authorities can voluntarily refer the case to ACER by a joint request for a decision.

7.200

Such system of regulatory oversight bears the risk of considerable and unnecessary delay, where the regulatory authorities cannot agree because of an inappropriate proposal or of diverging interests; moreover, it has an inherent potential for inconsistent regional solutions if the internal market objectives are not sufficiently taken into account.

7.201

The Clean Energy Package tried to address these shortcomings in Article 5(2), (3) and (6) of the ACER Regulation, by streamlining the approval procedure through earlier involvement of ACER and explicit recognition of revision powers for the regulatory authorities and ACER. It did so however only for terms 384

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

and conditions or methodologies that are developed under rules either existing at the entry into force of the ACER Regulation (i.e. on 4 July 2019), including their later revisions,539 or under rules newly adopted in the ordinary legislative procedure or as implementing acts. By contrast, for terms and conditions or methodologies required under new network codes or guidelines adopted as delegated acts after the entry into force of the ACER Regulation, Article 5(4) of the ACER Regulation preserves in principle the old regime. To the extent the new procedural framework deviates from the procedures established by the existing network codes and guidelines, the latter have been derogated.540

7.202

5.6.6.1 Union-wide terms and conditions or methodologies For the adoption of Union-wide terms and conditions or methodologies, the approval process is under the sole responsibility of ACER. Article 5 ACER Regulation “2. Where one of the following legal acts provides for the development of proposals for common terms and conditions or methodologies for the implementation of network codes and guidelines which require the approval of all regulatory authorities, those proposals for common terms and conditions or methodologies shall be submitted to ACER for revision and approval: (a) a legislative act of the Union adopted under the ordinary legislative procedure; (b) network codes and guidelines adopted before 4 July 2019 and subsequent revisions of those network codes and guidelines; or (c) network codes and guidelines adopted as implementing acts pursuant to Article 5 of Regulation (EU) No 182/2011 of the European Parliament and of the Council.”

539 See Recital 17 of the ACER Regulation. 540 See Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU En‑ ergy Law XIII, 2020 ed., para. 7.80.

385

7.203

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.204

Article 5(2) provides that the Pan-European proposals should be submitted directly to and approved by ACER, instead of all national regulatory authorities as provided for in one of the listed legal acts.

7.205

According to the letter of the law, ACER’s decision-making competence does not arise directly out of the Union-wide applicability of the terms and conditions or methodologies. Instead, it is tied to the fact that the listed legal acts require the approval of all regulatory authorities. Technically, such dependence allows bringing the existing network codes and guidelines under the new procedural regime without amending them individually. Applying the same logic to ACER’s competence under new network codes and guidelines, however, goes at the expense of simple and clear rules: those new rules will always need to require an approval by all regulatory authorities, although this approval requirement will not become effective as such, for the sole reason of triggering ACER’s primary decision-making competence under Article 5(2).

7.206

Article 5(6) of the ACER Regulation provides further details of the procedure.541 In particular, it requires ACER to take its decision within the period specified in the relevant network codes and guidelines, which is in general 6 months.

5.6.6.2 Regional terms and conditions or methodologies 7.207

For the adoption of regional terms and conditions or methodologies, the approval process follows in general the typical sequence of responsibilities, i.e. first the national regulatory authorities and then ACER, but with the innovative feature that ACER can claim primary responsibility. Article 5 ACER Regulation “3. Where one of the following legal acts provides for the development of proposals for terms and conditions or methodologies for the implementation of network codes and guidelines which require the approval of all the regulatory authorities of the region concerned, those regulatory authorities shall agree unanimously on the common terms and conditions or methodologies to be approved by each of those regulatory authorities: (a) a legislative act of the Union adopted under the ordinary legislative procedure;

541 See below section 5.6.6.3.

386

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel (b) network codes and guidelines that were adopted before 4 July 2019 and subsequent revisions of those network codes and guidelines; or (c) network codes and guidelines adopted as implementing acts pursuant to Article 5 of Regulation (EU) No 182/2011.

The proposals referred to in the first subparagraph shall be notified to ACER within one week of their submission to those regulatory authorities. The regulatory authorities may refer the proposals to ACER for approval pursuant to point (b) of the second subparagraph of Article 6(10) and shall do so pursuant to point (a) of the second subparagraph of Article 6(10) where there is no unanimous agreement as referred to in the first subparagraph.



The Director or the Board of Regulators, acting on its own initiative or on a proposal from one or more of its members, may require the regulatory authorities of the region concerned to refer the proposal to ACER for approval. Such a request shall be limited to cases in which the regionally agreed proposal would have a tangible impact on the internal energy market or on security of supply beyond the region.”

Article 5(3) stipulates that in general the regional proposals should be submitted to and approved unanimously by the regulatory authorities of the region; where the latter fail to reach an agreement within six months or where they request a decision by ACER, ACER should mediate and settle the matter in accordance with the second subparagraph of Article 6(10) of the ACER Regulation. This principle reflects the standard approval practice under the Third Energy Package.

7.208

By way of derogation from this principle, ACER is now entitled to seize the case and approve instead of the regulatory authorities (regardless of any disagreement or request by them) where the regional terms and conditions or methodologies have a tangible impact on the internal energy market or on security of supply beyond the region. What constitutes a tangible impact has not been defined by legislation. Relevant aspects to consider could be the potential to contribute to best practices, the impact on load flows beyond the region, and the impact on processes of an RCC concerning more than one region.542 To give effect to ACER’s right to a regional decision, the regulatory authorities concerned must be required to refer the case. Interestingly, according to the legal text, not ACER, but the Director or the Board of Regulators have to effectuate this requirement.

7.209

542 See Minutes of the 84th ACER Board of Regulators Meeting of 17 July 2019, A19-BoR-84-02, p. 7.

387

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.210

Article 5(6) of the ACER Regulation provides further details of the procedure.543 Amongst others, it implies that the regulatory authorities will have to take their decision within six months in accordance with point (a) of the second subparagraph of Article 6(10) of the ACER Regulation.

5.6.6.3 Approval procedure 7.211

For Union-wide and regional terms and conditions or methodologies according to Article 5(2) and (3), i.e. those under new network codes and guideline adopted as delegated acts after 4 July 2019, Article 5(6) of the ACER Regulation provides a right for the approving regulatory authorities and, if competent, ACER to revise the proposal submitted for approval: Article 5 ACER Regulation “6. Before approving the terms and conditions or methodologies referred to in paragraphs 2 and 3, the regulatory authorities, or, where competent, ACER, shall revise them where necessary, after consulting the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity, in order to ensure that they are in line with the purpose of the network code or guideline and contribute to market integration, non-discrimination, effective competition and the proper functioning of the market. ACER shall take a decision on the approval within the period specified in the relevant network codes and guidelines. That period shall begin on the day following that on which the proposal was referred to ACER.”

7.212

The regulatory authorities and ACER are not restricted to just approve or dismiss the proposed terms and conditions or methodologies. Nor are they required, in case they deem the proposal as not approvable, to ask the proposing market actors for amendments and submission of the amended proposal. Instead, as part of their decision-making competence, the regulatory authorities and ACER, themselves, can implement the changes which they consider necessary with regard to the purpose of the relevant network code or guideline and to the objectives of market integration, non-discrimination, effective competition and the proper functioning of the market. If they do so, they have to take account of the concerned market actors’ right to be heard as parties on the issues requiring changes. Notwithstanding that, the regulatory authorities and ACER have been explicitly required to consult the relevant EU entity (ENTSO-E, ENTSOG or the EU DSO entity). 543 See below section 5.6.6.3.

388

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Despite its purpose to ensure efficient proceedings, the competence to revise does not preclude the regulatory authorities or ACER from requesting the relevant market actors to amend their proposal. In fact, such request could be appropriate where the regulatory authorities or ACER lack the technical expertise to concretise the necessary amendments and guarantee their implementation.

7.213

Interestingly, ACER’s power to effectuate changes to proposed terms and conditions or methodologies has no equivalent legal tool with regard to changes of approved terms and conditions or methodologies. For instance, in the area of resource adequacy and risk preparedness, Article 27(4) of the Electricity Regulation and Article 5(7) and Article 8(5) of the Risk Preparedness Regulation do enshrine ACER’s right to request from ENTSO-E changes of the approved methodologies.

7.214

5.6.6.4 Delegated acts To address concerns that ACER should not be granted new decision-making powers without adequate involvement of the Council and the European Parliament, Article 5(4) of the ACER Regulation provides a different regime, along the past competence model, for both Union-wide and regional terms and conditions or methodologies to be developed under network codes or guidelines adopted after 4 July 2019 as delegated acts.

7.215

Article 5 ACER Regulation “4. Without prejudice to paragraphs 2 and 3, ACER shall be competent to take a decision pursuant to Article 6(10) where the competent regulatory authorities fail to agree on terms and conditions or methodologies for the implementation of new network codes and guidelines adopted after 4 July 2019 as delegated acts, where those terms and conditions or methodologies require the approval of all the regulatory authorities or of all the regulatory authorities of the region concerned.”

The national regulatory authorities are responsible in the first place to approve the terms and conditions or methodologies under ‘new’ delegated actes, while ACER has subsidiary decision-making powers in accordance with Article 6(10) of the ACER Regulation if the regulatory authorities fail to reach an agreement. The exact scope of ACER’s competence is not clear, though:

389

7.216

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.217

Article 5(4) refers first to ACER’s competence ‘to take a decision pursuant to Article 6(10)’. Under Article 6(10) of the ACER Regulation, ACER can take a decision in two situations, i.e. where the regulatory authorities fail to reach an agreement or where they voluntarily refer the case to ACER (second subparagraph); in the special case of new network codes or guidelines adopted as delegated acts, ACER can decide only where the regulatory authorities make a voluntary referral (fourth subparagraph).

7.218

This could imply that the decision under Article 5(4), as it concerns solely new network codes and guidelines adopted as delegated acts, is in accordance with Article 6(10) only if, according to the fourth subparagraph thereof, the regulatory authorities requested such decision, regardless of whether or not they fail to reach an agreement on the terms and conditions or methodologies.

7.219

However, Article 5(4) links ACER’s decision-making competence also explicitly to a situation ‘where the competent regulatory authorities fail to agree on terms and conditions or methodologies’. If this wording was subordinated to the fourth subparagraph of Article 6(10), it would imply that due to their failure to reach an agreement the relevant regulatory authorities jointly request ACER for a decision, thereby ‘voluntarily’ referring the case to ACER. Such interpretation, however, would not adequately take into account that the wording of Article 5(4) requires ACER to decide. The reference to the failure to agree would effectively become irrelevant if ACER’s competence depended on a voluntary action of the regulatory authorities. Conversely, a referral would no longer be voluntary if the regulatory authorities had to request ACER to decide on the very ground that they failed to agree.544

7.220

Apparently, the reference in Article 5(4) to the regulatory authorities’ failure to agree as the trigger situation for ACER’s decision-making competence is similar to the condition in point (a) of the second subparagraph of Article 6(10), i.e. inability to reach an agreement. In the context of Article 6(10), the regulatory authorities’ failure to reach an agreement does not provoke a mandatory conferral of competences in cases that involve regulatory issues under new network codes or guidelines adopted as delegated acts. Yet, this does not necessarily mean that decisions on the specific regulatory issues of terms and conditions or methodologies should be treated in the same way.

544 A practical problem would be to determine which of the concerned regulatory authorities would be obliged to support the request so that it is endorsed by at least 60% of them.

390

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

First, it seems reasonable that the existing subsidiarity approach, as reflected in Article 5(3), is applied also to terms and conditions or methodologies implementing new network codes or guidelines adopted as delegated acts: it allows overcoming a deadlock in the proceedings before the regulatory authorities. Second, such application can be consistent with the fourth subparagraph of Article 6(10): Article 5(4) provides a special rule for terms and conditions or methodologies, complementary to the general rule of the fourth subparagraph of Article 6(10).545

7.221

In that sense: mandatory conferral where the regulatory authorities fail to reach an agreement within six months, and voluntary conferral where at least 60% of the competent regulatory authorities (or one of two) request so.546

7.222

5.6.7 Bidding zone review The CACM Regulation established a process for the review of bidding zones. In that process, ACER participates in two ways: it reports on the impact of the current bidding zone configuration on market efficiency every three years and may request the TSOs to launch a bidding zone review.547

7.223

The Clean Energy Package has assigned ACER a possible role also in the execution of the review, as indicated in Article 5(7) of the ACER Regulation and specified in Article 14(5) of the Electricity Regulation.

7.224

Article 5 ACER Regulation “7. ACER shall carry out its tasks as regards the bidding zone review pursuant to Article 14(5) of Regulation (EU) 2019/943.

Article 14 Electricity Regulation 5. By 5  October 2019 all relevant transmission system operators shall submit a proposal for the methodology and assumptions that are to be used in the bidding zone review process and for the alternative bidding zone configurations to 545 But see Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU Energy Law XIII, 2020 ed., paras. 7.92-7.96. 546 Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU Energy Law XIII, 2020 ed., para. 7.99, suggests that in case of the regulatory authorities’ failure to agree within six months, ‘they should refer the case to ACER pursuant to the 4th subparagraph of Article 6(10), hence with a 60% majority’. 547 Articles 32 and 34 of Commission Regulation (EU) 2015/1222.

391

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel be considered to the relevant regulatory authorities for approval. The relevant regulatory authorities shall take a unanimous decision on the proposal within 3 months of submission of the proposal. Where the regulatory authorities are unable to reach a unanimous decision on the proposal within that time frame, ACER shall, within an additional three months, decide on the methodology and assumptions and the alternative bidding zone configurations to be considered. The methodology shall be based on structural congestions which are not expected to be overcome within the following three years, taking due account of tangible progress on infrastructure development projects that are expected to be realised within the following three years.”

7.225

Article 14(5) of the Electricity Regulation requires a special bidding zone review to be carried out after the entry into force of that regulation. To that end, TSOs must propose a methodology and assumptions as well as alternative bidding zone configurations to the national regulatory authorities for approval, which have to decide unanimously within three months. If the regulatory authorities fail to do so, ACER has to take this decision within three months.

7.226

Conceptually, ACER’s decision-making powers derive from its mediation and settlement function, though neither Article 14(5) of the Electricity Regulation nor Article 5(7) of the ACER Regulation refers to Article 6(10) of the ACER Regulation.

5.7 Generation adequacy and risk preparedness 7.227

ACER’s role with regard to ensuring security of supply started to evolve first in field of natural gas, notably with Regulation (EU) 2017/1938 concerning measures to safeguard the security of gas supply (Security of Gas Supply Regulation). This role has been expanded to the electricity sector with the introduction of a coordinated European adequacy assessment of electricity generation and a common EU-wide approach to identifying risks relating to the security of electricity supply, under the Electricity Regulation and the Risk Preparedness Regulation. For the most part, ACER performs this role through decision-making powers, deciding on cross-border allocation of investment costs (natural gas) and coordinated methodologies (electricity).

7.228

Article 9 of the ACER Regulation recaps the relevant ACER tasks rooted in the Electricity Regulation, the Risk Preparedness Regulation and the Security of Gas Supply Regulation; the exact scope of the respective tasks follows from these sector regulations. 392

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 9 ACER Regulation “1. ACER shall approve and amend where necessary: (a) the proposals for methodologies and calculations related to the European resource adequacy assessment pursuant to Article 23(3), (4), (6) and (7) of Regulation (EU) 2019/943; (b) the proposals for technical specifications for cross-border participation in capacity mechanisms pursuant to Article 26(11) of Regulation (EU) 2019/943. 2. ACER shall provide an opinion pursuant to Article 24(3) of Regulation (EU) 2019/941548 on whether the differences between the national resource adequacy assessment and the European resource adequacy assessment are justified. 3. ACER shall approve and amend where necessary the methodologies for: (a) identifying electricity crisis scenarios at a regional level pursuant to Article 5 of Regulation (EU) 2019/941; (b) short-term and seasonal adequacy assessments pursuant to Article 8 of Regulation (EU) 2019/941. 4. With respect to the security of gas supply, ACER shall be represented in the Gas Coordination Group in accordance with Article 4 of Regulation (EU) 2017/1938, and shall carry out its obligations regarding permanent bi-directional capacity of interconnections for gas under Annex III to Regulation (EU) 2017/1938.”

5.7.1 European resource adequacy assessment and cross-border ­participation in capacity mechanisms To avoid problems of fragmented national resource adequacy assessments which arise when different assessment methods are applied and when situations in neighbouring countries are not sufficiently taken into account, the coordinated approach to a European resource adequacy assessment is developed in coopera-

548 Article 9(2) refers to Regulation (EU) 2019/941. This is erroneous. The correct reference should be to Article 24(3) of Regulation (EU) 2019/943.

393

7.229

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

tion between ENTSO-E and ACER, with ACER taking the final decision.549 ENTSO-E has to make a proposal for the respective methodologies and assessments, and ACER has to approve them. To that end, Articles 23 and 26 of the Electricity Regulation set out the requirements for the preparation of the methodologies and calculations related to the European generation adequacy assessment as well as of the methodologies and rules for the participation of capacity providers in capacity mechanisms in other Member States, Article 27 of the Electricity Regulation prescribes the decision-making procedure of ACER.

7.230

According to Article 23(3), (6) and (7) of the Electricity Regulation, ENTSOE had to draft a methodology for the European resource adequacy assessment and methodologies for calculating the value of lost load, the cost of new entry for generation, or demand response, and the reliability standard and to submit the respective proposals for approval to ACER by 5 January 2020. Furthermore, according to Article 23 of the Electricity Regulation, ENTSO-E has to submit also ‘the scenarios, sensitivities and assumptions on which they are based’, and the results of the annual European resource adequacy assessment for approval to ACER. In that regard, it is however not clear which scenarios, sensitivities and assumptions are actually meant: those underlying the draft methodologies and/ or those which are the basis of each annual assessment?550

7.231

According to Article 26(11) of the Electricity Regulation, ENTSO-E has to propose a methodology for calculating the maximum entry capacity for crossborder participation, a methodology for sharing revenues, common rules for the carrying out of availability checks, common rules for determining when a non-availability payment is due, terms of the operation of the registry of eligible capacity provides, and common rules for identifying capacity eligible to participate in the capacity mechanism and submit them for approval to ACER by 5 July 2020.

7.232

For ACER’s decisions concerning the European resource adequacy assessment as well as the cross-border participation in capacity mechanisms, Article 27 of the Electricity Regulation lays out the same procedure for the approvals:

549 Recital 5 of the ACER Regulation. 550 In this context, the draft report PE609.625v01-00, p. 86, of the European Parliament’s ITRE committee explains that the European resource adequacy assessment must be fully transparent, including the underlying scenarios and assumptions, to be adequately scrutinised by stakeholders.

394

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 27 Electricity Regulation “3. Within three months of the date of receipt of the proposal referred to in paragraph 1, ACER shall either approve or amend it. In the latter case, ACER shall consult the ENTSO for Electricity before approving the amended proposal. ACER shall publish the approved proposal on its website within three months of the date of receipt of the proposed documents. 4. ACER may request changes to the approved proposal at any time. Within six months of the date of receipt of such a request, the ENTSO for Electricity shall submit a draft of the proposed changes to ACER. Within three months of the date of receipt of the draft, ACER shall amend or approve the changes and publish those changes on its website.”

Article 27 distinguishes between the decision on the initial proposal (para. 3) and the decision on subsequent proposals for amendments to the approved proposal (para. 4). The main elements of the two procedures are however the same. In both cases, ACER is not bound by ENTSO-E’s proposal, but can itself amend it when necessary (though this does not preclude to ask ENTSO-E for an amended proposal) and has to take its decision within three months.

7.233

ACER’s right to amend can help ensure an efficient decision-making procedure, avoiding unnecessary back and forth between ACER and ENTSO-E. Inherently, it reaches its limits where ACER depends on the input and expertise of ENTSO-E. This is particularly obvious for changes to approved proposals under paragraph 4 in that ACER can amend approved proposals not directly, but only once ENTSO-E submitted a proposal for changes following ACER’s request.

7.234

5.7.2 National resource adequacy assessments Since the European resource adequacy assessment may be complemented by national resource adequacy assessments of a regional scope according to Article 20(1) and Article 24 of the Electricity Regulation, there is a potential of different conclusions on adequacy and, accordingly, the need for a mechanism to reconcile diverging results. Article 24(3) defines this mechanism, which is concluded by a non-binding assessment of ACER.

395

7.235

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 24 Electricity Regulation “3. Where the national resource adequacy assessment identifies an adequacy concern with regard to a bidding zone that was not identified in the European resource adequacy assessment, the national resource adequacy assessment shall include the reasons for the divergence between the two resource adequacy assessments, including details of the sensitivities used and the underlying assumptions. Member States shall publish that assessment and submit it to ACER.

7.236



Within two months of the date of the receipt of the report, ACER shall provide an opinion on whether the differences between the national resource adequacy assessment and the European resource adequacy assessment are justified.



The body that is responsible for the national resource adequacy assessment shall take due account of ACER’s opinion, and where necessary shall amend its assessment. Where it decides not to take ACER’s opinion fully into account, the body that is responsible for the national resource adequacy assessment shall publish a report with detailed reasons.”

Based on the Member States’ explanations, ACER has to assess whether or not the differences between the European and the national assessment are justified and issue its opinion within two months. Though not explicitly stated, this opinion should be sent to the Member State concerned, in any case it must be published according to Article 24(2) of the Electricity Regulation.

5.7.3 Risk preparedness – security of electricity supply 7.237

To ensure the coherence of risk assessments which are reliable for Member States in an electricity crisis and to improve short-term adequacy assessments,551 a common approach for identifying risk scenarios and detecting adequacy related problems in short time-frames is developed mainly by cooperation of ENTSOE and ACER, the former proposing and the latter deciding. Articles 5 and 8 of the Risk Preparedness Regulation define the requirements for the preparation of the methodologies for the identification of electricity crisis scenarios and of the methodologies for short-term assessments, as well as the decision-making process of ACER.

551 Recitals 13 and 17 of the Risk Preparedness Regulation.

396

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

According to Article 5(1) of the Risk Preparedness Regulation, ENTSO-E had to submit a proposal for a methodology for identifying the most relevant regional electricity crisis scenarios for approval to ACER by 5 January 2020.

7.238

According to Article 8(1) of the Risk Preparedness Regulation, ENTSO-E had to submit a proposal for a methodology for assessing seasonal and short-term adequacy, namely monthly, week-ahead to at least day-ahead adequacy, for approval to ACER by 5 January 2020.

7.239

For ACER’s decisions concerning risk identification and short-term adequacy assessment, Article 5(6) and (7) as well as Article 8(4) and (5) of the Risk Preparedness Regulation set out in principle the same process:

7.240

Article 5 Risk Preparedness Regulation “6. Within two months of receipt of the proposed methodology, ACER shall, after consulting the ECG, in its formation composed only of representatives of the Member States, approve or amend the proposal. The ENTSO for Electricity and ACER shall publish the final version of the methodology on their websites. 7. The ENTSO for Electricity shall update and improve the methodology in accordance with paragraphs 1 to 6 where significant new information becomes available. The ECG in its formation composed only of representatives of the Member States may recommend, and ACER or the Commission may request, such updates and improvements with due justification. Within six months of receipt of the request, the ENTSO for Electricity shall submit to ACER a draft of the proposed changes. Within two months of receipt of such a draft, ACER shall, after consulting the ECG, in its formation composed only of representatives of the Member States, approve or amend the proposed changes. The ENTSO for Electricity and ACER shall publish the final version of the updated methodology on their websites.”

Article 8 Risk Preparedness Regulation “4. Within two months of receipt of the proposed methodology, ACER shall, after consulting the ECG in its formation composed only of representatives of the Member States, approve or amend the proposal. The ENTSO for Electricity and ACER shall publish the final version of the methodology on their websites.

397

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 5. The ENTSO for Electricity shall update and improve the methodology in accordance with paragraphs 1 to 4 where significant new information becomes available. The ECG in its formation composed only of representatives of the Member States may recommend, and ACER or the Commission may request, such updates and improvements with due justification. Within six months of receipt of the request, the ENTSO for Electricity shall submit to ACER a draft of the proposed changes. Within two months of receipt of such a draft, ACER shall, after consulting the ECG, in its formation composed only of representatives of the Member States, approve or amend the proposed changes. The ENTSO for Electricity and ACER shall publish the final version of the updated methodology on their websites.”

7.241

Both Article 5 and Article 8 provide for a procedure for the approval of the initial methodologies and a procedure for the approval of updates of the approved methodologies. The key elements and steps are the same: ACER has to consult the Member States via the Electricity Coordination Group, it can amend ENTSO-E’s proposal when necessary, and it has to issue its decision within two months.

7.242

Similar to the procedure concerning the European resource adequacy assessment as well as the cross-border participation in capacity mechanisms under Article 27 of the Electricity Regulation, ACER can initiate also changes to the approved methodologies for risk identification and short-term adequacy assessment, by requesting ENTSO-E to make a proposal accordingly. The requested changes must be justified.

5.7.4 Security of gas supply 7.243

According to Article 5(4) of the Security of Gas Supply Regulation, as a rule, TSOs are obliged to enable permanent physical capacity to transport gas in both directions (‘bi-directional capacity’) on the interconnections between Member States; there is however also a possibility to be exempted from that obligation.

7.244

To implement this approach, Annex III of the Security of Gas Supply Regulation defines a procedure. The TSOs on both sides of an interconnection must submit either a proposal to enable permanent physical reverse flow capacity or a request for an exemption from the obligation to enable bi-directional capacity to both their regulatory authorities and their competent authorities. Then, first, the regulatory authorities are to reach an agreement and take coordinated decisions on the cross-border allocation of investment costs to be borne by each 398

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

transmission system operator of the project within six months, and, subsequently, the competent national authorities have to take coordinated decisions on the proposal or the exemption request within two months. Where the regulatory authorities or the competent authorities failed to so, the Commission is called to adopt a decision; that decision, however, must not cover cross-border cost allocation. In that process, Annex III assigns to ACER a role with regard to the cross-border allocation of investment costs: Annex III Security of Gas Supply Regulation “8. Within three months of receipt of the coordinated decision in accordance with point 6, the Agency shall issue an opinion on the elements of the coordinated decision taking into account any possible objection and submit the opinion to all competent authorities concerned and the competent authorities referred to in point 6 and to the Commission. 10. If the competent authorities concerned were not able to adopt a coordinated decision within the deadline set out in point 5 or if the regulatory authorities concerned could not reach an agreement on the cost allocation within the deadline set out in point 4, the competent authorities concerned shall inform the Agency and the Commission at the latest on the day of the expiry of the deadline. Within four months of receipt of that information, the Commission, after possible consultation with the Agency, shall adopt a decision covering all elements of a coordinated decision listed in point 5 with the exception of a cross-border cost allocation and submit that decision to the competent authorities concerned and the Agency. 11. If the Commission decision pursuant to point 10 of this Annex, requires bidirectional capacity, the Agency shall adopt a decision covering the cross-border cost allocation in line with Article 5(7) of this Regulation within three months of receipt of the Commission decision. Before taking such a decision, the Agency shall consult the regulatory authorities concerned and the transmission system operators. The three-month period may be extended by an additional period of two months where the Agency has to request additional information. The additional period shall begin on the day following receipt of the complete information.”

399

7.245

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.246

First, where the regulatory authorities took a coordinated decision on the cross border cost allocation, ACER is required to issue an opinion on the elements of that decision, taking into account any possible objection, and submit the opinion to all relevant authorities and to the Commission within three months of receipt of the coordinated decision, in accordance with point 8 of Annex III.

7.247

Second, where the Commission has to take a decision, ACER can be consulted by the Commission in accordance with point 10 of Annex III.

7.248

Third, where the Commission took a decision that required bi-directional capacity, ACER is to adopt a decision on the cross-border cost allocation within three months of receipt of the Commission decision, which period can be extended by two months in case of a request for information, in accordance with point 11 of Annex III. Before taking the decision, ACER must consult the regulatory authorities concerned and the TSOs.

7.249

According to Article 24(2) of the ACER Regulation, the ACER decision on the cross-border cost allocation does not require a favourable of the Board of Regulators.

5.7.5 Technical guidance on the calculation of CO2 emission values in the context of capacity mechanisms Article 22 Electricity Regulation “4. Capacity mechanisms shall incorporate the following requirements regarding CO2 emission limits: (a) from 4 July 2019 at the latest, generation capacity that started commercial production on or after that date and that emits more than 550 g of CO2 of fossil fuel origin per kWh of electricity shall not be committed or to receive payments or commitments for future payments under a capacity mechanism; (b) from 1 July 2025 at the latest, generation capacity that started commercial production before 4 July 2019 and that emits more than 550 g of CO2 of fossil fuel origin per kWh of electricity and more than 350 kg CO2 of fossil fuel origin on average per year per installed kWe shall not be committed or receive payments or commitments for future payments under a capacity mechanism.

400

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

The emission limit of 550 g CO2 of fossil fuel origin per kWh of electricity and the limit of 350 kg CO2 of fossil fuel origin on average per year per installed kWe referred to in points (a) and (b) of the first subparagraph shall be calculated on the basis of the design efficiency of the generation unit meaning the net efficiency at nominal capacity under the relevant standards provided for by the International Organization for Standardization.



By 5 January 2020, ACER shall publish an opinion providing technical guidance related to the calculation of the values referred in the first subparagraph.”

Article 22 of the Electricity Regulation establishes several requirements for the design of capacity mechanisms which Member States introduce, as a last resort and subject to Articles 107, 108 and 109 of the TFEU, to address resource adequacy concerns. One of those requirements consists in incorporating specific CO2 emission limits into the capacity mechanism, to ensure that financial support for generation adequacy is also compatible with the EU’s environmental objectives. Under those limits, subsidies to generation capacity emitting more than 550 g CO2 per KWh are to be phased out.

7.250

With regard to the application of the emission limits, Article 22(4) assigns an advisory role to ACER. ACER had to adopt and publish an opinion providing technical guidance on the calculation of the specific emission values by 5 January 2020.552 The fact that the opinion has been linked to a concrete date ensures that it was timely available for the Member States. It does not mean that ACER should be excluded to issue further opinions in that regard, updating the initial opinion.

7.251

5.8 Exemptions for major new infrastructure To promote investments in major new infrastructure, while ensuring the proper functioning of the internal market for electricity and natural gas, Article 63 of the Electricity Regulation and Article 36 of the Gas Directive provide for the possibility to exempt new direct current interconnectors and major new gas infrastructure projects, i.e. interconnectors, LNG and storage facilities, from the rules on third party access, unbundling and regulatory intervention.553

552 ACER Opinion no 22/2019 of 17 December 2019. 553 Recital 66 of the Electricity Regulation and Recital 35 of the Gas Directive. See also Chapter 11 regarding the substantive issues relating to such exemptions.

401

7.252

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.253

In the exemption proceedings, ACER can have a decision-making role, as pointed point out by Article 10 of the ACER Regulation. The specific conditions under which ACER fulfils this role originate from the concept of subsidiary decision-making competence and are laid down in Article 63 of the Electricity Regulation and Article 36 of the Gas Directive. Article 10 ACER Regulation “ACER shall decide on exemptions, as provided for in Article 63(5) of Regulation (EU) 2019/943[.] ACER shall also decide on exemptions as provided for in Article 36(4) of Directive 2009/73/EC where the infrastructure concerned is located in the territory of more than one Member State.

Article 63 Electricity Regulation 4. The decision granting an exemption as referred to in paragraphs 1, 2 and 3 shall be taken on a case-by-case basis by the regulatory authorities of the Member States concerned. An exemption may cover all or part of the capacity of the new interconnector, or of the existing interconnector with significantly increased capacity.

Within two months of receipt of the request for exemption by the last of the regulatory authorities concerned, ACER may provide those regulatory authorities with an opinion. The regulatory authorities may base their decision on that opinion.

5. The decision referred to in paragraph 4 shall be taken by the Agency: (a) where the regulatory authorities concerned have not been able to reach an agreement within six months from the date on which the last of those regulatory authorities received the exemption request; or (b) upon a joint request from the regulatory authorities concerned.

Before taking such a decision, the Agency shall consult the regulatory authorities concerned and the applicants.”

402

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 36 Gas Directive “5. Where the infrastructure in question is located in the territory of more than one Member State, the Agency may submit an advisory opinion to the regulatory authorities of the Member States concerned, which may be used as a basis for their decision, within two months from the date on which the request for exemption was received by the last of those regulatory authorities.

Where all the regulatory authorities concerned agree on the request for exemption within six months of the date on which it was received by the last of the regulatory authorities, they shall inform the Agency of their decision.



Where the infrastructure concerned is a transmission line between a Member State and a third country, before the adoption of the decision on the exemption, the national regulatory authority, or where appropriate another competent authority of the Member State where the first interconnection point with the Member States’ network is located, may consult the relevant authority of that third country with a view to ensuring, as regards the infrastructure concerned, that this Directive is applied consistently in the territory and, where applicable, in the territorial sea of that Member State. Where the third country authority consulted does not respond to the consultation within a reasonable time or within a set deadline not exceeding three months, the national regulatory authority concerned may adopt the necessary decision.



The Agency shall exercise the tasks conferred on the regulatory authorities of the Member States concerned by the present Article: (a) where all regulatory authorities concerned have not been able to reach an agreement within a period of six months from the date on which the request for exemption was received by the last of those regulatory authorities; or (b) upon a joint request from the regulatory authorities concerned.



All regulatory authorities concerned may, jointly, request that the period referred to in point (a) of the third subparagraph is extended by up to three months.”

6. Before taking a decision, the Agency shall consult the relevant regulatory authorities and the applicants.”

403

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.254

Similar to Article 6(10) of the ACER Regulation, it is in the first place the regulatory authorities which decide on a request to grant an exemption, and only where they fail to agree within six months or where they jointly confer the case, ACER attains competence to decide.

7.255

Interestingly, regarding the six-month period for the regulatory authorities to agree, the Gas Directive explicitly allows for an extension by up to three months upon request of all regulatory authorities concerned (Article 36(5)), whereas the Electricity Regulation is silent in that respect.

7.256

Unlike for regulatory authorities, neither the Electricity Regulation nor the Gas Directive sets a specific time limit within which ACER has to take its decision.

7.257

In addition, ACER has in any event advisory competences in relation to the regulatory authorities: it may provide the regulatory authorities with an opinion on the pending exemption request, according to Article 63(4) of the Electricity Regulation and Article 36(5) of the Gas Directive.

5.9 Infrastructure 7.258

ACER’s contribution to energy network development consists first and foremost in assessing the non-binding Union-wide 10-year network development plans (TYNDPs), prepared by ENTSO-E and ENTSOG, and in monitoring the implementation of those plans as well as, in accordance with the guidelines on trans-European energy infrastructure under Regulation (EU) No 347/2013 (TEN-E Regulation), of the projects of common interest (PCIs) for electricity and gas.554 Article 11 of the ACER Regulation bundles these tasks, referring to the details set out in the TEN-E Regulation. Article 11 ACER Regulation “With respect to trans-European energy infrastructure, ACER, in close cooperation with the regulatory authorities and the ENTSO for Electricity and the ENTSO for Gas, shall: (a) monitor progress as regards the implementation of projects to create new interconnector capacity;

554 The TEN-E Regulation contains also rules for oil and carbon dioxide projects.

404

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel (b) monitor the implementation of the Union-wide network-development plans. If ACER identifies inconsistencies between those plans and their implementation, it shall investigate the reasons for those inconsistencies and make recommendations to the transmission system operators, regulatory authorities or other competent bodies concerned with a view to implementing the investments in accordance with the Union-wide network-development plans; (c) carry out the obligations laid out in Articles 5, 11 and 13 of Regulation (EU) No 347/2013; (d) take decisions on investment requests pursuant to Article 12(6) of Regulation (EU) No 347/2013.”

5.9.1 Monitoring the implementation of interconnector capacity projects and the EU TYNDPs Point (a) tasks ACER with monitoring the progress in the implementation of projects to create new interconnector capacity. This duty is not explicitly linked to a specific deliverable. This, however, does not preclude to formally report on its finding.

7.259

Further, according to point (b), ACER has to monitor the implementation of the Union-wide TYNDPs with regard to inconsistencies between such plans and their implementation. In the event of such inconsistencies, ACER has to investigate their reasons and to recommend measures to the ENTSOs, national regulatory authorities and other competent bodies about how to deal with the planned investments and to implement them.

7.260

In addition, according to Article 48(2) of the Electricity Regulation and Article 8(11) of the Gas Regulation, ACER must review also the nationals TYNDPs for their consistency with the Union-wide TYNDP, issue an opinion on its assessment and, if finding inconsistencies, include recommendations as to the amendment of the national or Union-wide TYNDP:

7.261

Article 48 Electricity Regulation555 “3. ACER shall provide an opinion on the national ten-year network development plans to assess their consistency with the Union–wide network development plan. If ACER identifies inconsistencies between a national ten-year network 555 See also the mirror provision for gas in Article 8(11) of the Gas Regulation.

405

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel development plan and the Union-wide network development plan, it shall recommend amending the national ten-year network development plan or the Union–wide network development plan as appropriate. If such a national tenyear network development plan is developed in accordance with Article 51 of Directive (EU) 2019/944, ACER shall recommend that the regulatory authority amend the national ten-year network development plan in accordance with Article 51(7) of that Directive and inform the Commission thereof.”

7.262

The above monitoring activities of ACER do not result in any formal procedures against TSOs, ENTSOs or, in the case of interconnector projects, local permitting authorities. Notwithstanding that, ACER can use its general competence under Article 3(1) of the ACER Regulation to provide on its own initiative an opinion or a recommendation to the EU institutions, pointing to deficiencies in the regulatory framework and proposing improvements, thereby potentially building up at least political pressure on the concerned actors to remove barriers to the implementation of interconnector projects, to implement investments in line with the network development plans or to ensure smooth regional cooperation.556

7.263

Finally, ACER’s reports, opinions and recommendations concerning the above monitoring activities do not require a favourable opinion by the Board of Regulators in accordance with Article 24(2) of the ACER Regulation.

5.9.2 Participating in the identification of PCIs 7.264

Though not referred to in Article 11 of the ACER Regulation, ACER has been assigned tasks also with regard to the identification of PCIs in accordance with Annex III of the TEN-E Regulation.

7.265

PCIs are a key element of the approach introduced by the TEN-E Regulation in 2013 for infrastructure planning and project implementation. They implement trans-European energy infrastructure priorities. Their selection follows a twostep process. First, regional groups, which are composed of representatives from the Member States, national regulatory authorities, TSOs, the relevant ENTSO, the Commission and ACER, assess the applications for PCI status and adopt regional lists of proposed PCIs which are submitted to the Commission. Secondly, the Commission adopts a Union-wide list of PCIs on the basis of the regional lists. In this process, ACER has a coordination and advisory function. 556 See Ermacora, ‘The Agency for the Cooperation of Energy Regulators (ACER)’, in Jones (ed.), EU Energy Law I, The Internal Energy Market, 2010 ed., para. 7.53.

406

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

ANNEX III TEN-E Regulation REGIONAL LISTS OF PROJECTS OF COMMON INTEREST 1. RULES FOR GROUPS “(7) The Commission, the Agency and the Groups shall strive for consistency between the different Groups. For this purpose, the Commission and the Agency shall ensure, when relevant, the exchange of information on all work representing an interregional interest between the Groups concerned.

The participation of national regulatory authorities and the Agency in the Groups shall not jeopardise the fulfilment of their objectives and duties under this Regulation or under Articles 36 and 37 of Directive 2009/72/EC and Articles 40 and 41 of Directive 2009/73/EC, or under Regulation (EC) No 713/2009.”

Being a member of each regional group, ACER is informed about the work of each group. As such, ACER could be in a position to detect inconsistencies between the work of the regional groups. By sharing relevant information, ACER can contribute to a coordinated approach of the regional groups. In fact, Annex III.1(7) of the TEN-E Regulation requires ACER not only to seek consistency between the regional groups, but also to make sure that information of crossregional interest is exchanged between the regional groups concerned. ANNEX III TEN-E Regulation REGIONAL LISTS OF PROJECTS OF COMMON INTEREST 2. PROCESS FOR ESTABLISHING REGIONAL LISTS “(7) For proposed projects falling under the categories set out in Annex II.1 and 2, national regulatory authorities, and if necessary the Agency, shall, where possible in the context of regional cooperation (Article 6 of Directive 2009/72/ EC, Article 7 of Directive 2009/73/EC), check the consistent application of the criteria/ cost-benefit analysis methodology and evaluate their cross-border relevance. They shall present their assessment to the Group. (12) The draft regional lists of proposed projects falling under the categories set out in Annex II.1 and 2 drawn up by the Groups, together with any opinions as specified in point (9), shall be submitted to the Agency six months before the adoption date of the Union list. The draft regional lists and the accompanying opinions shall be assessed by the Agency within three months of the date of receipt. The Agency shall provide an opinion on the draft regional lists, in par407

7.266

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel ticular on the consistent application of the criteria and the cost-benefit analysis across regions. The opinion of the Agency shall be adopted in accordance with the procedure referred to in Article 15(1) of Regulation (EC) No 713/2009. (13) Within one month of the date of receipt of the Agency’s opinion, the decisionmaking body of each Group shall adopt its final regional list, respecting the provisions set out in Article 3(3), based on the Groups’ proposal and taking into account the opinion of the Agency and the assessment of the national regulatory authorities submitted in accordance with point (7), or the assessment of the Commission for oil and carbon dioxide transport projects proposed in accordance with point (8). The Groups shall submit the final regional lists to the Commission, together with any opinions as specified in point (9). (14) If, based on the regional lists received, and after having taken into account the Agency opinion, the total number of proposed projects of common interest on the Union list would exceed a manageable number, the Commission shall consider, after having consulted each Group concerned, not to include in the Union list projects that were ranked lowest by the Group concerned according to the ranking established pursuant to Article 4(4).”

7.267

ACER’s advice can consist of an assessment of the applications for PCI status and the presentation of the assessment to the respective regional group (pt. 7 of Annex III.2). ACER is required to provide this assessment ‘if necessary’. Though this makes clear that ACER does not need to run the assessment in any case, it also leaves open when the assessment is indeed necessary. In light of the consistency requirement, one may argue that ACER’s view could be necessary for instance when projects with interregional effects are at stake. Since ACER’s assessment is not dependent upon any procedural condition, ACER can provide it also on its own initiative, without a specific request e.g. from members of the regional group.

7.268

In addition, ACER has to provide an opinion on the draft regional lists of PCIs. In this opinion, ACER must assess the draft regional lists in particular with regard to the consistent application of the criteria for PCIs557 and the cost-benefit analysis across regions (pt. 12 of Annex III.2). The exemplary reference to the PCI criteria and to the cost-benefit analysis indicates that ACER may consider also other relevant aspects. Such aspect could be e.g. the projects’ cross-border relevance referred to in point 7 of Annex III.2. 557 See Article 4 of the TEN-E Regulation.

408

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

The TEN-E Regulation does not explicitly define the addressee(s) of the ACER opinion. However, point 13 of Annex III.2 states that within one month of the date of receipt of ACER’s opinion, the decision-making body of each regional group shall adopt its final regional list. This suggests that ACER’s opinion should be directed to the decision-making body, i.e. the Member States involved in the regional group and the Commission.558

7.269

The regional groups’ decision-making bodies have to take into count ACER’s opinion when deciding on their final regional lists (pt. 13 of Annex III.2). Likewise, the Commission must take into account the opinion when adopting the Union-wide list (pt. 14 of Annex III.2). Thus, they must consider it before they take their decision, but they are not required to follow it.

7.270

According to point 12 of Annex III.2, ACER has to adopt the opinion within three months after receipt of the draft regional lists and ‘in accordance with the procedure referred to in Article 15(1) of Regulation (EC) No 713/2009’. Under Article 15(1) of Regulation (EC) No 713/2009, this required a favourable opinion of the Board of Regulators. According to the correlation table in Annex II of the ACER Regulation, the reference to Article 15(1) of Regulation (EC) No 713/2009 is to be construed as one to Article 22(5) and (6) of the ACER Regulation. The context of those provisions, in particular with Article 24(2) of the ACER Regulation, could suggest that ACER’s opinion on the draft PCI lists was unintentionally omitted from Article 11 and Article 24(2) of the ACER Regulation.559

7.271

5.9.3 Monitoring the implementation of PCIs Article 5 TEN-E Regulation “3. The Agency and the Groups concerned shall monitor the progress achieved in implementing the projects of common interest and, if necessary, make recommendations to facilitate the implementation of projects of common interest. The Groups may request that additional information be provided in accordance with paragraphs 4, 5 and 6, convene meetings with the relevant parties and invite the Commission to verify the information provided on site.

558 See Article 3(1) of the TEN-E Regulation. 559 See Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU ­Energy Law XIII, 2020 ed., paras. 7.108-7.109.

409

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 4. By 31 March of each year following the year of inclusion of a project of common interest on the Union list pursuant to Article 3, project promoters shall submit an annual report, for each project falling under the categories set out in Annex II.1 and 2, to the competent authority referred to in Article 8 and either to the Agency or, for projects falling under the categories set out in Annex II.3 and 4, to the respective Group. That report shall give details of: (a) the progress achieved in the development, construction and commissioning of the project, in particular with regard to permit granting and consultation procedures; (b) where relevant, delays compared to the implementation plan, the reasons for such delays and other difficulties encountered; (c) where relevant, a revised plan aiming at overcoming the delays. 5. Within three months of the receipt of the annual reports referred to in paragraph 4 of this Article, the Agency shall submit to the Groups a consolidated report for the projects of common interest falling under the categories set out in Annex II.1 and 2, evaluating the progress achieved and make, where appropriate, recommendations on how to overcome the delays and difficulties encountered. That consolidated report shall also evaluate, in accordance with Article 6(8) and (9) of Regulation (EC) No 713/2009, the consistent implementation of the Union-wide network development plans with regard to the energy infrastructure priority corridors and areas.”

7.272

ACER has to monitor the implementation of the electricity and gas PCIs. On the one hand, this task is defined as a continuous exercise, providing a specific output only if, but also whenever, recommendations are necessary to facilitate the implementation of the PCIs (para. 3).

7.273

On the other hand, the monitoring duty involves also the specific obligation to annually evaluate the progress of PCI implementation and report it to the regional groups together with any appropriate recommendations of how to deal with delays and difficulties and, moreover, with an assessment of the consistent implementation of the Union TYNDP with regard to the energy infrastructure priority corridors and areas (para. 5). This evaluation of the consistent implementation must be ‘ in accordance with Article 6(8) and (9) of Regulation (EC) No 713/2009’. According to the correlation table in Annex II of the ACER Regulation, Article 6(8) and (9) of Regulation (EC) No 713/2009 corresponds 410

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

to Article 11 of the ACER Regulation. In this context, the identification of inconsistencies between the Union TYNDP and its implementation under point (b) of Article 11 is most relevant. Accordingly, ACER’s evaluation aims at checking whether the Union TYNDP and its implementation are consistent as far as the energy infrastructure priority corridors and areas are concerned. The annual evaluation and report is due within three months after ACER received the annual implementation reports from the project promoters.560

5.9.4 Energy system wide cost-benefit analysis Part of the better regulatory treatment of PCIs is that their costs and benefits are to be analysed according to a harmonised methodology, which is relevant in the context of cross-border allocation of PCI costs and for the preparation of the Union TYNDPs. The process for developing and amending this methodology is defined in Article 11 of the TEN-E Regulation and involves ACER with a reviewing task. Article 11 TEN-E Regulation “1. By 16 November 2013, the European Network of Transmission System Operators (ENTSO) for Electricity and the ENTSO for Gas shall publish and submit to Member States, the Commission and the Agency their respective methodologies, including on network and market modelling, for a harmonised energy system-wide cost-benefit analysis at Union level for projects of common interest falling under the categories set out in Annex II.1(a) to (d) and Annex II.2. Those methodologies shall be applied for the preparation of each subsequent 10-year network development plan developed by the ENTSO for Electricity or the ENTSO for Gas pursuant to Article 8 of Regulation (EC) No 714/2009 and Article 8 of Regulation (EC) No 715/2009. The methodologies shall be drawn up in line with the principles laid down in Annex V and be consistent with the rules and indicators set out in Annex IV.

Prior to submitting their respective methodologies, the ENTSO for Electricity and the ENTSO for Gas shall conduct an extensive consultation process involving at least the organisations representing all relevant stakeholders – and, if deemed appropriate, the stakeholders themselves – national regulatory authorities and other national authorities.

560 According to Article 5(4) of the TEN-E Regulation, the project promoters must submit their annual reports by 31 March of each year following the year of inclusion of a PCI in the Union list according to Article 3. It is submitted that the ‘year of inclusion’ refers to the year in which the Union list for the relevant PCI entered into force.

411

7.274

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 2. Within three months of the day of receipt of the methodologies, the Agency shall provide an opinion to Member States and the Commission on the methodologies and publish it. 3. Within three months of the receipt of the opinion of the Agency, the Commission shall, and Member States may, deliver an opinion on the methodologies. The opinions shall be submitted to the ENTSO for Electricity or the ENTSO for Gas. 4. Within three months of the day of receipt of the last opinion received under paragraph 3, the ENTSO for Electricity and the ENTSO for Gas shall adapt their methodologies taking due account of the opinions received from Member States, the Commission’s opinion and the Agency’s opinion, and submit them to the Commission for approval. 5. Within two weeks of the approval by the Commission, the ENTSO for Electricity and the ENTSO for Gas shall publish their respective methodologies on their websites. They shall transmit the corresponding input data sets as defined in Annex V.1 and other relevant network, load flow and market data in a sufficiently accurate form according to national law and relevant confidentiality agreements to the Commission and the Agency, upon request. The data shall be valid at the date of the request. The Commission and the Agency shall ensure the confidential treatment of the data received, by themselves and by any party carrying out analytical work for them on the basis of those data. 6. The methodologies shall be updated and improved regularly in accordance with paragraphs 1 to 5. The Agency, on its own initiative or upon a duly reasoned request by national regulatory authorities or stakeholders, and after formally consulting the organisations representing all relevant stakeholders and the Commission, may request such updates and improvements with due justification and timescales. The Agency shall publish the requests by national regulatory authorities or stakeholders and all relevant non-commercially sensitive documents leading to a request from the Agency for an update or improvement. 7. By 16 May 2015, national regulatory authorities cooperating in the framework of the Agency shall establish and make publicly available a set of indicators and corresponding reference values for the comparison of unit investment costs for comparable projects of the infrastructure categories included in Annex II.1 and 2. Those reference values may be used by the ENTSO for Electricity and the ENTSO for Gas for the cost-benefit analyses carried out for subsequent 10-year network development plans. 412

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 8. By 31 December 2016, the ENTSO for Electricity and the ENTSO for Gas shall jointly submit to the Commission and the Agency a consistent and interlinked electricity and gas market and network model including both electricity and gas transmission infrastructure as well as storage and LNG facilities, covering the energy infrastructure priority corridors and areas and drawn up in line with the principles laid down in Annex V. After approval of this model by the Commission according to the procedure set out in paragraphs 2 to 4, it shall be included in the methodologies.”

Under this process, each ENTSO had to present a methodology for harmonised energy system-wide cost-benefit analysis to, among others, ACER by 16 November 2013, ACER had to provide an opinion on the proposed methodology within three months, and the ENTSOs, after taking due account of ACER’s opinion, had to submit their adapted methodologies to the Commission for approval and finally to publish the approved methodologies (paras. 1 to 5). The same procedure applies to amendments of these methodologies (para. 6).

7.275

For amendments, ACER has an additional responsibility. It is in charge of requesting the ENTSOs to update and improve their methodologies (para. 6). Such amendment requests can be on ACER’s own initiative or on the basis of duly reasoned requests by national regulatory authorities or by stakeholders. When requesting amendments, ACER must have consulted first the organisations representing all relevant stakeholders and the Commission, and it must publish any third party request and any relevant non-confidential document which led to the actual request. Other than under these circumstances, ACER is not explicitly required to hold a consultation or to arrange the publication of third party requests. Accordingly, ACER can disregard requests by national regulatory authorities or stakeholders also without a consultation of stakeholder organisations or of the Commission, and it also can abstain from publishing disregarded requests.

7.276

5.9.5 Sharing good practices regarding risk-related incentives for PCIs The Third Energy Package required tariffs for access to electricity and gas networks to provide appropriate incentives for investment.561 This principle applies also to PCIs. Article 13(1) of the TEN-E Regulation obliges Member States and national regulatory authorities to ensure that appropriate incentives are granted to a PCI which involves higher risks than those normally incurred by a 561 See Article 37(8) of Directive 2009/72/EC, Article 41(8) of the Gas Directive, Article 14 of Regulation (EC) No 714/2009, Article 13 of the Gas Regulation.

413

7.277

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

comparable infrastructure project. To facilitate the sharing of good practices on risk evaluation and incentives, Article 13(4) and (5) of the TEN-E Regulation provides for an interaction between national regulatory authorities and ACER which was to be completed by 31 Mach 2014, as follows: Article 13 TEN-E Regulation “4. By 31 July 2013, each national regulatory authority shall submit to the Agency its methodology and the criteria used to evaluate investments in electricity and gas infrastructure projects and the higher risks incurred by them, where available. 5. By 31 December 2013, taking due account of the information received pursuant to paragraph 4 of this Article, the Agency shall facilitate the sharing of good practices and make recommendations in accordance with Article 7(2) of Regulation (EC) No 713/2009 regarding: (a) the incentives referred to in paragraph 1 on the basis of a benchmarking of best practice by national regulatory authorities; (b) a common methodology to evaluate the incurred higher risks of investments in electricity and gas infrastructure projects. 6. By 31 March 2014, each national regulatory authority shall publish its methodology and the criteria used to evaluate investments in electricity and gas infrastructure projects and the higher risks incurred by them. 7. Where the measures referred to in paragraphs 5 and 6 are not sufficient to ensure the timely implementation of projects of common interest, the Commission may issue guidelines regarding the incentives laid down in this Article.”

7.278

The TEN-E Regulation does not set out a specific procedure for the review of the methodology and the criteria which the national regulatory authorities had to adopt and publish by 31 March 2014. In particular, it does not mention recommendations by ACER after 31 December 2013. This, however, does not preclude ACER to make use of its competence under Article 6(2) of the ACER Regulation (replacing Article 7(2) of Regulation (EC) No 713/2009) to share good practices also after 31 December 2013.

414

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.9.6 Investment requests and cross-border cost allocation To accelerate investments in cross-border infrastructure which has been identified as a priority for trans-European networks development, Article 12 of the TEN-E Regulation provides for a mechanism for the allocation of costs across borders. To that end, in a case where the investment costs cannot be expected to be recovered through congestion rents or other charges, promoters of PCIs can request the concerned national regulatory authorities to allocate those costs also to the Member States, respectively their system operators, to which the projects provide a positive net impact.562 In the event of such investment request, the concerned national regulatory authorities must seek a mutual agreement and take coordinated decisions on the allocation of investment costs as well as their inclusion in tariffs, within six months.563 Article 12 TEN-E Regulation “6. Where the national regulatory authorities concerned have not reached an agreement on the investment request within six months of the date on which the request was received by the last of the national regulatory authorities concerned, they shall inform the Agency without delay.

In this case or upon a joint request from the national regulatory authorities concerned, the decision on the investment request including cross-border cost allocation referred to in paragraph 3 as well as the way the cost of the investments are reflected in the tariffs shall be taken by the Agency within three months of the date of referral to the Agency.



Before taking such a decision, the Agency shall consult the national regulatory authorities concerned and the project promoters. The three-month period referred to in the second subparagraph may be extended by an additional period of two months where further information is sought by the Agency. That additional period shall begin on the day following receipt of the complete information.



The cost allocation decision shall be published. Articles 19 and 20 of Regulation (EC) No 713/2009 shall be applicable.

562 Article 12(1), (2) and (3) of the TEN-E Regulation. 563 Article 12(4) of the TEN-E Regulation.

415

7.279

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 7. A copy of all cost allocation decisions, together with all the relevant information with respect to each decision, shall be notified, without delay, by the Agency to the Commission. That information may be submitted in aggregate form. The Commission shall preserve the confidentiality of commercially sensitive information.”

7.280

Based on the division of decision-making powers underlying Article 6(10) of the ACER Regulation, Article 12(6) of the TEN-E Regulation assigns a mediation and settlement function to ACER: ACER becomes responsible for taking the decision on the investment request including cross-border cost allocation as well as the way the cost of the investments are reflected in the tariffs, where the national regulatory authorities concerned have not reached an agreement on the investment request within six months or where they jointly requested ACER to take that decision (para. 6).

7.281

ACER must take its decision within three months of the date of referral. This period may be extended by two months if ACER requests further information (para. 6).

7.282

As an exception, ACER’s decision does not require a favourable opinion of the Board of Regulators, according to Article 24(2) of the ACER Regulation.

5.10 Wholesale market integrity and transparency 7.283

In 2011, Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (REMIT)564 created a special legal framework for wholesale energy trading. The core element of this framework is the monitoring of wholesale energy markets, with the aim to detect, stop and prevent market abuses. In this monitoring process ACER plays a central role: it collects the relevant data, analyses them, shares them with other relevant bodies, establishes a European market register of market participants and coordinates the activities of national regulatory authorities. Article 12 of the ACER Regulation outlines the respective remit of ACER by reference to the relevant provisions of REMIT. The exact scope of ACER’s tasks and powers follows from those REMIT provisions.

564 OJ 326/1, 8.12.2011.

416

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 12 ACER Regulation “In order to effectively monitor wholesale market integrity and transparency, ACER, in close cooperation with the regulatory authorities and other national authorities, shall: (a) monitor wholesale markets, collect and share data and establish a European register of market participants in accordance with Articles 7 to 12 of Regulation (EU) No 1227/2011; (b) issue recommendations to the Commission in accordance with Article 7 of Regulation (EU) No 1227/2011; (c) coordinate investigations pursuant to Article 16(4) of Regulation (EU) No 1227/2011.”

The integrity and transparency regime under REMIT is based on a two-pronged approach: ACER provides a Union-wide view of electricity and gas markets and the necessary expertise in the operation of those markets in the Union while national regulatory authorities bring in a comprehensive understanding of developments on energy markets in their Member State and play an important role in ensuring efficient market monitoring at national and regional level.565

7.284

For this purpose, ACER, national regulatory authorities, the European Securities and Markets Authority (ESMA), competent national financial authorities and national competition authorities are required to cooperate and may enter into administrative arrangements with supervisory authorities, international organisations and the administrations of third countries in particular with those impacting the Union energy wholesale market in order to promote the harmonisation of the regulatory framework.566 To facilitate cooperation, ACER has concluded memoranda of understanding with national regulatory authorities and ESMA on the practical terms of procedures for the cooperation.567

7.285

The details of ACER’s market surveillance are laid down in particular in Articles 7 and 16 of REMIT.

7.286

565 See Recital 17 of REMIT. 566 See Article 1(3) and Article 19 of REMIT. 567 In addition, ACER concluded memoranda of understanding with organised market places and, in view of the growing globalisation of the world’s wholesale energy markets and the increase in cross-border operations and activities, with the US Federal Energy Regulatory Commission.

417

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

5.10.1 Monitoring of wholesale energy markets 7.287

The wholesale energy markets are monitored in cooperation and coordination between the Agency and national authorities, the former providing a Unionwide perspective, the latter having a deep understanding of national energy markets. Article 7 of REMIT lays the foundation for this approach. Article 7 REMIT “1. The Agency shall monitor trading activity in wholesale energy products to detect and prevent trading based on inside information and market manipulation. It shall collect the data for assessing and monitoring wholesale energy markets as provided for in Article 8. 2. National regulatory authorities shall cooperate at regional level and with the Agency in carrying out the monitoring of wholesale energy markets referred to in paragraph 1. For this purpose national regulatory authorities shall have access to relevant information held by the Agency which it has collected in accordance with paragraph 1 of this Article, subject to Article 10(2). National regulatory authorities may also monitor trading activity in wholesale energy products at national level.

Member States may provide for their national competition authority or a market monitoring body established within that authority to carry out market monitoring with the national regulatory authority. In carrying out such market monitoring, the national competition authority or the market monitoring body shall have the same rights and obligations as the national regulatory authority pursuant to the first subparagraph of this paragraph, the second sentence of the second subparagraph of paragraph 3 of this Article, the second sentence of Article 4(2), the first sentence of Article 8(5), and Article 16.

3. The Agency shall at least on an annual basis submit a report to the Commission on its activities under this Regulation and make this report publicly available. In such reports the Agency shall assess the operation and transparency of different categories of market places and ways of trading and may make recommendations to the Commission as regards market rules, standards, and procedures which could improve market integrity and the functioning of the internal market. It may also evaluate whether any minimum requirements for organised markets could contribute to enhanced market transparency. Reports may be combined with the report referred to in Article 11(2) of Regulation (EC) No 713/2009. 418

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

The Agency may make recommendations to the Commission as to the records of transactions, including orders to trade, which it considers are necessary to effectively and efficiently monitor wholesale energy markets. Before making such recommendations, the Agency shall consult with interested parties, in particular with national regulatory authorities, competent financial authorities in the Member States, national competition authorities and ESMA.



All recommendations should be made available to the European Parliament, the Council and the Commission and to the public.”

ACER’s monitoring task concerns trading in wholesale energy products and involves collecting wholesale markets and other relevant data, analysing them and identifying market manipulation and any trading based on inside information (para. 1).568 The investigation of a potential market abuse and its enforcement is then the responsibility of the national regulatory authorities concerned.

7.288

Close cooperation and coordination between national regulatory authorities and with ACER is necessary to ensure proper monitoring and transparency of energy markets. To enable and facilitate the involvement of national regulatory authorities in the market monitoring, ACER has to grant national regulatory authorities access to the data it collected, provided the national regulatory authorities can ensure the confidentiality, integrity and protection of the data (para. 2).

7.289

ACER is required to report on its monitoring at least once a year to the Commission, and to publish the report (para. 3). In terms of content, ACER is obliged to include an assessment of the operation and transparency of different categories of market places and ways of trading. If ACER wants, it can also add recommendations on market rules, standards, and procedures to improve market integrity and the functioning of the internal market, as well as an evaluation of minimum requirements for organised markets with regard to their potential for increasing market transparency. As regards the format, ACER can issue the report as a stand-alone document or combine it with the internal market monitoring report according to Article 15 of the ACER Regulation.

7.290

In addition to and separate from the regular monitoring report, ACER has the right to make on its own initiative recommendations concerning the records of transactions. The recommendations are to be addressed to the Commission, but

7.291

568 The terms ‘wholesale energy products’, ‘inside information’ and ‘market manipulation’ have a specific meaning which is defined in Article 2(4) of REMIT.

419

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

have to be made available also to the European Parliament, the Council and the public (para. 3).

5.10.2 Collection of data 7.292

Efficient monitoring of wholesale electricity and natural gas markets requires regular access to records of transactions as well as access to structural data on capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas.569 Therefore, ACER needs to be provided with this information by market participants trading in wholesale energy products. Article 8 of REMIT sets out the framework for the data reporting to and the data collection by ACER. Article 8 REMIT “1. Market participants, or a person or authority listed in points (b) to (f ) of paragraph 4 on their behalf, shall provide the Agency with a record of wholesale energy market transactions, including orders to trade. The information reported shall include the precise identification of the wholesale energy products bought and sold, the price and quantity agreed, the dates and times of execution, the parties to the transaction and the beneficiaries of the transaction and any other relevant information. While overall responsibility lies with market participants, once the required information is received from a person or authority listed in points (b) to (f ) of paragraph 4, the reporting obligation on the market participant in question shall be considered to be fulfilled. 3. Persons referred to in points (a) to (d) of paragraph 4 who have reported transactions in accordance with Directive 2004/39/EC or applicable Union legislation on derivative transactions, central counterparties and trade repositories shall not be subject to double reporting obligations relating to those transactions.

Without prejudice to the first subparagraph of this paragraph, the implementing acts referred to in paragraph 2 may allow organised markets and trade matching or trade reporting systems to provide the Agency with records of wholesale energy transactions.

569 Recital 18 of REMIT.

420

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 4. For the purposes of paragraph 1, information shall be provided by: (a) the market participant; (b) a third party acting on behalf of the market participant; (c) a trade reporting system; (d) an organised market, a trade-matching system or other person professionally arranging transactions; (e) a trade repository registered or recognised under applicable Union legislation on derivative transactions, central counterparties and trade repositories; or (f ) a competent authority which has received that information in accordance with Article 25(3) of Directive 2004/39/EC or ESMA when it has received that information in accordance with applicable Union legislation on derivative transactions, central counterparties and trade repositories. 5. Market participants shall provide the Agency and national regulatory authorities with information related to the capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas or related to the capacity and use of LNG facilities, including planned or unplanned unavailability of these facilities, for the purpose of monitoring trading in wholesale energy markets. The reporting obligations on market participants shall be minimised by collecting the required information or parts thereof from existing sources where possible.”

Article 8(1), (3), (4) and (5) define the personal and the material scope of the reporting obligations. The reporting obligations reside in the first place with the market participant, i.e. the person who enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets,570 and they concern details of market transactions as well as information related to the capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas or related to the capacity and use of LNG facilities.

570 See Article 2(7) of REMIT.

421

7.293

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.294

According to Article  8(2) and (6), the details of the reporting requirements are to be defined by the Commission by means of implementing acts to ensure uniform conditions for their implementation.571 To this effect, the Commission has adopted Commission Implementing Regulation (EU) No 1348/2014.572 That Regulation lays down rules for the provision of data to ACER, defines the details of reportable wholesale energy products and fundamental data, and establishes appropriate channels for data reporting including defining timing and regularity of data reports.573

7.295

Regulation (EU) No 1348/2014 assigns also additional tasks to ACER in order to facilitate reporting and to ensure efficient, effective and safe exchange and handling of information. It requires ACER to: (i)

draw up and maintain a public list of standard contracts as well as of organised market places and update those lists in a timely manner;574

(ii)

explain the details of the transactions to be reported in a public user manual;575

(iii) establish procedures, standards and electronic formats based on established industry standards for the reporting of transactions and fundamental data;576 (iv) develop technical and organisational requirements for the submission of data, assess whether the reporting parties comply with the requirements, and register the reporting parties who comply with the requirements.577

5.10.3 Registration of market participants Article 9 REMIT “1. Market participants entering into transactions which are required to be reported to the Agency in accordance with Article 8(1) shall register with the national 571 Recital 19 of REMIT. 572 Commission Implementing Regulation (EU) No 1348/2014 of 17 December 2014 on data reporting implementing Article 8(2) and Article 8(6) of Regulation (EU) No 1227/20111 of the European Parliament and of the Council on wholesale energy market integrity and transparency, OJ L 363/121, 18.12.2014. 573 Article 1 of Regulation (EU) No 1348/2014. 574 Article 3(2) of Regulation (EU) No 1348/2014. 575 Article 5(2) of Regulation (EU) No 1348/2014. 576 Article 10(3) of Regulation (EU) No 1348/2014. 577 Article 11(1) of Regulation (EU) No 1348/2014.

422

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel regulatory authority in the Member State in which they are established or resident or, if they are not established or resident in the Union, in a Member State in which they are active.

A market participant shall register only with one national regulatory authority. Member States shall not require a market participant already registered in another Member State to register again.



The registration of market participants is without prejudice to obligations to comply with applicable trading and balancing rules.

2. Not later than 3 months after the date on which the Commission adopts the implementing acts set out in Article 8(2), national regulatory authorities shall establish national registers of market participants which they shall keep up to date. The register shall give each market participant a unique identifier and shall contain sufficient information to identify the market participant, including relevant details relating to its value added tax number, its place of establishment, the persons responsible for its operational and trading decisions, and the ultimate controller or beneficiary of the market participant’s trading activities. 3. National regulatory authorities shall transmit the information in their national registers to the Agency in a format determined by the Agency. The Agency shall, in cooperation with those authorities, determine that format and shall publish it by 29 June 2012. Based on the information provided by national regulatory authorities, the Agency shall establish a European register of market participants. National regulatory authorities and other relevant authorities shall have access to the European register. Subject to Article 17, the Agency may decide to make the European register, or extracts thereof, publicly available provided that commercially sensitive information on individual market participants is not disclosed. 4. Market participants referred to in paragraph 1 of this Article shall submit the registration form to the national regulatory authority prior to entering into a transaction which is required to be reported to the Agency in accordance with Article 8(1).”

The market participants who enter into transactions which have to be reported under REMIT must register with a national regulatory authority (para. 1). To enhance the overall transparency and integrity of wholesale energy markets,578 ACER has been obliged to establish a European register of market participants 578 See also Recital 21 of REMIT.

423

7.296

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

on the basis of the national registrations, i.e. a register which is fed with information from the national registration (para. 3). For that purpose ACER had to define by 29 June 2012 the format in which the national regulatory authorities have to transfer the information recorded in their national registers to ACER. The European register of market participants must be made accessible to national regulatory authorities and other relevant authorities. In addition, it can be made available to the public as far as non-confidential information is concerned.

7.297

In fact, ACER established the Centralized European Register of Energy Market Participants (CEREMP), which also national regulatory authorities can use for their national registrations.

5.10.4 Sharing of information between ACER and other authorities 7.298

Sharing of information between ACER and other authorities facilitates efficient monitoring of trading in wholesale energy products. To that end, Article 10 of REMIT requires ACER to establish mechanisms to give other authorities access to the data which it receives on transactions on wholesale energy markets, and defines conditions under which those authorities may use these sharing mechanisms provided they are able to maintain the data confidentiality, integrity and protection and have taken steps to prevent data misuse. Article 10 REMIT “1. The Agency shall establish mechanisms to share information it receives in accordance with Article 7(1) and Article 8 with national regulatory authorities, competent financial authorities of the Member States, national competition authorities, ESMA and other relevant authorities. Before establishing such mechanisms, the Agency shall consult with those authorities. 2. The Agency shall give access to the mechanisms referred to in paragraph 1 only to authorities which have set up systems enabling the Agency to meet the requirements of Article 12(1). 3. Trade repositories registered or recognised under applicable Union legislation on derivative transactions, central counterparties and trade repositories shall make relevant information regarding wholesale energy products and derivatives of emissions allowances collected by them available to the Agency.

424

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

ESMA shall transmit to the Agency reports of transactions in wholesale energy products received pursuant to Article 25(3) of Directive 2004/39/EC and under applicable Union legislation on derivative transactions, central counterparties and trade repositories. Competent authorities receiving reports of transactions in wholesale energy products received pursuant to Article 25(3) of Directive 2004/39/EC shall transmit those reports to the Agency.



The Agency and authorities responsible for overseeing trading in emissions allowances or derivatives relating to emissions allowances shall cooperate with each other and establish appropriate mechanisms to provide the Agency with access to records of transactions in such allowances and derivatives where those authorities collect information on such transactions.”

At the same time, ACER must also ensure the confidentiality, integrity and protection of the data which it receives, and take all necessary measures to prevent unauthorised access to and misuse of the data, though it may make publicly available parts of the information which it possesses.579 To that effect, Article 12 of REMIT specifies requirements of operational reliability. Article 12 REMIT “1. The Agency shall ensure the confidentiality, integrity and protection of the information received pursuant to Article 4(2) and Articles 8 and 10. The Agency shall take all necessary measures to prevent any misuse of, and unauthorised access to, the information maintained in its systems.

National regulatory authorities, competent financial authorities of the Member States, national competition authorities, ESMA and other relevant authorities shall ensure the confidentiality, integrity and protection of the information which they receive pursuant to Articles 4(2), 7(2) or 8(5) or Article 10 and shall take steps to prevent any misuse of such information.



The Agency shall identify sources of operational risk and minimise them through the development of appropriate systems, controls and procedures.

2. Subject to Article 17, the Agency may decide to make publicly available parts of the information which it possesses, provided that commercially sensitive information on individual market participants or individual transactions or individual market places are not disclosed and cannot be inferred. 579

Recitals 23 and 25 of REMIT.

425

7.299

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

The Agency shall make its commercially non-sensitive trade database available for scientific purposes, subject to confidentiality requirements.



Information shall be published or made available in the interest of improving transparency of wholesale energy markets and provided it is not likely to create any distortion in competition on those energy markets.



The Agency shall disseminate information in a fair manner according to transparent rules which it shall draw up and make publicly available.”

5.10.5 Coordination and cooperation 7.300

To ensure consistent and coordinated application of REMIT across the Union, ACER has been assigned specific tasks in Article 16 of REMIT, which go beyond the coordination of investigations referred to in Article 12(c) of the ACER Regulation. Article 16 REMIT “1. The Agency shall aim to ensure that national regulatory authorities carry out their tasks under this Regulation in a coordinated and consistent way.

The Agency shall publish non-binding guidance on the application of the definitions set out in Article 2, as appropriate.



National regulatory authorities shall cooperate with the Agency and with each other, including at regional level, for the purpose of carrying out their duties in accordance with this Regulation.



National regulatory authorities, competent financial authorities and the national competition authority in a Member State may establish appropriate forms of cooperation in order to ensure effective and efficient investigation and enforcement and to contribute to a coherent and consistent approach to investigation, judicial proceedings and to the enforcement of this Regulation and relevant financial and competition law.

2. National regulatory authorities shall without delay inform the Agency in as specific a manner as possible where they have reasonable grounds to suspect that acts in breach of this Regulation are being, or have been, carried out either in that Member State or in another Member State. 426

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Where a national regulatory authority suspects that acts which affect wholesale energy markets or the price of wholesale energy products in that Member State are being carried out in another Member State, it may request the Agency to take action in accordance with paragraph 4 of this Article and, if the acts affect financial instruments subject to Article 9 of Directive 2003/6/EC, in accordance with paragraph 3 of this Article.

3. In order to ensure a coordinated and consistent approach to market abuse on wholesale energy markets: (a) national regulatory authorities shall inform the competent financial authority of their Member State and the Agency where they have reasonable grounds to suspect that acts are being, or have been, carried out on wholesale energy markets which constitute market abuse within the meaning of Directive 2003/6/EC and which affect financial instruments subject to Article 9 of that Directive; for these purposes, national regulatory authorities may establish appropriate forms of cooperation with the competent financial authority in their Member State; (b) the Agency shall inform ESMA and the competent financial authority where it has reasonable grounds to suspect that acts are being, or have been, carried out on wholesale energy markets which constitute market abuse within the meaning of Directive 2003/6/EC and which affect financial instruments subject to Article 9 of that Directive; (c) the competent financial authority of a Member State shall inform ESMA and the Agency where it has reasonable grounds to suspect that acts in breach of Articles 3 and 5 are being, or have been, carried out on wholesale energy markets in another Member State; (d) national regulatory authorities shall inform the national competition authority of their Member State, the Commission and the Agency where they have reasonable grounds to suspect that acts are being, or have been, carried out on wholesale energy market which are likely to constitute a breach of competition law. 4. In order to carry out its functions under paragraph 1, where, inter alia, on the basis of initial assessments or analysis, the Agency suspects that there has been a breach of this Regulation, it shall have the power:

427

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel (a) to request one or more national regulatory authorities to supply any information related to the suspected breach; (b) to request one or more national regulatory authorities to commence an investigation of the suspected breach, and to take appropriate action to remedy any breach found. Any decision as regards the appropriate action to be taken to remedy any breach found shall be the responsibility of the national regulatory authority concerned; (c) where it considers that the possible breach has, or has had, a cross-border impact, to establish and coordinate an investigatory group consisting of representatives of concerned national regulatory authorities to investigate whether this Regulation has been breached and in which Member State the breach took place. Where appropriate, the Agency may also request the participation of representatives of the competent financial authority or other relevant authority of one or more Member States in the investigatory group. 5. A national regulatory authority receiving a request for information under point (a) of paragraph 4, or receiving a request to commence an investigation of a suspected breach under point (b) of paragraph 4, shall immediately take the necessary measures in order to comply with that request. If that national regulatory authority is not able to supply the required information immediately, it shall without further delay notify the Agency of the reasons.

By way of derogation from the first subparagraph, a national regulatory authority may refuse to act on a request where: (a) compliance might adversely affect the sovereignty or security of the Member State addressed; (b) judicial proceedings have already been initiated in respect of the same actions and against the same persons before the authorities of the Member State addressed; or (c) a final judgment has already been delivered in relation to such persons for the same actions in the Member State addressed.



In any such case, the national regulatory authority shall notify the Agency accordingly, providing as detailed information as possible on those proceedings or the judgment. 428

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel �������������������������������������������������������������������������������� National regulatory authorities shall participate in an investigatory group convened in accordance with point (c) of paragraph 4, rendering all necessary assistance. The investigatory group shall be subject to coordination by the Agency. 6. The last sentence of Article 15(1) of Regulation (EC) No 713/2009 shall not apply to the Agency when carrying out its tasks under this Regulation.”

Overall, ACER has to strive for ensuring that the national regulatory authorities’ monitoring, investigation and enforcement activities are coherent (para. 1).

7.301

One way to achieve these aims is by publishing a non-binding guidance on the application of the definitions set out in REMIT which should address, inter alia, the issue of accepted market practices (para. 1).

7.302

Other means for ACER are to inform ESMA and the competent financial authorities where it has reasonable grounds to suspect that acts are being, or have been, carried out on wholesale energy markets which constitute market abuse within the meaning of Directive 2003/6/EC and which affect financial instruments subject to Article 9 of that Directive (para. 3); and to request information from national regulatory authorities, to request national regulatory authorities to start investigations and take appropriate remedial actions, or to establish an investigatory group consisting of representatives of national regulatory authorities when ACER suspects a breach of REMIT (para. 4). ACER can take these actions upon request from a national regulatory authority (para. 2), but also on its own initiative.

7.303

To enable ACER exercising this role, it is essential that national regulatory authorities and national financial authorities inform ACER about potential breaches of REMIT. In fact, national regulatory authorities have a duty to inform ACER without delay where they have reasonable grounds to suspect breaches of REMIT (paras. 2 and 3). Conversely, ACER has been put under a specific information obligation only with regard to ESMA and national financial authorities in cases which involve market abuse within the meaning of Directive 2003/6/EC and which affect financial instruments subject to Article 9 of that Directive (pt. (b) of para. 3).

7.304

Article 16(6) stipulates that the last sentence of Article 15(1) of Regulation (EC) No 713/2009, which corresponds to Article 22(5)(b) of the ACER Regulation, shall not apply to ACER when carrying out its tasks under REMIT. Article 22(5)(b) of the ACER Regulation states that ‘the Board of Regulators,

7.305

429

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

within its field of competence, shall provide guidance to the Director in the execu‑ tion of his tasks with the exception of ACER’s tasks under Regulation (EU) No 1227/2011’. Accordingly, the Board of Regulators cannot issue to the Director a guidance on REMIT matters.

7.306

On the other hand, Article 1(5) of REMIT requires the Director to consult the Board of Regulators on all aspects of the implementation of REMIT and give due consideration to its advice and opinions.580 While this does not question the fact that the adoption of ACER acts under REMIT does not need a favourable opinion of the Board of Regulators according to Article 24(2) of the ACER Regulation, it confirms that the Board of Regulators can still provide the Director with its view, though no formal guidance, on REMIT issues.

5.11 Monitoring and reporting on the electricity and natural gas sectors 7.307

In addition to the monitoring of particular entities and activities, ACER has a general task of monitoring the internal markets for electricity and natural gas. This monitoring is in cooperation with the Commission, the Member States and relevant national authorities. It should neither duplicate nor hamper the monitoring by the Commission or by national authorities. Article 15 of the ACER Regulation sets the framework for this general monitoring, and complements it with a particular task for transmission and distribution tariffs. Article 15 ACER Regulation “1. ACER, in close cooperation with the Commission, the Member States and the relevant national authorities, including the regulatory authorities, and without prejudice to the competences of competition authorities, shall monitor the wholesale and retail markets in electricity and natural gas, in particular the retail prices of electricity and natural gas, compliance with the consumer rights laid down in Directive (EU) 2019/944 and Directive 2009/73/EC, the impact of market developments on household customers, access to the networks including access of electricity produced from renewable energy sources, the progress made with regard to interconnectors, potential barriers to cross-border trade, regulatory barriers for new market entrants and smaller actors, including citizen energy communities, state interventions preventing prices from reflecting actual scarcity, such as those set out in Article 10(4) of Regulation (EU) 2019/943, the performance of the Member States in the area of security of supply of electricity based on the results of the European resource adequacy assessment as referred to 580 Article 1(5) of REMIT.

430

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel in Article 23 of that Regulation, taking into account, in particular, the ex-post evaluation referred to in Article 17 of Regulation (EU) 2019/941. 2. ACER shall publish annually a report on the results of the monitoring referred to in paragraph 1. In that report, it shall identify any barriers to the completion of the internal markets for electricity and natural gas. 3. When publishing its annual report, ACER may submit to the European Parliament and to the Commission an opinion on the possible measures to remove the barriers referred to in paragraph 2. 4. ACER shall issue a best practices report on transmission and distribution tariffs methodologies pursuant to Article 18(9) of Regulation (EU) 2019/943.”

The scope of ACER’s monitoring is defined very broadly in paragraph 1, yet with targeted issues: it starts with the wholesale and retail markets in electricity and natural gas in general, lists specific aspects particularly relevant for the proper functioning of these markets and for effective cross-border trade in electricity and natural gas, and extends to security of electricity supply ensured by Member States on the basis of the European resource adequacy assessment.581 In that context, paragraph 2 puts the focus on the barriers to the completion of the internal markets in electricity and natural gas.

7.308

When monitoring, ACER has to cooperate closely with the Commission, Member States, and the national regulatory authorities as well as other relevant national authorities. The cooperation helps avoiding duplication of monitoring activities and facilitating their performance by providing necessary information.

7.309

The objective and form of ACER’s monitoring follows from paragraph 2 in conjunction of with paragraph 1: ACER must identify any barrier to the completion of the internal markets for electricity and natural gas and the other ‘results’ concerning the monitored areas, it must do so at least annually, and it must publish them in an annual report. On which basis ACER should assess the monitored areas and should reach results has not been defined by Article 15. This leaves ACER with considerable discretion for specifying the relevant indicators. Regarding the monitoring of and reporting on the Member States’ performance in the area of security of electricity supply, Recital 12 of the Risk Preparedness Regulation states however that ACER should use the two indicators ‘expected

7.310

581 Grammatically, the sentence in paragraph 1 seems incomplete as it lists the areas and issues without a final conjunction.

431

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

energy non-served’, expressed in GWh/year, and ‘loss of load expectation’, expressed in hours per year, both also being part of the European resource adequacy assessment carried out by ENTSO-E.

7.311

The fact that ACER needs to report annually does not prevent ACER from making public specific findings also outside the annual report.

7.312

Even if ACER identifies market barriers in the annual report, it is not required to devise concrete measures with which such barriers could be overcome, as clarified by paragraph 3. Still, ACER can propose such measures in an opinion addressed to the European Parliament and the Commission. Given that this option is laid down in a separate legal provision, it seems to aim at establishing the competence for a specific formal contact with the European Parliament and the Commission. Nevertheless, it does not exclude that the relevant proposals for remedial measures are included also in the monitoring report itself.

7.313

Detached from the main monitoring activities, the Clean Energy Package has introduced with paragraph 4 a reference to ACER’s – at least biennial – reporting on transmission and distribution tariff methodologies under Article 18(9) of the Electricity Regulation. The purpose of this best practices report is ‘to in‑ crease transparency and comparability in tariff-setting where binding harmonisa‑ tion is not seen as adequate’ and ‘to mitigate the risk of market fragmentation’. 582 Accordingly, regulatory authorities should take the best practices report into consideration when fixing or approving transmission tariffs and distribution tariffs or their methodologies in accordance with Article 59 of Directive (EU) 2019/944.583

7.314

According to Article 24(2) of the ACER Regulation, the annual report and the opinion on remedial measures do not require a favourable opinion of the Board of Regulators, while the best practices report on tariff methodologies does so.

7.315

Finally, Article 18(3) of the Risk Preparedness Regulation, which is not explicitly mentioned in the ACER Regulation, should also be noted. It requires ACER to monitor the security of electricity supply measures on an ongoing basis and to report regularly to the Electricity Coordination Group.

582 Recital 40 of the Electricity Regulation and Article 18(9) of the Electricity Regulation. 583 Article 18(10) of the Electricity Regulation.

432

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

6.

Procedure

When carrying out its tasks and adopting its acts, ACER is subject to procedural requirements in two dimensions: externally, with regard to the involvement of concerned or interested parties as well of the public, and internally, with regard to the participation of and cooperation between the different ACER bodies.

7.316

Article 14 of the ACER Regulation lays down the rules for the external process, introducing specific procedural safeguards in addition to consultation and transparency requirements, while Article 24 of the ACER Regulation sets out provisions for the internal process, redefining the interaction between the Director and the Board of Regulators and involving the working groups also formally.

7.317

6.1 Consultation and transparency The manner in which ACER is to take its measures is governed by the general principle that ‘ACER should consult interested parties, where appropriate, and provide them with a reasonable opportunity to comment on proposed measures’.584 Article 14 of the ACER Regulation specifies this precept in its paragraphs 1 to 4, by defining the general procedural setting within which ACER should perform its tasks in relation to external parties, with special consideration of framework guidelines and amendments of network codes. Article 14 ACER Regulation “1. In carrying out its tasks, in particular in the process of developing framework guidelines in accordance with Article 59 of Regulation (EU) 2019/943 or Article 6 of Regulation (EC) No 715/2009, and in the process of proposing amendments of network codes under Article 60 of Regulation (EU) 2019/943 or Article 7 of Regulation (EC) No 715/2009 ACER shall, extensively consult at an early stage market participants, transmission system operators, consumers, endusers and, where relevant, competition authorities, without prejudice to their respective competence, in an open and transparent manner, in particular when its tasks concern transmission system operators. 2. ACER shall ensure that the public and any interested parties are, where appropriate, given objective, reliable and easily accessible information, in particular with regard to the results of its work.

584 Recital 25 of the ACER Regulation.

433

7.318

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

All documents and minutes of consultation meetings conducted during the development of framework guidelines in accordance with Article 59 of Regulation (EU) 2019/943 or Article 6 of Regulation (EC) No 715/2009, or during the amendment of network codes referred to in paragraph 1 shall be made public.

3. Before adopting framework guidelines, or proposing amendments to network codes as referred to in paragraph 1, ACER shall indicate how the observations received during the consultation have been taken into account and shall provide reasons where those observations have not been followed. 4. ACER shall make public, on its own website, at least the agenda, the background documents and, where appropriate, the minutes of the meetings of the Administrative Board, of the Board of Regulators and of the Board of Appeal.”

7.319

Paragraph 1 requires ACER to consult and sets out the scope of consultation, in terms of subject-matter as well as addressees. It refers generically to ACER’s performance of tasks, which could encompass any task, and it names a number of categories of parties, which could include any potentially interested party. Such inclusive scope makes indeed sense for outputs of broader relevance and with broader impact. This is in particular the case for the development of framework guidelines and the preparation of proposals for network code amendments, both instruments that can be relevant for a wide range of stakeholders, on which the provisions on consultation in paragraph 1, 2 and 3 focus explicitly.

7.320

On the other hand, assuming a broad scope of consultation also in matters affecting only a limited number of parties is not equally straightforward. For instance, when ACER issues an opinion on the compliance of a regulatory authority’s decision according to Article 6(5) of the ACER Regulation or when it takes a decision on an exemption request for a new interconnector according to Article 10 of the ACER Regulation, it is not obvious why, in such instances of targeted activities, stakeholders need to be consulted extensively even where they are not concerned and although ACER is bound by strict time limits. Moreover, the purpose of the consultation is in fact to involve the interested parties where appropriate.585

7.321

Considering these aspects, the consultation for a specific ACER activity may vary in its scope, and may not automatically involve an extensive consultation of all market participants, TSOs, consumers and end-users.586 585 Recital 25 of the ACER Regulation. 586 Similarly, Ermacora, ‘The Agency for the Cooperation of Energy Regulators (ACER)’, in Jones (ed.), EU

434

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Paragraphs 2, 3 and 4 impose various transparency obligations concerning ACER’s works and functioning:

7.322

In general, ACER has to provide objective, reliable and easily accessible information to the public and any interested parties where this is appropriate, such as in the context of public consultations, and it has to publish the results of its work, e.g. opinion, recommendations, and decisions (para. 2).

7.323

In addition, for framework guidelines and network code amendments, also all documents and minutes of the relevant consultation meetings as well as the evaluation of the observations received during the consultation and the reasons for not following them need to be published (paras. 2 and 3). Though the legal text requires only to ‘indicate’ the evaluation of responses and the reasons for not following them, without specifying to whom and how, doing so in practice will mean to publish them.

7.324

Finally, regarding specifically the meetings of the Administrative Board, of the Board of Regulators and of the Board of Appeal, the agenda, the background documents and, where appropriate, the minutes must be made public (paragraph 4).

7.325

It goes without saying that also in this context ACER has to preserve the confidentiality of information in its possession.

7.326

6.2 Procedural safeguards for decisions Article 41 of the Charter of Fundamental Rights of the European Union lays down a right to good administration. According to this right, every person is entitled to have his or her affairs handled impartially, fairly and within a reasonable time by the institutions and bodies of the Union. This includes the right of a person to be heard before an individual measure adversely affecting that person is taken, the right of the person to have access to the respective file, while respecting the legitimate interests of confidentiality and of professional and business secrecy, and the obligation of the administration to give reasons for its decisions. Energy Law I, The Internal Energy Market, 2010 ed., para. 7.92, when stating, “There is, however, accord‑ ing to Article 10.1 no need for ACER to consult on each and every opinion or recommendation it issues. ACER clearly has some discretion in this respect.” In this context, he argues however also, “One would expect ACER to follow these consultation requirements also when taking any binding decision. Considering its limited resources at least in the starting phase and the short deadlines for issuing decisions or opinions, the establishment of a well structured and efficient consultation process, for example on-line, will be needed to comply with the consultation requirement.”

435

7.327

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.328

In this context, the guiding principle for ACER when taking its decisions is that ‘ACER should exercise its decision-making powers in line with the principles of fair, transparent and reasonable decision-making’.587 Article 14 of the ACER Regulation puts this maxim in more concrete terms in its paragraphs (5) to (8), by laying down specific procedural requirements for ACER’s decisions. Article 14 ACER Regulation “5. ACER shall adopt and publish adequate and proportionate rules of procedure in accordance with the procedure set out in point (t) of Article 19(1). Those rules shall include provisions which ensure a transparent and reasonable decisionmaking process guaranteeing fundamental procedural rights based on the rule of law, including the right to be heard, rules on access to files and the standards specified in paragraphs 6, 7 and 8. 6. Before taking any individual decision as provided for in this Regulation, ACER shall inform any party concerned of its intention to adopt that decision, and shall set a time limit within which the party concerned may express its views on the matter, taking full account of the urgency, complexity and potential consequences of the matter. 7. Individual decisions of ACER shall state the reasons on which they are based for the purpose of allowing an appeal on the merits. 8. The parties concerned by individual decisions shall be informed of the legal remedies available under this Regulation.”

7.329

Paragraph 5 requires the adoption of rules governing the procedure for ACER’s decisions and, in combination with paragraphs 6 to 8, sets out essential procedural requirements which aim to guarantee the rights of the parties concerned and which are to be incorporated in the rules of procedure.

7.330

The key safeguards are: –

Hearing the parties concerned, and to that effect informing them about the intention to adopt a decision and allowing them to express their views on the matter by a set time limit (paras. 5 and 6);

–

Granting the parties concerned access to the file (para. 5);

587

Recital 35 of the ACER Regulation.

436

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

–

Providing a statement of reasons for the decision, to enable the parties concerned to seek legal review and to put the review body in a position to review the decision also on its merits (para. 7);

–

Informing the parties concerned about the legal remedies that can be taken under the ACER Regulation, i.e. an appeal to the Board of Appeal according to Article 28 of the ACER Regulation and, after exhaustion of the appeal procedure, an action for annulment to the General Court according to Article 29 of the same regulation (para. 8).

According to Article 19(1)(t) in conjunction with point (b) of Article 24(1) and point (f ) of Article 22(5) of the ACER Regulation, the rules of procedure are developed in a process of collaboration. The Director makes a proposal to the Administrative Board, the Administrative Board consults the Board of Regulators, the Board of Regulators provides its opinion, and, if the latter is favourable, the Administrative Board finally adopts the rules of procedure.

7.331

By Decision No. 19/2019 of 11 December 2019, the Administrative Board adopted the required rules of procedure.588 Going beyond the requirement of Article 14(5), those rules govern not only the adoption of decisions, but also of opinions and recommendations. They specify the administrative procedure for individual decisions referred to in Article 2(d) of the ACER Regulation and opinions and recommendations referred to in Article 2(a) to (c) of the ACER Regulation, subject to one exception: individual decisions on matters related to wholesale market integrity and transparency regarding the registration of reporting parties for which the already existing rules of procedure established by ACER on the basis of Commission Implementing Regulation (EU) No  1348/2014, in particular Article 11(1) thereof, apply.589 ACER’s internal decision-making process has not been covered; in any event, this process is already governed by the distinct sets of rules of procedure which have been established for the working groups and the Board of Regulators.

7.332

6.3 Internal workflow: Director – Working Group – Board of ­Regulators From the outset, ACER’s regulatory acts are prepared in collaboration of, on the one hand, the Director and ACER’s staff and, on the other hand, the Board of 588 Administrative Board Decision no. 19/2019 of 11 December 2019 on the Rules of Procedure of the European Union Agency for the Cooperation of Energy Regulators. 589 Article 1(1) of the Rules of Procedure.

437

7.333

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.334

Regulators and the staff of the national regulatory authorities. Whereas members of ACER’s staff and of the staff of the regulatory authorities collaborated in working groups (and task forces under these groups), the Director has been responsible for preparing the opinions, recommendations and decisions and, for most of them, the Board of Regulators for endorsing them by a favourable opinion. Notable exceptions to the requirement of a favourable opinion were, and still are, REMIT matters, and decisions on investment requests and cross-border cost allocation under Article 12 of the TEN-E Regulation.

7.335

Before the Clean Energy Package, the involvement of working groups was not required by law, and the Board of Regulators could issue its opinion only on the proposal as such, i.e. accept the proposal, by granting a favourable opinion, or reject it entirely, by denying the favourable opinion.

7.336

This has been changed with the Clean Energy Package, and in particular with Article 24(2) of the ACER Regulation: now, the working groups have been assigned a formal role in the preparation process and the Board of Regulators has been given more flexibility. Article 24 ACER Regulation “1. The Director shall:

[…] (c) draft, consult upon, adopt and publish opinions, recommendations and decisions;

2. For the purposes of point (c) of paragraph 1 of this Article, opinions, recommendations and decisions referred to in Article 3(1), Articles 4 to 8, Article 9(1) and (3), Article 10, point (c) of Article 11, Article 13, Article 15(4), and Articles 30 and 43 shall be adopted only after having obtained the favourable opinion of the Board of Regulators.

Before submitting draft opinions, recommendations or decisions to a vote by the Board of Regulators, the Director shall submit proposals for the draft opinions, recommendations or decisions to the relevant working group for consultation sufficiently in advance.

438

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

The Director: (a) shall take the comments and amendments of the Board of Regulators into account and shall resubmit the revised draft opinion, recommendation or decision to the Board of Regulators for a favourable opinion; (b) may withdraw submitted draft opinions, recommendations or decisions provided that the Director submits a duly justified written explanation where the Director disagrees with the amendments submitted by the Board of Regulators;



In the case of a withdrawal of a draft opinion, recommendation or decision, the Director may issue a new draft opinion, recommendation or decision following the procedure set out in point (a) of Article 22(5) and in the second subparagraph of this paragraph. For the purposes of point (a) of the third subparagraph of this paragraph, where the Director deviates from or rejects the comments and amendments received from the Board of Regulators, the Director shall also provide a duly justified written explanation.



If the Board of Regulators does not give a favourable opinion on the resubmitted text of the draft opinion, recommendation or decision because its comments and amendments were not adequately reflected in the resubmitted text, the Director may revise the text of the draft opinion, recommendation or decision further in accordance with the amendments and comments proposed by the Board of Regulators in order to obtain its favourable opinion, without having to consult the relevant working group again or having to provide additional written reasons.”

The Director still formally prepares, adopts and publishes the relevant acts. Before submitting a proposal for a favourable opinion to the Board of Regulators, the Director must consult the relevant working group. The Board of Regulators can then provide not only its opinion, but also comments on and amendments to the text of the Director’s proposal. Those comments and amendments are not meant to overrule the Director,590 otherwise there would not be the option of withdrawing the proposal, but should foster a ‘constructive dialogue’ between the Director and the Board of Regulators, and the Director should ‘ have the possibility of seeking the favourable opinion of the Board of Regulators on a new or revised draft text at any stage of the procedure’.591 590 See Schütz, ‘A reinforced governance of the European electricity market’, in Jones/Ermacora (ed.), EU En‑ ergy Law XIII, 2020 ed., para. 7.119 et seq. 591 Recital 36 of the ACER Regulation.

439

7.337

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.338

In case the Board of Regulators does not grant a favourable opinion, but provides comments and amendments, the following scenarios could unfold:

7.339

The Director takes the comments and amendments of the Board of Regulators fully into account and submits a revised proposal (pt. (a) of the third subpara.).

7.340

The Director deviates from or rejects the comments and amendments of the Board of Regulators, provides a duly justified written explanation and submits a revised proposal (fourth subpara.). If the Board of Regulators does not give a favourable opinion, the Director can revise the text further in line with the comments and amendments proposed by the Board of Regulators, in order to obtain a favourable opinion (fifth subpara.).

7.341

The Director rejects the comments and amendments of the Board of Regulators, provides a duly justified written explanation and maintains its initial proposal (fourth subpara.). If the Board of Regulators does not give a favourable opinion, the Director can revise the text further in line with the comments and amendments proposed by the Board of Regulators, in order to obtain a favourable opinion (fifth subpara.).

7.342

The Director disagrees with the comments and amendments, withdraws the proposal and provides a duly justified written explanation (pt. (a) of the third subpara.). The Director may submit a new proposal in accordance with the procedure under point (a) of Article 22(5) and the second subparagraph of Article 24(2) of the ACER Regulation (fourth subpara.).

7.343

Following a favourable opinion by the Board of Regulators, it is for the Director to adopt the respective opinion, recommendation or decision and publish it, in accordance with point (c) of Article 24(1) of the ACER Regulation.

7. 7.344

Organisation of ACER

ACER follows largely the institutional setting and governance principles on which all EU regulatory agencies are based. Article 16 ACER Regulation “1. ACER shall be a Union body with legal personality.

440

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 2. In each Member State, ACER shall enjoy the most extensive legal capacity accorded to legal persons under national law. It shall, in particular, be able to acquire or dispose of movable and immovable property and be a party to legal proceedings. 3. ACER shall be represented by its Director. 4. The seat of ACER shall be Ljubljana, Slovenia.

Article 17 ACER Regulation ACER shall be composed of: (a) an Administrative Board, which shall exercise the tasks set out in Article 19; (b) a Board of Regulators, which shall exercise the tasks set out in Article 22; (c) a Director, who shall exercise the tasks set out in Article 24; and (d) a Board of Appeal, which shall exercise the tasks set out in Article 28.”

ACER’s governance structure is formally embodied by the Administrative Board, the Board of Regulators, the Board of Appeal and the Director.592 Unlike the ‘Common Approach’ on EU decentralised agencies agreed between the European Parliament, the Council and the European Commission,593 ACER has no Management Board with comprehensive decision-making powers, but features a Board of Regulators that participates in the preparation of opinions, recommendations and decisions concerning regulatory matters and ensures that the specific role of the regulatory authorities is taken into account and their independence guaranteed.594

7.345

Aside the four main bodies, working groups play a significant rule in the functioning of ACER. They are explicitly recognised by the legislation, but they do not qualify as a formal body of ACER.595

7.346

592 Article 17 of the ACER Regulation. 593 See Joint Statement of the European Parliament, the Council of the EU and the European Commission on decentralised agencies of 19.7.2012. 594 Recital 30 of the ACER Regulation. 595 Article 30 of the ACER Regulation.

441

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.1 Administrative Board 7.347

The Administrative Board is the governing body of ACER, responsible for administrative and institutional matters.

7.1.1 Composition and voting Article 18 ACER Regulation “1. The Administrative Board shall be composed of nine members. Each member shall have an alternate. Two members and their alternates shall be appointed by the Commission, two members and their alternates shall be appointed by the European Parliament and five members and their alternates shall be appointed by the Council. No Member of the European Parliament shall be a member of the Administrative Board. A member of the Administrative Board shall not be a member of the Board of Regulators. 2. The term of office of the members of the Administrative Board and their alternates shall be four years, renewable once. For the first mandate, the term of office of half of the members of the Administrative Board and their alternates shall be six years. 3. The Administrative Board shall elect its Chair and its Vice-Chair from among its members by a two-thirds majority. The Vice-Chair shall automatically replace the Chair if the latter is not in a position to perform his or her duties. The term of office of the Chair and of the Vice-Chair shall be two years, renewable once. The term of office of the Chair and that of the Vice-Chair shall expire when they cease to be members of the Administrative Board. 4. The meetings of the Administrative Board shall be convened by its Chair. The Chair of the Board of Regulators or the nominee of the Board of Regulators, and the Director shall participate, without the right to vote, in the deliberations unless the Administrative Board decides otherwise as regards the Director. The Administrative Board shall meet at least twice a year in ordinary session. It shall also meet at the initiative of its Chair, at the request of the Commission or at the request of at least a third of its members. The Administrative Board may invite any person who may have a relevant opinion to attend its meetings in the capacity of an observer. The members of the Administrative Board may, subject to its rules of procedure, be assisted by advisers or experts. The Administrative Board’s secretarial services shall be provided by ACER. 442

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 5. Decisions of the Administrative Board shall be adopted on the basis of a twothirds majority of the members present, unless provided otherwise in this Regulation. Each member of the Administrative Board or alternate shall have one vote. 6. The rules of procedure shall set out in greater detail: (a) the arrangements governing voting, in particular the conditions on the basis of which one member may act on behalf of another and also, where appropriate, the rules governing quorums; and (b) the arrangements governing the rotation applicable to the renewal of the members of the Administrative Board who are appointed by the Council so as to ensure a balanced participation of Member States over time. 7. Without prejudice to the role of the members appointed by the Commission, the members of the Administrative Board shall undertake to act independently and objectively in the interest of the Union as a whole, and shall neither seek nor follow instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other public or private body. For that purpose, each member shall make a written declaration of commitments and a written declaration of interests, indicating either the absence of any interest which might be considered to be prejudicial to his or her independence or any direct or indirect interest which might be considered prejudicial to his or her independence. ACER shall make those declarations public on an annual basis.”

The Administrative Board has been composed of nine voting-members, and their alternates. Five of those members and the respective alternates are appointed by the Council, two by the Commission and two by the European Parliament. Members of the European Parliament and members of ACER’s Board of Regulators cannot be appointed (para. 1).

7.348

With the incorporation of Regulation (EC) No 713/2009 in the EEA Agreement, it has been provided that the national regulatory authorities of the EFTA States (Iceland, Liechtenstein and Norway) shall participate fully in the Administrative Board, however without having the right to vote.596 Accordingly, the Administrative Board includes also one non-voting member appointed by the national regulatory authorities of the EFTA States.

7.349

596

Decision of the EEA Joint Committee No 93/2017 of 5 May 2017.

443

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.350

The members’ and alternates’ term of office is in general four years and can be renewed one more time so that the maximum term is eight years. For half of the members and alternates the first mandate lasted six years, with a potential renewal by four years (para. 2). Thus, half of the members is up for appointment every two years. For the renewal of the members and alternates appointed by the Council, a rotation system is envisaged to ensure a balanced participation of Member States over time (para. 6).597

7.351

The Administrative Board must meet at least twice a year in ordinary session. The Chair of the Board of Regulators, or a nominee of the Board of Regulators, and, unless otherwise decided by the Administrative Board, also the Director have to participate in the Administrative Board’s meetings, but without the right to vote (para. 4).

7.352

The Administrative Board takes its decisions in general by a two-thirds majority of the members present, without being subject to any minimum quorum under the ACER Regulation (para. 5). In the case of a decision to remove the Director according to Article 23(7) of the ACER Regulation, the legal text refers to ‘members’, and not to ‘members present’. It is not clear whether this difference should suggest that the removal of the Director is to be decided by all members of the Administrative Board. In practice, a quorum of two thirds of the members with voting rights being present or represented by their alternate or by a proxy has been required, with the option that in case of failing the quorum four members with voting rights (or their alternates) can take a valid decision as long as it does not concern the nomination or removal of the Director from office and the adoption or change of the Administrative Board’s rules of procedure.598

7.353

The members of the Administrative Board must act independently and objectively in the interest of the Union and must not seek or follow instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other public or private body (para. 7). The requirement for independence and objectivity has become more specific and broader with the Clean Energy Package, replacing references to the public interest and to political instructions.599 This still allows important knowledge transfer between the Commission and ACER with regard to the application of administrative rules. Since Union agencies apply many administrative rules, in particular in relation 597 See also Recital 32 of the ACER Regulation. 598 Article 7 of the AB Rules of Procedure of 17 June 2020, https://www.acer.europa.eu/en/The_agency/ Organisation/Administrative_Board/Documents/Rules%20of%20Procedure%20of%20the%20Administratrive%20Board%20-%20Consolidated%20Version.pdf. 599 In that sense still Recital 32 of the ACER Regulation.

444

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

to budgetary issues, which have been designed by the Commission, the agencies’ functioning can benefit from the administrative expertise of the Commission services. This knowledge is typically provided by the representative of the Commission in the Administrative Board.

7.1.2 Functions Article 19 ACER Regulation “1. The Administrative Board shall: (a) after consulting the Board of Regulators and obtaining its favourable opinion in accordance with point (c) of Article 22(5), appoint the Director in accordance with Article 23(2) and where relevant extend his or her term of office or remove him or her from office; (b) formally appoint the members of the Board of Regulators nominated in accordance with Article 21(1); (c) formally appoint the members of the Board of Appeal in accordance with Article 25(2); (d) ensure that ACER carries out its mission and performs the tasks assigned to it in accordance with this Regulation; (e) adopt the programming document referred to in Article 20(1) by a twothirds majority of its members and, if applicable, amend it in accordance with Article 20(3); (f ) adopt the annual budget of ACER and exercise its other budgetary functions in accordance with Articles 31 to 35; (g) decide, after obtaining the agreement of the Commission, whether to accept any legacies, donations or grants from other Union sources or any voluntary contribution from the Member States or from the regulatory authorities. The opinion of the Administrative Board delivered pursuant to Article 35(4) shall address the sources of funding set out in this paragraph; (h) after consulting the Board of Regulators, exercise disciplinary authority over the Director. In addition, in accordance with paragraph 2, it shall exercise, 445

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel with respect to the staff of ACER, the powers conferred by the Staff Regulations on the Appointing Authority and by the Conditions of Employment on the Authority Empowered to conclude a Contract of Employment; (i) draw up ACER’s implementing rules for giving effect to the Staff Regulations and the Conditions of Employment in accordance with Article 110 of the Staff Regulations pursuant to Article 39(2); (j) adopt practical measures regarding the right of access to ACER’s documents, in accordance with Article 41; (k) adopt and publish the annual report on ACER’s activities, on the basis of the draft annual report referred to in point (i) of Article 24(1), and shall submit that report to the European Parliament, the Council, the Commission, and the Court of Auditors by 1 July of each year. The annual report on ACER’s activities shall contain an independent section, approved by the Board of Regulators, concerning ACER’s regulatory activities during that year; (l) adopt and publish its own rules of procedure; (m) adopt the financial rules applicable to ACER in accordance with Article 36; (n) adopt an anti-fraud strategy, proportionate to the risk of fraud, taking into account the costs and benefits of the measures to be implemented; (o) adopt rules for the prevention and management of conflicts of interest in respect of its members as well as members of the Board of Appeal; (p) adopt and regularly update the communication and dissemination plans referred to in Article 41; (q) appoint an Accounting Officer, subject to the Staff Regulations and the Conditions of Employment, who shall be totally independent in the performance of his or her duties; (r) ensure appropriate follow-up to findings and recommendations stemming from the internal or external audit reports and evaluations, as well as from investigations of the European Anti-Fraud Office (OLAF);

446

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel (s) authorise the conclusion of working arrangements in accordance with Article 43; (t) on the basis of a proposal from the Director in accordance with point (b) of Article 24(1), and after consulting the Board of Regulators and obtaining its favourable opinion in accordance with point (f ) of Article 22(5), adopt and publish the rules of procedure referred to in Article 14(5). 2. The Administrative Board shall adopt, in accordance with Article 110 of the Staff Regulations, a decision based on Article 2(1) of the Staff Regulations and on Article 6 of the Conditions of Employment, delegating relevant appointing authority powers to the Director and defining the conditions under which that delegation of powers can be suspended. The Director shall be authorised to subdelegate those powers. 3. Where exceptional circumstances so require, the Administrative Board may by way of a decision temporarily suspend the delegation of the appointing authority powers to the Director and those sub-delegated by the latter and in favour of itself or delegate them to one of its members or to a staff member other than the Director. The exceptional circumstances shall be strictly limited to administrative, budgetary or managerial matters, without prejudice to the Director’s full independence concerning his or her tasks pursuant to point (c) of Article 24(1).”

The Administrative Board is responsible for governing the operation of ACER. Among those responsibilities are the appointment of the Director and of the members of the Board of Regulators as well as of the Board of Appeal, the adoption of the programming document for annual and multi-annual planning, of the annual budget as well as of an opinion on the yearly financial accounts, of an anti-fraud strategy, of rules of procedures for ACER’s decisions, and of the annual report, and the supervision of ACER’s performance.

7.354

Regarding the appointment function, it is to note that Article 19 differentiates between ’appointment’ of the Director (pt. (a) of para. 1) and ‘formal appointment’ of the members of the Board of Regulators and of the Board of Appeal (pts. (b), (c) of para. 1). This distinction could indicate that the Administrative Board should have less freedom of choice when it appoints the members of the Board of Regulators and the Board of Appeal than for the appointment of the Director: while in the former case the members are nominated by the national regulatory authorities (Board of Regulators)600 and proposed by the Commis-

7.355

600 Article 21(1) of the ACER Regulation.

447

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

sion (Board of Appeal),601 which leaves little decision-making authority other than to assess whether the selection procedure followed the requirements of the ACER Regulation, the Administrative Board does have discretion in that it can select the Director from a list of candidates proposed by the Commission, yet of course within the limits of the favourable opinion of the Board of Regulators.602

7.356

A significant task of the Administrative Board is to ensure that ACER carries out its mission and performs the tasks assigned to it in accordance with the ACER Regulation (pt. (d) of para. 1). This raises the question by which means the Administrative Board can provide such assurance, in particular in view of the strong role of the Board of Regulators in regulatory matters. The powers especially relevant in this context are those related to the programming document, the budget and the disciplinary authority over the Director.

7.357

The Administrative Board adopts the annual and multi-annual programming document (pt. (e) of para. 1), thereby setting the objectives and the frame which may lead ACER towards compliance with its mission and tasks. Still, this does not guarantee that ACER does indeed follow the programming document. Moreover, the draft programming document is prepared by the Director, and the Administrative Board can adopt the programming document only after having taken into account the opinion of the Commission and obtaining the Board of Regulators’ favourable opinion.603

7.358

The Administrative Board plays a central role in establishing ACER’s budget (pt. (f ) of para. 1).604 Notably by making the annual estimate of ACER’s revenue and expenditure,605 the Administrative Board can lay an important cornerstone for the provision of the financial and human resources necessary and appropriate for ACER to perform adequately and efficiently. In the end, though, also those budgetary powers are no direct safeguard against any failure of ACER to fulfil its Regulatory duties.

7.359

The Administrative Board exercises disciplinary authority over the Director (pt. (h) of para. 1). In this context, the Administrative Board may even remove the Director from office in accordance with Article 23(7) of the ACER Regulation. Given that this is a powerful sanction, it will not be appropriate for addressing every shortcoming. Further, the Administrative Board’s disciplinary authority 601 602 603 604 605

Article 25(2) of the ACER Regulation. Article 23(2) of the ACER Regulation. Article 20(1) of the ACER Regulation. In conjunction with Articles 31 to 35 of the ACER Regulation. Article 23(3) of the ACER Regulation.

448

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

reaches its limits where the Director implements the annual work programme under the guidance of the Board of Regulators606 and acts in accordance with the opinions or guidance of the Board of Regulators.607 In such case it might be difficult to argue that the Director’s compliance constitutes misconduct. When it comes to the regulatory tasks of ACER, it is therefore rather the Board of Regulators than the Administrative Board which has a final say to ensure compliance.

7.2 Board of Regulators The Board of Regulators is the advisory and supervisory body with regard to regulatory and strategic matters.

7.2.1 Composition and voting Article 21 ACER Regulation “1. The Board of Regulators shall be composed of: (a) senior representatives of the regulatory authorities, in accordance with Article 57(1) of Directive (EU) 2019/944 and Article 39(1) of Directive 2009/73/EC, and one alternate per Member State from the current senior staff of those authorities, both nominated by the regulatory authority; (b) one non-voting representative of the Commission.

Only one representative per Member State from the regulatory authority may be admitted to the Board of Regulators.

2. The Board of Regulators shall elect a Chair and a Vice-Chair from among its members. The Vice-Chair shall replace the Chair if the latter is not in a position to perform his or her duties. The term of office of the Chair and of the Vice-Chair shall be two-and-a-half years and shall be renewable. In any event, however, the term of office of the Chair and that of the Vice-Chair shall expire when they cease to be members of the Board of Regulators.”

606 Article 24(1)(d) of the ACER Regulation. 607 Article 23(1) of the ACER Regulation.

449

7.360

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.361

The Board of Regulators has been made up of senior representatives, one member and one alternate per Member State, of the national regulatory authorities as well as of one representative, and its alternate, of the Commission; the members of the regulatory authorities have voting rights, the Commission’s representative is non-voting (para. 1). Thus, the voting members of the Board of Regulators and their alternates are all active staff members of the national regulatory authorities who are nominated directly by these authorities. The final, formal appointment of the members and their alternates lies with the Administrative Board.608

7.362

Following the incorporation of Regulation (EC) No 713/2009 in the EEA Agreement, the national regulatory authorities of the EFTA States (Iceland, Liechtenstein and Norway) participate also in the Board of Regulators, but without having the right to vote.609 Accordingly, the Board of Regulators includes also a senior representative from each regulatory authority of the EFTA States and one representative of the EFTA Surveillance Authority, as well as respectively their alternates.

7.363

The term of office of the members and the alternates is in general not prescribed by the ACER Regulation. Only for the chair and the vice-chair, the appointment to these posts is limited to a period of two-and-a-half years, however with the possibility to be renewed (para. 2).

7.364

The ACER Regulation does not lay down how often the Board of Regulators has to meet. In practise, the meetings are convened as often as needed, but in general once per month.610 The Director may attend the meetings of the Board of Regulators as an observer.611 Article 22 ACER Regulation “1. The Board of Regulators shall act by a two-thirds majority of the members present, with one vote for each member. 2. The Board of Regulators shall adopt and publish its rules of procedure, which shall set out in greater detail the arrangements governing voting, in particular the conditions on the basis of which one member may act on behalf of another and 608 Article 19(1)(b) of the ACER Regulation. 609 Decision of the EEA Joint Committee No 93/2017 of 5 May 2017. 610 Article 4.1 of the Rules of Procedure of 14 April 2020, https://www.acer.europa.eu/en/The_agency/Organisation/Board_of_Regulators/Documents/BoR90-09.3__RoP%20approved_EP_14042020.pdf 611 Article 23(1) of the ACER Regulation.

450

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel also, where appropriate, the rules governing quorums. The rules of procedure may provide for specific working methods for the consideration of issues arising in the context of regional cooperation initiatives. 3. When carrying out the tasks conferred upon it by this Regulation and without prejudice to its members acting on behalf of their respective regulatory authority, the Board of Regulators shall act independently and shall not seek or follow instructions from any government of a Member State, from the Commission, or from another public or private entity. 4. The secretarial services of the Board of Regulators shall be provided by ACER.”

The Board of Regulators adopts its decisions in general on the basis of a twothirds majority of the members present,612 without being subject to a clear quorum under the ACER Regulation. This now applies also for its voting on the favourable opinion for the Director candidate, replacing the previous requirement of a three-quarters majority (para. 1). In practice, a quorum of the majority of the members being present or represented has been required, however where such majority could not be achieved, the members present or represented at the subsequent meeting have been entitled to reach a decision for the Board of Regulators irrespective of their number.613

7.365

Similar to the Administrative Board, the Board of Regulators must act independently and must not seek or take instructions from any government of a Member State, from the Commission, or from another public or private entity (para. 3). This means that ‘the Board of Regulators should therefore act independently from any market interest, should avoid conflicts of interests and should not seek or follow instructions or accept recommendations from a government of a Member State, from Union institutions or another public or private entity or person’.614

7.366

612 Regarding the reasons for not requiring unanimity, see Ermacora, ‘The Agency for the Cooperation of Energy Regulators (ACER)’, in Jones (ed.), EU Energy Law I, The Internal Energy Market, 2010 ed., para. 7.110: “The Commission presented the turning away from the unanimity rule which was the basis of deci‑ sion making within the European Regulator Group for Electricity and Gas (ERGEG) as a key driver for proposing a new structure for the cooperation of national regulatory authorities at Community level (Ex‑ planatory Memorandum, page 10). Accordingly, the requirement to find agreement among 27 regulators was not producing sufficient results. It had not led to real decisions on the difficult issues that need to be taken.” 613 See Article 6.6 of the BoR Rules of Procedure of 14 April 2020. 614 Recital 33 of the ACER Regulation.

451

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.367

This independence requirement applies ‘without prejudice to its members acting on behalf of their respective regulatory authority’.615 Thus, the affiliation of the members of the Board of Regulators with their national regulatory authorities does not per se put the members’ independence into question. On the other hand, the decisions of the Board of Regulators ‘should, at the same time, comply with Union law concerning energy, such as the internal energy market, the envi‑ ronment and competition’. 616

7.2.2 Functions Article 22 ACER Regulation “5. The Board of Regulators shall: (a) provide opinions and, where appropriate, comments on and amendments to the text of the Director’s proposals for draft opinions, recommendations and decisions referred to in Article 3(1), Articles 4 to 8, Article 9(1) and (3), Article 10, point (c) of Article 11, Article 13, Article 15(4), and Articles 30 and 43 which are considered for adoption; (b) within its field of competence, provide guidance to the Director in the execution of his or her tasks, with the exception of ACER’s tasks under Regulation (EU) No 1227/2011 and provide guidance to ACER’s working groups established pursuant to Article 30; (c) provide an opinion to the Administrative Board on the candidate to be appointed as Director in accordance with point (a) of Article 19(1) and Article 23(2); (d) approve the programming document in accordance with Article 20(1); (e) approve the independent section on regulatory activities of the annual report, in accordance with point (k) of Article 19(1) and point (i) of Article 24(1); (f ) provide an opinion to the Administrative Board on the rules of procedure under Article 14(5) and Article 30(3);

615 Recital 33 of the ACER Regulation. 616 Recital 33 of the ACER Regulation.

452

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel (g) provide an opinion to the Administrative Board on the communication and dissemination plans referred to in Article 41; (h) provide an opinion to the Administrative Board on the rules of procedure for relations with third countries or international organisations referred to in Article 43.

The European Parliament shall be informed of the draft agenda of upcoming meetings of the Board of Regulators at least two weeks in advance. Within two weeks of those meetings, the draft minutes shall be sent to the European Parliament. The European Parliament may invite, while fully respecting his or her independence, the Chair of the Board of Regulators or the Vice-Chair to make a statement before its competent committee and answer questions put by the members of that committee.”

The Board of Regulators plays a key role within ACER. It supervises and directs ACER’s policy in regulatory matters. Most notably, it exerts significant influence on the formal acts of ACER by issuing opinions on the opinions, recommendations and decisions which are to be adopted according to Article 3(1), Articles 4 to 8, Article 9(1) and (3), Article 10, point (c) of Article 11, Article 13, Article 15(4), and Articles 30 and 43 of the ACER Regulation (pt. a of para. 5), and by providing guidance to ACER’s Director in the execution of his or her tasks (pt. (b) of para. 5). The Director has to act in accordance with the opinions and guidance of the Board of Regulators617 and can adopt only those opinions, recommendations and decisions for which the opinion of the Board of Regulators is favourable.618

7.368

The Board of Regulators’ favourable opinion on the Director’s proposal is a prerequisite for the adoption of the listed acts. By not issuing a favourable opinion, the Board of Regulators could in fact block the adoption of an act with which it would not be satisfied. To avoid a deadlock, the Board of Regulators has been empowered to provide also comments on and amendments to the Director’s text proposal. Article 24(2) of the ACER Regulation refines this process of interaction between the Director and the Board of Regulators.619

7.369

The Board of Regulators can guide the Director only ‘within its field of competences’. In the absence of a specific definition, these competences arise in the

7.370

617 Article 23(1) of the ACER Regulation. 618 Article 24(2) of the ACER Regulation. 619 See sections 6.3 and 7.3.2.

453

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

first place from Article 22 itself and cover the issues on which it can issue an opinion according to paragraph 5 of that article, i.e. with the exception of tasks under REMIT. Thus, the Board of Regulators is not entitled to impose on the Director its view in areas such as market monitoring and reporting (Article 15), the preparation and implementation of the budget (Articles 33, 34) or human resources (Article 39), as these areas are outside the competence of the Board of Regulators.

7.371

The central role of the Board of Regulators within ACER is underlined by the fact that the appointment of ACER’s Director requires the Board of Regulators’ favourable opinion (pt. (c) of para. 5) and that the adoption of ACER’s programming document and of the rules of procedure for ACER’s decision-making process and for its working groups is also subject to the favourable opinion of the Board of Regulators in accordance with to Article 20(1) (pts.  (d), (f ) of para. 5).

7.3 Director 7.372

The Director is the formal head of ACER, representing and managing the agency.

7.3.1 Profile and appointment Article 23 ACER Regulation “1. ACER shall be managed by its Director, who shall act in accordance with the guidance referred to in point (b) of Article  22(5) and, where provided for in this Regulation, the opinions of the Board of Regulators. Without prejudice to the respective roles of the Administrative Board and the Board of Regulators in relation to the tasks of the Director, the Director shall neither seek nor follow any instruction from any government, from the Union institutions, or from any other public or private entity or person. The Director shall be accountable to the Administrative Board with respect to administrative, budgetary and managerial matters, but remain fully independent concerning his or her tasks under point (c) of Article 24(1). The Director may attend the meetings of the Board of Regulators as an observer. 2. The Director shall be appointed by the Administrative Board following a favourable opinion of the Board of Regulators, on the basis of merit as well as skills and experience relevant to the energy sector, from a list of at least three candidates proposed 454

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel by the Commission, following an open and transparent selection procedure. Before appointment, the candidate selected by the Administrative Board shall make a statement before the competent committee of the European Parliament and answer questions put by its members. For the purpose of concluding the contract with the Director, ACER shall be represented by the Chair of the Administrative Board. 3. The Director’s term of office shall be five years. In the course of the nine months preceding the end of that period, the Commission shall undertake an assessment. In the assessment, the Commission shall examine in particular: (a) the performance of the Director; (b) ACER’s duties and requirements in the following years. 4. The Administrative Board, acting on a proposal from the Commission, after consulting the Board of Regulators and giving the utmost consideration to the assessment and opinion of the Board of Regulators, and only where justified on the basis of the duties and requirements of ACER, may extend the term of office of the Director once by no more than five years. A Director whose term of office has been extended shall not participate in another selection procedure for the same post at the end of the extended period. 5. The Administrative Board shall inform the European Parliament of its intention to extend the Director’s term of office. Within one month before the extension of his or her term of office, the Director may be invited to make a statement before the competent committee of the European Parliament and to answer questions put by the members of that committee. 6. If his or her term of office is not extended, the Director shall remain in office until the appointment of his or her successor. 7. The Director may be removed from office only upon a decision of the Administrative Board, after having obtained a favourable opinion of the Board of Regulators. The Administrative Board shall reach that decision on the basis of a twothirds majority of its members. 8. The European Parliament and the Council may call upon the Director to submit a report on the performance of his or her duties. The European Parliament may also invite the Director to make a statement before its competent committee and answer questions put by the members of that committee.” 455

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.373

The Director is selected on the basis of ‘merit as well as skills and experience relevant to the energy sector’ and appointed by the Administrative Board. The latter’s discretion is limited: the Administrative Board can appoint only a person who is among the candidates proposed by the Commission and receives a favourable opinion by the Board of Regulators (para. 2).

7.374

In the appointment process, the European Parliament is also involved. Before the appointment, the candidate selected by the Administrative Board must make a statement before the competent committee and answer questions of the committee’s members (para. 2). Thus, the European Parliament can get an impression of the candidate and to some extent test him or her. In the end however, the European Parliament will have no right to block the appointment of the candidate.620

7.375

The Director’s term of office is five years and may be extended once by no more than five years (paras. 3, 4). Such extension follows a process which involves the same players as for the initial appointment, namely in any case the Commission, the Board of Regulators as well as the Administrative Board, and potentially the European Parliament. Before the expiry of the term, the Director may be removed from office only by a decision of the Administrative Board, based on a favourable opinion of the Board of Regulators (para. 7). It is noteworthy that unlike for the initial appointment and the removal which both require a favourable opinion of the Board of Regulators, the Administrative Board’s decision on an extension should simply give ‘the utmost consideration to the […] opinion of the Board of Regulators’ (para. 4). Thus, the Board of Regulators cannot effectively prevent the extension of the Director’s term, while by withholding a favourable opinion it is in a position to preclude the Director’s appointment, as well as his or her removal, by the Administrative Board – the ACER Regulation does not provide for a process to resolve potential conflicts between the Board of Regulators and the Administrative Board.

7.376

To preserve ACER’s independence, also the Director must neither seek nor follow any instruction from any government, from the Union institutions, or from any other public or private entity or person. He or she is accountable to the Administrative Board with respect to administrative, budgetary and managerial matters, but remains completely independent with regard to his or her task to draft, consult upon, adopt and publish opinions, recommendations and decisions (para. 1). Notwithstanding that, the Director will have to work on 620 The European Parliament’s Resolution on the Commission’s initial Proposal wanted to subject the appointment of the Director to a vote of approval by the European Parliament. This was rejected by the Council.

456

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

regulatory issues under the guidance and subject to the opinions of the Board of Regulators.

7.3.2 Tasks Article 24 ACER Regulation “1. The Director shall: (a) be the legal representative of ACER and shall be in charge of its day-to-day management; (b) prepare the work of the Administrative Board, participate, without having the right to vote, in the work of the Administrative Board and have responsibility for implementing the decisions adopted by the Administrative Board; (c) draft, consult upon, adopt and publish opinions, recommendations and decisions; (d) be responsible for implementing ACER’s annual work programme under the guidance of the Board of Regulators and under the administrative control of the Administrative Board; (e) take the necessary measures, in particular as regards adopting internal administrative instructions and publishing notices, to ensure the functioning of ACER in accordance with this Regulation; (f ) each year, prepare ACER’s draft work programme for the following year, and shall, after the adoption of the draft by the Administrative Board submit it to the Board of Regulators, to the European Parliament and to the Commission by 31 January every year; (g) be responsible for implementing the programming document and reporting to the Administrative Board on its implementation; (h) draw up a provisional draft estimate of ACER pursuant to Article 33(1) and implement ACER’s budget in accordance with Articles 34 and 35;

457

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel (i) each year, prepare and submit to the Administrative Board a draft annual report including an independent section on ACER’s regulatory activities and a section on financial and administrative matters; (j) prepare an action plan following up on the conclusions of internal or external audit reports and evaluations, as well as on investigations by OLAF, and report on progress twice a year to the Commission and report regularly on progress to the Administrative Board; (k) be responsible for deciding whether, for the purpose of carrying out ACER’s tasks in an efficient and effective manner, it is necessary to locate one or more members of staff in one or more Member States.

For the purpose of point (k) of the first subparagraph, before deciding to establish a local office the Director shall seek the opinion of the Member States concerned, including the Member State in which ACER’s seat is located, and shall obtain the prior consent of the Commission and the Administrative Board. The decision shall be based on an appropriate cost-benefit analysis and shall specify the scope of the activities to be carried out at that local office in a manner that avoids unnecessary costs and duplication of ACER’s administrative functions.”

7.377

The Director represents ACER externally and is in charge of the day-to-day management and the implementation of the work programme (pts. (a), (d)). This implies that the Director is responsible in particular for implementing the decisions adopted by the Administrative Board (pt. (b)), for the preparation, adoption and publication of all opinions, recommendations and decisions of ACER (pt. (c)), for the adoption of internal administrative instructions for the functioning of ACER (pt. (e)), for the preparation of ACER’s annual work programme, the annual and multiannual programming document, and the annual report (pt. (f ), (g), (i)), for the preparation of a draft budget and implementation of the final budget (pt. h), and for certain measures following audits (pt. (j)). In addition, the Director may also decide to establish a local office in another Member State, provided the Commission and the Administrative Board agree (para. (k)).

7.378

In addition, Article 24(2) of the ACER Regulation sets out the Director’s tasks with regard to obtaining the Board of Regulators’ favourable opinion, in order to adopt the legal act in question.621 621 See section 6.3 above.

458

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

According to Article 19(2) of the ACER Regulation, the Administrative Board may delegate to the Director also the powers of the appointing authority in staff matters.

7.379

7.4 Board of Appeal The Board of Appeal is the internal review body for ACER’s decisions, deciding on appeals against those decisions.

7.4.1 Composition Article 25 ACER Regulation “1. ACER shall establish a Board of Appeal. 2. The Board of Appeal shall be composed of six members and six alternates selected from among current or former senior staff of the regulatory authorities, competition authorities or other Union or national institutions with relevant experience in the energy sector. The Board of Appeal shall designate its Chair.

The members of the Board of Appeal shall be formally appointed by the Administrative Board, on a proposal from the Commission, following a public call for expression of interest, and after consulting the Board of Regulators.

3. The Board of Appeal shall adopt and publish its rules of procedure. Those rules shall set out in detail the arrangements governing the organisation and functioning of the Board of Appeal and the rules applicable to appeals before the Board, pursuant to Article 28. The Board of Appeal shall notify the Commission of its draft rules of procedure as well as any significant change to those rules. The Commission may provide an opinion on those rules within three months of the date of receipt of the notification.

ACER’s budget shall comprise a separate budget line for the financing of the registry of the Board of Appeal.

4. The decisions of the Board of Appeal shall be adopted on the basis of a majority of at least four of its six members. The Board of Appeal shall be convened when necessary.”

459

7.380

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 26 ACER Regulation “1. The term of office of the members of the Board of Appeal shall be five years. That term shall be renewable once.”

7.381

The Board of Appeal is made up of six members (and their alternates) who are current or former senior staff members of national regulatory authorities, competition authorities or other national or Union institutions with relevant experience in the energy sector. The members are proposed by the Commission on the basis of a public call for interest and, following a consultation of the Board of Regulators, appointed by the Administrative Board (Article 25(2)).

7.382

The members’ term of office is five years and can be renewed without limitation (Article 26(1)).

7.383

The Board of Appeal meets when necessary, i.e. in particular when an appeal against an ACER decision has been filed.

7.384

The decisions of the Board of Appeal require a qualified majority of at least four of its six members (Article 25(4)). Article 26 ACER Regulation “2. The members of the Board of Appeal shall be independent in making their decisions. They shall not be bound by any instructions. They shall not perform any other duties in ACER, in its Administrative Board, in its Board of Regulators or in any of its working groups. A member of the Board of Appeal shall not be removed during his or her term of office, unless he or she has been found guilty of serious misconduct, and the Administrative Board, after consulting the Board of Regulators, takes a decision to that effect.”

7.385

The Board of Appeal is independent of ACER’s administrative and regulatory structure,622 having also a separate budget line in ACER’s budget (Article 26(3)). The members of the Board of Appeal must act independently and in the public interest. This requires in particular that they do not follow any instructions and do not perform any other duties in ACER, in its Administrative Board, in its Board of Regulators or in its working groups (Article 26(2)). Involvement in such duties is incompatible with the position as Board of Appeal member. 622 Recital 34 of the ACER Regulation.

460

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Further, regarding the specific case, the members must be free of any conflict of interests. The grounds for and process of exclusion and objection are set out in Article 27 of the ACER Regulation, ensuring that a member of the Board of Appeal does not have a personal interest in the outcome and has not been involved otherwise in the matter under appeal: Article 27 ACER Regulation “1. Members of the Board of Appeal shall not take part in any appeal proceedings if they have any personal interest therein, if they have previously been involved as representatives of one of the parties to the proceedings, or if they participated in the decision under appeal. 2. A member of the Board of Appeal shall inform the Board in the event that, for one of the reasons referred to in paragraph 1 or for any other reason, he or she considers that a fellow member should not take part in any appeal proceedings. Any party to the appeal proceedings may object to the participation of a member of the Board of Appeal on any of the grounds referred to in paragraph 1, or in the case of suspected bias. Such an objection shall be inadmissible if it is based on the nationality of a member or if, while being aware of a reason for objecting, the objecting party to the appeal proceedings has taken a procedural step in the appeal proceedings other than objecting to the composition of the Board of Appeal. 3. The Board of Appeal shall decide on the action to be taken in the cases specified in paragraphs 1 and 2 without the participation of the member concerned. For the purpose of taking that decision, the member concerned shall be replaced on the Board of Appeal by his or her alternate. If the alternate finds him or herself in a similar situation to that of the member, the Chair shall designate a replacement from among the available alternates. 4. The members of the Board of Appeal shall undertake to act independently and in the public interest. For that purpose, they shall make a written declaration of commitments and a written declaration of interests indicating either the absence of any interest which might be considered prejudicial to their independence or indicating any direct or indirect interest which might be considered prejudicial to their independence. Those declarations shall be made public annually.”

461

7.386

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.4.2 Appeals Article 27 ACER Regulation “1. Any natural or legal person, including the regulatory authorities, may appeal against a decision referred to in point (d) of Article 2 which is addressed to that person, or against a decision which, although in the form of a decision addressed to another person, is of direct and individual concern to that person. 2. The appeal shall include a statement of the grounds for appeal and shall be filed in writing at ACER within two months of the notification of the decision to the person concerned, or, in the absence thereof, within two months of the date on which ACER published its decision. The Board of Appeal shall decide upon the appeal within four months of the lodging of the appeal. 3. An appeal lodged pursuant to paragraph 1 shall not have suspensory effect. The Board of Appeal may, however, if it considers that circumstances so require, suspend the application of the contested decision. 4. If the appeal is admissible, the Board of Appeal shall examine whether it is wellfounded. It shall invite the parties to the appeal proceedings as often as necessary to file observations on notifications issued by itself or on communications from the other parties to the appeal proceedings, within specified time limits. Parties to the appeal proceedings shall be entitled to make an oral presentation. 5. The Board of Appeal may confirm the decision, or it may remit the case to the competent body of ACER. The latter shall be bound by the decision of the Board of Appeal. 6. ACER shall publish the decisions taken by the Board of Appeal.”

7.387

The Board of Appeal reviews only decisions, it has no competence to review legally non-binding acts or to act where ACER fails to act. The decisions which can be subject to review by the Board of Appeal are defined exhaustively as those listed in point (d) of Article 2 of the ACER Regulation, i.e. individual decisions on the provision of information in accordance with Article 3(2), point (b) of Article 7(2) and point (c) of Article 8; on approving the methodologies, terms and conditions in accordance with Article 4(4), Article 5(2), (3) and (4); on bidding zones reviews as referred to in Article 5(7); on technical issues as referred to in Article 6(1); on arbitration between regulators in accordance with 462

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 6(10); related to RCCs as referred to in point (a) of Article 7(2); on approving and amending methodologies and calculations and technical specifications as referred to in Article 9(1); on approving and amending methodologies as referred to in Article 9(3); on exemptions as referred to in Article 10; on infrastructure as referred to in point (d) of Article 11; and on matters related to wholesale market integrity and transparency pursuant to Article 12 (para. 1).

7.388

Any appeal must be reasoned and brought within two months (par. 2). The details of the appeal procedure are set out in the Board of Appeal’s rules of procedure.

7.389

If the appeal is admissible, the Board of Appeal has to examine whether it is wellfounded (para. 4). In that regard, the Board of Appeal has been taking consistently the view that the intensity of its review is limited: ‘[...] with regard to the complex economic and technical issues involved, it is not able to, and should not, carry out its own complete assessment of each of the complex technical issues raised in the Agency´s proceedings’, ‘... cannot and should not attempt to exercise the same level of analysis as has been carried out by the Agency before, and thus that the only advisable and possible level of control (given resources and timeframe) that it can exercise is limited to a control of legality’ and ‘ in the event of complex technical matters, the Board limits itself to decide whether the Agency made a manifest error of assessment’.623

7.390

The Board of Appeal has to decide on an admissible appeal within four months. It can either confirm the decision under appeal, or, if it grants the appeal, remit the case to the competent body of ACER, which typically will be the Director, being responsible for preparing the decision (para. 5). The Board of Appeal can however no longer exercise ACER’s competence and replace ACER’s decision by its own, as provided for by Article 19(5) of Regulation (EC) No 713/2009.

7.391

Decisions of the Board of Appeal can be challenged before the Court of Justice, as can be decisions of ACER that are not appealable before the Board of Appeal and the failure of ACER to act.

7.392

623 Board of Appeal Decision A-006-2019 of 17 February 2020, paras. 51-53; https://www.acer.europa.eu/en/ The_agency/Organisation/Board_of_Appeal/Decisions/A-006-2019_for%20publication_non%20confidential.pdf.

463

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

Article 29 ACER Regulation “Actions for the annulment of a decision issued by ACER pursuant to this Regulation and actions for failure to act within the applicable time limits may be brought before the Court of Justice only after the exhaustion of the appeal procedure referred to in Article 28. ACER shall take the necessary measures to comply with the judgments of the Court of Justice.”

7.393

Therefore, if a person wants to contest a decision of ACER, that person must first appeal to the Board of Appeal.624 As regards the provision of Regulation (EC) no 713/2009 replaced by Article 29 of the ACER Regulation, the General Court held that after appeal proceedings the decision of the Board of Appeal, but not the underlying decision of ACER, can be the subject of an annulment action: ‘According to Article 19 of Regulation No 713/2009, a decision referred to, inter alia, in Article 8 of the same regulation may be appealed to the Board of Appeal. Pursuant to Article 20(1) of Regulation No 713/2009, only decisions taken by the Board of Appeal or, in cases where no right lies before the Board of Appeal, by ACER, may be contested before the Court in accordance with Article 263 TFEU. Since the contested decision was adopted under Article 19 of Regula‑ tion No 713/2009, it is the only act which may be appealed before the Court in the present case.’ 625

7.5 Working groups 7.394

Working groups are supporting the regulatory work of the Director and of the Board of Regulators. Though already in existence from the early days of ACER, it was only with the Clean Energy Package that working groups have been recognised by the legislature. Article 30 of the ACER Regulation provides the legal basis for their establishment. Article 30 ACER Regulation “1. Where justified, and in particular to support the work of the Director and of the Board of Regulators on regulatory issues and for the purpose of preparing the opinions, recommendations and decisions referred to in Article 3(1), Articles 4 to 8, Article 9(1) and (3), Article 10, point (c) of Article 11, Article 13, Article 624 Article 263 TFEU allows for acts setting up agencies of the Union to lay down specific conditions and arrangements for actions brought by natural or legal persons before the Union courts against legal acts of the agencies. 625 Judgement of 24 October 2019, T-333/17, Austrian Power Grid and Vorarlberger Übertragungsnetz v ACER, EU:T:2019:760, para. 32.

464

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel 15(4), and Articles 30 and 43, the Administrative Board shall establish or remove working groups on the basis of a joint proposal from the Director and the Board of Regulators.

The establishment and the removal of a working group shall require a favourable opinion of the Board of Regulators.

2. The working groups shall be composed of experts from among ACER’s and the regulatory authorities’ staff. Experts from the Commission may participate in working groups. ACER shall not be responsible for the costs of the participation of experts from the staff of regulatory authorities in ACER’s working groups. Working groups shall take into consideration the views of experts from other relevant national authorities where those authorities are competent. 3. The Administrative Board shall adopt and publish internal rules of procedure for the functioning of the working groups on the basis of a proposal from the Director, after consulting the Board of Regulators and obtaining its favourable opinion. 4. ACER’s working groups shall carry out the activities assigned to them in the programming document adopted pursuant to Article 20 and any activities under this Regulation assigned to them by the Board of Regulators and the Director.”

Working groups are established by the Administrative Board, upon a joint proposal of the Director and the Board of Regulators and after a favourable opinion of the Board of Regulators, and the same applies for their removal (para.1). The legal text does not indicate that the working groups would be absolutely mandatory, but links their existence to an appropriate justification. However, given that the Director must consult the relevant working group according to Article 24(2) of the ACER Regulation before submitting to the Board of Regulators the draft opinions, recommendations and decisions which require a favourable opinion of the Board of Regulators, it indispensable to have at least one working group. Considering that the acts requiring a favourable opinion of the Board of Regulators relate to the electricity and the gas sector, the Administrative Board, by its Decision No 9/2019, established two separate working groups, one focusing on the electricity sector and the other one dealing with the gas sector.

7.395

Working groups are made up of ACER staff members and experts of the national regulatory authorities. The Commission can participate (para. 2).

7.396

465

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

7.397

With the incorporation of Regulation (EC) No 713/2009 in the EEA Agreement, the national regulatory authorities of the EFTA States (Iceland, Liechtenstein and Norway) can also participate in the working groups and their substructures, however having no right to vote.626 Accordingly, ACER’s working groups include experts from regulatory authorities of the EFTA States and a representative of the EFTA Surveillance Authority.627

7.398

The working groups’ function is to support the regulatory work of ACER, be it by assisting the Director in preparing the required draft acts, be it by aiding the Board of Regulators in its regulatory control. One important task is to review, according to Article 24(2) of the ACER Regulation, every Director’s proposal for an ACER act that requires a favourable opinion of the Board of Regulators. Otherwise, the concrete tasks follow from ACER’s work programme and from specific requests of the Director or the Board of Regulators.

7.6 Staff Article 39 ACER Regulation “1. The Staff Regulations and the Conditions of Employment and the rules adopted jointly by the Union institutions for the purpose of applying the Staff Regulations and the Conditions of Employment shall apply to ACER’s staff, including its Director. 2. The Administrative Board, in agreement with the Commission, shall adopt appropriate implementing rules, in accordance with Article 110 of the Staff Regulations. 3. In respect of its staff, ACER shall exercise the powers conferred on the appointing authority by the Staff Regulations and on the authority entitled to conclude contracts by the Conditions of Employment. 4. The Administrative Board may adopt provisions to allow national experts from Member States to be employed on secondment at ACER.”

626 Decision of the EEA Joint Committee No 93/2017 of 5 May 2017. 627 Previously, the working groups had already been opened also for participation at technical level of third country regulatory authorities on the basis of specific arrangements. On that ground, since 2016 experts from the Swiss regulatory authority have been participating in the electricity working group, and of the Norwegian regulatory authority in the electricity as well as the gas working groups.

466

Chapter 7 The EU Agency for the Cooperation of Energy Regulators (ACER) Ernst Tremmel

ACER’s staff consists on the one hand of long-term temporary agents whose initially fixed-term contracts may be renewed for an indefinite period, on the other of contract agents recruited for time-limited support.

7.399

The approach to staffing has also been based on the idea that ACER’s peculiar structure, with the Board of Regulators as a body emanating from the national regulatory authorities and with the possibility of secondments, creates synergies and allows to draw also on resources of the national regulatory authorities. There is, however, no concrete obligation for the national regulatory authorities to contribute to the work of ACER beyond the Board of Regulators’ functions.

7.400

467

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules

1.

Introduction

The EU “Clean Energy Package for all European” introduced four Directives and four Regulations, including Regulation 2019/943 on the internal market for electricity (the “Cross-border Electricity Regulation” or “Regulation”).628 This package is part of the EU’s initiative to establish an internal energy market, now also referred to as the “Energy Union”.629 The Cross-border Electricity Regulation replaced Regulation 714/2009 on network access for cross-border electricity exchanges (the “2009 Regulation”) which formed part of the Third Energy Package.

8.1

Where the Preamble to the 2009 Regulation still notes that, despite the 2003 Regulation,630 obstacles remain regarding the ability to sell of electricity on equal terms in the Union without discrimination or disadvantage, the new Cross-border Electricity Regulation aims to expand the regulatory depth of the EU internal electricity market. In particular, it wants to “ deliver a real choice for all consumers in the Union new business opportunities and more cross-border trade, so as to achieve efficiency gains, competitive prices and higher standards of service, and to contribute to security of supply and sustainability”.631

8.2

628 Regulation 2019/943 of 5 June 2019 on the internal market for electricity, formerly Regulation 714/2009 of 13 July 2009 on network access for cross-border electricity exchanges. 629 “Our vision is of an integrated continent-wide energy system where energy flows freely across borders, based on competition and the best possible use of resources, and with effective regulation of energy markets at EU level where necessary”. Communication from the Commission: Clean Energy For All Europeans, Brussels, 30.11.2016 COM (2016) 860 final. 630 Regulation 1228/2003 of 26 June 2003 on conditions for access to the network for cross-border exchanges in electricity (“2003 Regulation”). 631 Cross-border Electricity Regulation, paragraph 2 of the Preamble.

469

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

8.3

In 2009, the persisting issue was that “[i]n particular, non-discriminatory net‑ work access and an equally effective level of regulatory supervision do not yet exist in each Member State, and isolated markets persist”.632 At the time of the 2003 Regulation the Commission had aimed to integrate Member State electricity markets through the coupling of interconnectors (“market coupling”)633 so that all electricity would be efficiently allocated across the Union by a single auction platform (the “Day Ahead Coupling Objective”).634

8.4

The objective of the new Cross-border Electricity Regulation is the provision of a harmonised framework for cross-border electricity exchanges. In particular it aims to set fair rules for cross-border electricity exchanges in order to improve competition within the internal market in electricity inter alia by means of establishing a compensation mechanism for cross-border electricity flows, setting harmonised principles for cross-border transmission charges, and allocating available interconnection capacities between national transmission systems.635

8.5

In order to allow this to happen and to foster the trading and supply of electricity across borders, the Cross-border Electricity Regulation provides that specific steps must be taken such as: –

establishing a European Network of Transmission Systems Operators for Electricity (“ENTSO-E”) with the task of promoting transparency and efficiency and handling cross-border issues (as opposed to national issues);636

–

ENTSO-E should establish network codes based on guidelines developed by the Agency for the Cooperation of Energy Regulation (“ACER”) in order to effectively provide and manage transparent access to the transmission network across borders;637

632 2009 Regulation, paragraph 3. 633 Market coupling is a way of linking separate day ahead markets, using available cross-border transmission capacity. It results in “implicit auctions” (discussed later in this chapter), which integrate energy trading with capacity allocation for daily transmission. The benefits of market coupling include: (i) optimising the use of cross-border capacity, (ii) reducing the risk of market abuse, (iii) facilitating the development of liquid commodity markets, (iv) enabling competition, and (v) reducing price volatility. 634 Day ahead trading is forward trading: suppliers and consumers submit bids which are then used by an auction process to determine prices for each network node and each hour of the following day. 635 The Cross-border Electricity Regulation, Article 1. 636 Articles 28 and 30 of the Cross-border Electricity Regulation. 637 Article 30 of the Cross-border Electricity Regulation.

470

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

–

given that competition cannot emerge without sufficient transparency of the electricity transmission network, ENTSO-E will publish and update a non-binding Community-wide ten year network development plan.638

Ultimately the Cross-border Electricity Regulation aims to achieve the wellestablished benefits of cross-border trade of electricity, such as –

enabling countries to make better use of their available resources by balancing demand and supply variations;

–

helping countries reduce their balancing costs; and

–

allowing for the pooling of reserve capacity.

Despite these ambitions, an internal energy market, let alone an Energy Union, is still far from being a reality. In February 2015, the EU was still the largest energy importer in the world and the Commission lamented that “today, the European Union has energy rules set at the European level, but in practice it has 28 national regulatory frameworks. This cannot continue. An integrated energy market is needed to create more competition, lead to greater market efficiency through better use of energy generation facilities across the EU and to produce af‑ fordable prices for consumers”.639 It is therefore crucial that the results of the new Cross-border Electricity Regulation are assessed and that, if necessary, changes are introduced to continue the progression towards an internal energy market.

2.

8.6

8.7

Background – the properties of electricity

In order to understand the challenges in trading electricity (especially across borders), it is important to understand that electricity has unique properties which make it different from other commodities and influence the design and operation of electricity markets. These include the following:

638 Article 30 of the Cross-border Electricity Regulation. The Commission has adopted an annual list of topics that are to be covered by the network codes. ACER advises the Commission, who then “invites” ENTSO-E to draft codes. ENTSO-E seeks ACER’s agreement to draft the codes. If ACER agrees, voluntary codes are issued. If ACER disagrees, it advises the Commission and binding guidelines are issued through the comitology procedure. See Article 48 of the Cross-border Electricity Regulation. 639 Communication from the Commission: A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, Brussels, 25.2.2015, COM (2015) 80 final, page 3.

471

8.8

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

1.

electricity storage is generally uneconomical – it must be consumed as soon as it is generated.640 Power generation must thus equal consumption at any given time, that is, generation and consumption should always be in balance;641

2.

while electricity trade refers to the delivery of a specific amount of electricity over a specified time period, demand does not necessarily neatly match this supply, so production adjustments need to be made on a shortterm basis within this specified time period in order to keep the system in balance;642

3.

transportation and distribution is carried out by a network, inextricably linking electricity flows to the physical network transporting it and its limitations;

4.

consumers cannot receive energy from only one generator because it is impossible to differentiate between different sources of electricity, as the power produced by all generators is pooled in the grid and electricity units;

5.

electricity flows according to the laws of physics (including following the path of least resistance), and not according to commercial contracts. This means that electricity will often flow from Member State A’s generator, through Member State B’s transmission network, and then back to the load centre of Member State A after passing through Member States C, D, E, and F (known as “loop flows”).643 There remains no formal method

640 i.e. trade in electricity refers to a specific amount of megawatt-hours to be delivered over a specified period of time. Therefore the price of electricity delivered during period A is not the as the price for electricity delivered during period B. 641 This balancing task is usually carried out by TSOs, which are discussed in Chapter 4. Generation companies and suppliers prepare a detailed day-ahead schedule for their transactions, stating that the amount of power they plan to generate or purchase for the next day equals their intended sale to customers or other power companies. However, deviations often occur and the TSO has the role of maintaining a balance between power generation and demand. 642 The short-run price elasticity of demand for electricity is very small, so matching supply and demand requires production facilities which are capable of following rapid and significant consumption changes taking place during the course of a day. Gas differs from electricity in that it requires a longer period of imbalance between gas production and consumption before the network collapses (than in the case of an electricity network), and imbalances in gas systems, unlike in electricity systems, can be corrected via market mechanisms. 643 Loop flows are also known as unscheduled flows, because while they pass through the transmission grid of a given system operator, the system operator is not informed of these flows. In practice, there is a complex interdependence between physical flows and available capacity, and events relating to one interconnector influence the available capacity of other interconnectors. For example, the available capacity between France and Belgium depends on the capacity available on the German-French and the German-Belgian borders.

472

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

of managing financial compensation or “correctly” calculating the costs of these loop flows. Further, congestion in national markets can also be exacerbated by new imports caused by interconnectors.644 It is uncontroversial to state that as a general principle, electricity tariffs should be based on the costs caused by electricity flows. The transport of electricity across different grids produces costs for grid operators, notably the building and maintenance of the infrastructure carrying the electricity flows, and electricity losses. However, as it is not possible to identify which generators are the source of individual physical electricity flows with any accuracy, allocation of these costs is problematic. “Distance based” charging is therefore not appropriate for electricity transmission because transmission flows use all available paths on the interconnected system, meaning that the precise flows which finally occur depend on the production and consumption taking place at all other points on the grid at a particular moment.

3.

8.9

Tarification

3.1 The physical and economic principles underlying tarification In an alternating current electric power system, synchronization is the process of matching the speed and frequency of a generator (or other source) to a running network. An alternating current generator cannot deliver power to an electrical grid unless it is running at the same frequency as the network. If two segments of a grid are disconnected, they cannot exchange alternating current power again until they are brought back into exact synchronization. All the generators in a synchronous grid run not only at the same frequency, but also at the same “phase”. This allows the transmission of alternating current power throughout one area, connecting a large number of electricity generators and consumers.

8.10

In the EU there are four synchronously connected electricity grids: (i) the continental European grid, that is, the Regional Group Continental Europe (formerly the UCTE); (ii) the Nordic regional group (Norway, Sweden, Finland and Denmark), (iii) the Great Britain grid (England, Wales, Scotland), and (iv) the Irish regional group consisting of the Republic of Ireland and Northern Ire-

8.11

644 The construction of a cross-border interconnector can have both positive and negative effects on national transmission systems.

473

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

land.645 An additional distinct synchronous area exists in the Baltic States, which is mainly connected to the Russian grid and is not yet connected to the rest of the Union.646 The “energy islands” of Iceland, Cyprus, and Malta are also not yet interconnected with the other grids.

8.12

Within each synchronously connected network, numerous different control areas can exist, which may be operated and managed by various transmission system operators (“TSOs”). While a TSO cannot easily “direct” the flow of electricity along its lines because power automatically flows from areas of “surplus” electricity to “deficit” areas, different synchronous grids can be, and are, interconnected.

8.13

Given that electricity always flows to the point of least resistance, the physical flows of electricity do not match any agreed contractual paths and it is impossible to assign the responsibility for specific flows to individual contracts, meaning that transmission charges cannot be based on the theoretical “distance” travelled by the electricity flow.647 It is therefore impossible to allocate individual flows to individual transactions without making some complicated assumptions.648

8.14

Further, if customers in one area purchase more electricity from suppliers in another control area (than vice versa), then electricity will flow from control area to another, from the area of net low demand to that of net high demand. 645 The synchronous grid of Continental Europe covers the territory of the ENTSO-E Continental Europe regional group and neighbouring countries that are not part of ENTSO-E. It includes part or all of Austria, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, western Denmark, France, Germany, Greece, Hungary, Italy, Luxembourg, Macedonia, Montenegro, the Netherlands, Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, and Switzerland. Moreover, the grids of Morocco, Algeria and Tunisia are also harmonised with the European grid through the Gibraltar AC link and form the South Western Mediterranean Block. 646 The Baltic States consist of Lithuania, Latvia and Estonia. 647 One way to visualise how a synchronous electricity grid (such as the UCTE grid) works would be to envisage a number of large lakes, connected by canals. The lakes represent the transmission grids (control areas) in the different Member States. The canals represent the interconnectors between them. The entire system of connected lakes represents a synchronously connected area (e.g. UCTE). Water can freely flow between the various lakes, but only at the maximum rate permitted by the capacity of the inter connecting canals. If one takes this analogy a step further, factories located by these lakes must purchase the water they use from the owners of the various rivers feeding the lakes. The factories can never know if the water they are using actually comes from their contractual supplier as the water from the various rivers mixes indistinguishably within the lakes. Similarly, an electricity customer cannot know whether the power he or she is consuming actually comes from one of the facilities of his or her contractual supplier. Given that electricity flows in a controlled manner between control areas, water would flow between the different lakes if customers in one area purchased more water from suppliers in another area than vice versa. 648 However, while the distance travelled is in this sense, less relevant than it might prima facie appear to be, distance still remains a relevant factor given that energy losses and maintenance both increases the further the distance involved.

474

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

For example, France sometimes supplies up to 25% of Italy’s electricity needs depending upon the period in question. Sales from Italy, Austria and Germany westwards do not cancel out the sales from France, so that in net terms electricity flows eastwards from France, transiting Austria, Belgium, Germany, etc. towards Italy.

8.15

3.2 The need for an inter-TSO compensation mechanism Cross-border flows cause costs to the TSO, including those arising from internal congestion, energy losses, and the design, development and maintenance of the transmission system. These costs are also borne by the users in the TSO’s system. Despite the reality that electricity flows do not necessarily follow their contractual paths, it has been recognised that TSOs should be compensated for costs resulting from the hosting of cross-border electricity flows on their networks.649 The need for an inter-TSO compensation (“ITC”) mechanism was agreed, in principle, in 1999 at the Florence Forum.650 An effective ITC mechanism must be capable of assessing: (i) the extent to which a given transmission system is used for power flows which neither originate from, nor are consumed within, that system (“cross-border flows”); and (ii) the effects these cross-border flows have on the transmission system.

8.16

While the costs of cross-border flows cannot be accurately allocated without the above assessments being made, allocation gave rise to two particularly contentious issues: (i) should the operators of the exporting or the importing country pay, and (ii) should the costs be spread between all network users or only the contracting parties?

8.17

(a)

Should the operators of the exporting or the importing country pay?

Agreement was reached during the Florence Forum in 2002 that in principle, the costs of cross-border flows should be split 50/50 between the operators of the importing and the exporting countries.651 It seems intuitive that the operators 649 See, for example, paragraph 6 of the Recital of Regulation 838/2010 on laying down guidelines relating to the inter-transmission system operator compensation system and a common regulatory approach to transmission charging (the “ITC Mechanism Regulation”): “Transmission system operators should be compen‑ sated for energy losses resulting from hosting cross-border flows of electricity”. 650 The Florence Forum process was established in order to discuss which further measures, over and above those under the 1996 Electricity Directive, are required to ensure the development of the Internal Electricity Market. It is an informal gathering between numerous parties operating in the electricity sector which takes place biannually. 651 The conclusions of the ninth meeting of the Florence Forum in October 2002 approved a document put forward by ETSO proposing the 50/50 split of transmission costs between the importing and exporting countries.

475

8.18

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

of both the importing country and the exporting country should contribute to the payment of these costs, in order to ensure the presence of a locational signal in the importing country. The costs should be paid by TSOs from which these cross-border flows originate and the TSOs of the systems where these flows end. However, the amounts payable vary considerably between different TSOs, and thus a level of harmonisation is necessary to avoid distortions of trade. As will be mentioned below, this is reflected in Article 49(2) of the Cross-border Electricity Regulation. (b)

8.19

Should the costs be spread between all network users or only the contracting parties?

At the time of the 2003 Regulation, there was no real consensus on whether the cost of payments made between TSOs should be spread between exporters and importers, or passed equally onto all network operators (i.e., “fully socialised”). The first ITC mechanism therefore contained a compromise allowing Member States to impose a 1 €/MWh export fee on all export contracts to contribute to inter-TSO payments. However, in reality, not all countries imposed this fee and some instead spread the cost of the cross-border flows among all consumers. During subsequent revisions of the scheme, these export charges were progressively reduced, in parallel with the increasing acceptance of the concept of the internal electricity market. It was finally agreed for the 2004 system that all such export charges would be removed and the costs would be spread between transmission customers. As will be mentioned below, this is reflected in Article 49(2) of the Cross-border Electricity Regulation.

3.3 Cross-border tarification and the Cross-border Electricity ­Regulation 8.20

The Cross-border Electricity Regulation implements, in law, the following principles developed through the Florence Forum on ITC mechanisms: Article 49 Inter‑transmission system operator compensation mechanism “1. Transmission system operators shall receive compensation for costs incurred as a result of hosting cross‑border flows of electricity on their networks.

476

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg 2. The compensation referred to in paragraph 1 shall be paid by the operators of national transmission systems from which cross‑border flows originate and the systems where those flows end. 3. Compensation payments shall be made on a regular basis with regard to a given period of time in the past. Ex-post adjustments of compensation paid shall be made where necessary, to reflect costs actually incurred.

The first period of time for which compensation payments shall be made shall be determined in the Guidelines referred to in Article 61.652

4. The Commission shall adopt delegated acts in accordance with Article 68, supplementing this Regulation, establishing the amounts of compensation payments payable. 5. The magnitude of cross‑border flows hosted and the magnitude of cross‑border flows designated as originating and/or ending in national transmission systems shall be determined on the basis of the physical flows of electricity actually measured during a given period of time. 6. The costs incurred as a result of hosting cross‑border flows shall be established on the basis of the forward-looking long‑run average incremental costs, taking into account losses, investment in new infrastructure, and an appropriate proportion of the cost of existing infrastructure, in so far as such infrastructure is used for the transmission of cross‑border flows, in particular taking into account the need to guarantee security of supply. When establishing the costs incurred, recognised standard‑costing methodologies shall be used. Benefits that a network incurs as a result of hosting cross‑border flows shall be taken into account to reduce the compensation received. 7. For the purpose of the inter-transmission system operator compensation mechanism only, where transmission networks of two or more Member States form part, in whole or in part, of a single control block, the control block as a whole shall be considered as forming part of the transmission network of one of the Member States concerned, in order to avoid flows within control blocks being considered as cross-border flows under point (b) of Article 2(2) and giving rise to compensation payments under paragraph 1 of this Article.

652 Article 61 outlines details which should be covered by the Guidelines.

477

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg The regulatory authorities of the Member States concerned may decide which of the Member States concerned shall be that of which the control block as a whole is to be considered to form part.”

8.21

8.22

According to Article 49 of the Regulation, any cross‑border inter‑TSO payment mechanism must respect the following principles: –

It must be based on the physical flows of electricity, not the contractual path. It may not therefore be contract based – i.e. dependent on charges to individual network users. It must be based on the actual payments between TSOs for the transits caused on one another’s grid by transits.

–

Given that the transits hosted by a given network must be calculated on the basis of real electricity flows, continued monitoring is required.

–

Once the physical transits of electricity hosted by a particular grid have been calculated and the source of those transits has been identified (done on the basis of physical flow information from each entry and exit point for all control areas) the cost of the transits on each grid must be calculated. On this basis, the actual cost of transits and the level of inter‑TSO payments can be determined.

–

Article 49(7) provides the criteria to be used in calculating the costs of hosting transits, notably; “ forward‑looking long run average incremental costs, taking into account losses and investment in new infrastructure and an appropriate proportion of the costs of existing infrastructure, as far as infrastructure is used for the transmission of cross‑border flows”. This is generally referred to as “LRAIC”. Whilst a thorough discussion of LRAIC is beyond the scope of this publication, in essence it requires the valuation to be carried out on the basis of a return on capital for the future replacement cost of the network assets affected by transit flows, at current price levels and technology, plus an amount to cover operating costs and profits.

Since the Regulation refers both to LRAIC and “an appropriate proportion of the costs of existing assets”, it may be that some form of weighted average will be used in future guidelines.

478

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

–

On a given grid, the assets affected by transits are therefore identified and valued. The proportion of total electricity flows on the assets in question is calculated and is compared to transit flow. As a result, the total amount to be paid to the transmission system operator for hosting the transits can be identified.653

–

On the basis of the physical flow modelling mentioned above, it is possible to estimate the origin of the transits on each grid and thus the allocation of the resultant costs of hosting transits to the originating TSO(s) or operators. The relative “debts” and “credits” of each transmission system operator can therefore be determined, balanced, and an overall inter‑TSO compensation grid be calculated.

–

The last sentence of Article 49(7) requires that benefits accruing to a network operator as a result of hosting cross‑border flows are taken into account when calculating compensation. Depending upon the topography of a grid, cross‑border flows can in fact reduce losses in a hosting country. Thus, when calculating net payments, these need to be taken into account.

–

With respect to the question of net payments that the TSO must make as a consequence of the inter‑TSO payment system, Article 18(6) makes it clear that any individual net costs must be socialised over the whole network and not placed on exporters: “There shall be no specific network charge on individual transactions for cross-zonal trading electricity.”

Article 61 of the Cross-Border Electricity Regulation provided for the adoption of Guidelines based on the comitology procedure.654 Such Guidelines may lay down in detail the applicable inter-TSO payment mechanism, and they are, like the Regulation itself, directly applicable under national law and enforceable by national courts.655 653 i.e. Assume the total cost of the grid used by transits in a given country is 100 M€/year. If 30 % of the total physical flow on those grid assets resulted from transits, the transmission system operator would be owed 30 M €. 654 Comitology in the European Union refers to a process by which EU law is modified or adjusted and takes place within “comitology committees” chaired by the European Commission. The official term for the process is committee procedure. Comitology committees are part of the EU’s broader system of committees that assist in the making, adoption, and implementation of EU laws. The comitology system was reconfigured by the Lisbon Treaty which introduced the current Articles 290 and 291 TFEU. Whereas Article 291 TFEU provides for a continuation of implementation of EU law through comitology, Article 290 TFEU introduced the delegated act which is now used to amend or supplement EU legislation, whereas beforehand this was also done through comitology. 655 There is no obligation to adopt such guidelines. As long as the voluntary inter-TSO tarification model op-

479

8.23

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

3.3.1 From voluntary ITC agreements to binding ITC guidelines 8.24

Concerned parties, including TSOs and national regulators, have tried for years to agree an ITC scheme amongst themselves, without success. A voluntary ITC agreement was introduced in 2002 to replace cross-border tariffs, which were banned in the 2003 Regulation, as this ban would reduce TSO income, increasing burdens on domestic grid users unless compensatory measures were introduced. Article 3 of the 2003 Regulation mandated the establishment of an ITC scheme, but left the adoption of the ITC mechanism to be done voluntarily by stakeholders. The number of parties to the ITC agreement rose from 9 in 2002, to 20 in 2004, to 32 in 2009.

8.25

Nevertheless, it soon became clear that leaving agreement to voluntary mechanisms would not be sustainable in the long term. For this reason, the Commission launched a public consultation on the issue in December 2008, which found that there was overwhelming support for the establishment of a binding ITC mechanism, thereby replacing the former voluntary one.656 On 2 September 2010, the Commission adopted, through the comitology procedure, Regulation (EU) No 774/2010 laying down procedures in relation to inter-transmission system operator compensation and a common regulatory approach to transmission charging. However, as was clearly expressed within this Regulation, its application was to elapse on 2 March 2011. For this reason, on 23 September 2010, additional guidelines were adopted in the form of Regulation (EU) 838/2010, which entered into force on 3 March 2011.657

8.26

Regulation (EU) 838/2010 contains a two-part Annex consisting of Part A containing Guidelines on the Inter-Transmission System Operator Compensation Mechanism (“Annex Part A”), and Part B containing Guidelines for A Common Regulatory Approach to Transmission Charging (“Annex Part B”).

8.27

Under Regulation (EU) 838/2010, an ITC fund was established by ENTSO-E for the purposes of compensating TSOs for costs incurred by national transmission systems as a result of hosting cross-border electricity flows, as required by erated through ETSO complies with the requirements of the Regulation and is agreeable to all TSOs, the mechanism could in principle continue to run on a voluntary basis. In the enlarged Community with presently 28 Member States and with increasing cross-border flows, it has also been increasingly difficult to reach an agreement among the different TSOs. 656 The Commission presented draft guidelines at the 8th meeting of the Electricity cross-border Committee in Brussels on 17 December 2009. 657 Commission Regulation No 838/2010 of 23 September 2010 on laying down guidelines relating to the inter-transmission system operator compensation mechanism and a common regulatory approach to transmission charging.

480

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

Article 49(1) of the Cross-border Electricity Regulation.658 The ITC fund consists of two parts, one for the costs of losses incurred by national transmission systems as a result of hosting cross-border electricity flows, and another for the costs of making infrastructure available to host cross-border electricity flows.659 TSOs participating in the ITC mechanism are compensated by the ITC fund on the basis of cross-border flows they carry, and contribute to the ITC fund based on their net imports and exports. Non-participating TSOs based in countries connected to these TSOs also pay fees for their imports and exports to and from the networks of the participating TSOs.

8.28

ACER is required to prepare annual reports on the implementation of the ITC Mechanism.660 Its most recent report, published in 2019, concluded that the implementation of the ITC mechanism and management of the ITC fund in 2018 continued to be in line with the requirements of the Cross-border Electricity Regulation.661

8.29

In the meantime, in 2013 ACER issued a recommendation highlighting that the relevant stakeholders, National Regulatory Authorities and ACER itself acknowledged that on top of the existing compensation mechanism for losses, there is need for a compensation for the “loop flows” phenomenon. ACER, with the support of the National Regulatory Authorities, expressed its desire to develop and implement a new regulatory framework by the end of 2015, which would better reflect the on-going developments in relation to the forthcoming Energy Infrastructure Package and Capacity Allocation and Congestion Management (CACM) methods and provide TSOs with ample incentives to develop the network more efficiently. The new regulatory framework came into force with the adoption of Commission Regulation 2016/1719 on forward capacity allocation (“FCA Regulation”) and Commission Regulation (EU) 2015/1222 on capacity allocation and congestion market (“CACM Regulation”). ACER evaluated its implementation in its 2019 report concluding that the early stage of the implementation of both FCA and CACM Regulation can be considered successful and a decisive milestone in the development of fully integrated electricity markets across the EU.662 The main principles regarding the imple-

8.30

658 659 660 661

The fund was established under Point 1.2 of Annex Part A in the ITC Mechanism Regulation. In line with Point 1.2 of Annex Part A. At point 1.4 of Annex Part A. ACER Report to the European Commission on the implementation of the ITC Mechanism in 2018. The report is dated 16 December 2019, at 2.1. The summary of the findings can be found on page 16 of the Report. 662 35 In particular, ACER’s recommendation highlighted three main points that should be included within

481

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

mentation of the ITC Mechanism, nonetheless, have remained unchanged since Regulation 838/2010, evaluated in ACER’s 2019 Report.

3.4 National transmission and distribution tariffs principles 8.31

In addition to establishing tariffs for cross‑border tarification, the Cross-border Electricity Regulation also establishes common principles for access to national networks. Article 18 repeats various requirements found in the Third Electricity Directive,663 notably the requirement for non‑discriminatory and transparent tariffs,664 that tariffs reflect costs, and that in establishing such tariffs, international tariff benchmarks should be taken into account.665 Article 18 Charges for access to networks “1. Charges applied by network operators for access to networks shall be transparent, take into account the need for network security and reflect actual costs incurred insofar as they correspond to those of an efficient and structurally comparable network operator and are applied in a non‑discriminatory manner. Those charges shall not be distance‑related.

Without prejudice to Article 15(1) and (6) of Directive 2012/27/EU and the criteria in Annex XI to that Directive the method used to determine the network charges shall neutrally support overall system efficiency over the long run through price signals to customers and producers and in particular be applied in

the forthcoming regulatory framework on ITC mechanisms: (i) the current ITC infrastructure compensation should be limited to existing infrastructures and the corresponding ITC infrastructure fund should be phased-out; (ii) where appropriate, National Regulatory Authorities, under the Agency’s coordination, should engage into Cross-Border Cost Allocation (CBCA) agreements for new investments of EU relevance; and (iii) where relevant, and to the extent that they could not be included in the ex-ante cost sharing agreements, an ex-post compensation mechanism should be implemented to compensate for both the costs induced by the loop flows phenomenon and the losses induced by cross-border flows. For the new regulatory framework see Commission Regulation 2016]1719 of 26 September 2016 establishing a guideline on forward capacity allocation; Commission Regulation 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management, discussed below. Further see ACER Monitoring report on the implementation of the CACM Regulation and the FCA Regulation dated 31 January 2019. 663 Regulation 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC, which will be repealed on 31 December 2020 by Directive 2019/944/EU of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/ EU. 664 See e.g. Recital 32 of the Electricity Directive. 665 This appears to be the only sensible interpretation of the requirement that charges “reflect actual costs insofar as they correspond to those of an efficient and structurally comparable network operator”.

482

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg a way which does not discriminate positively or negatively between production connected at the distribution level and production connected at the transmission level. The network charges shall not discriminate either positively or negatively against energy storage or aggregation and shall not create disincentives for self-generation, self-consumption or for participation in demand response. Without prejudice to paragraph 3 of this Article, those charges shall not be distance-related. 2. Tariff methodologies shall reflect the fixed costs of transmission system operators and distribution system operators and shall provide appropriate incentives to transmission system operators and distribution system operators over both the short and long run, in order to increase efficiencies, including energy efficiency, to foster market integration and security of supply, to support efficient investments, to support related research activities, and to facilitate innovation in interest of consumers in areas such as digitalisation, flexibility services and interconnection. 3. Where appropriate, the level of the tariffs applied to producers and/or consumers shall provide locational signals at Community level, and take into account the amount of network losses and congestion caused, and investment costs for infrastructure. 4. When setting the charges for network access, the following shall be taken into account: – payments and receipts resulting from the inter‑transmission system operator compensation mechanism; – actual payments made and received as well as payments expected for future periods of time, estimated on the basis of past periods. 5. Setting the charges for network access under this Article shall be without prejudice to charges resulting from congestion management referred to in Article 16. 6. There shall be no specific network charge on individual transactions for crosszonal trading of electricity.”

483

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

8.32

This merits the following comments: –

These provisions confirm that the principle of non‑discrimination also applies at the national level.666

–

Furthermore, Article 18(1) confirms the requirement implied in the Electricity Directive, that tariffs be cost‑reflective, and specifies that in establishing cost‑reflectiveness one important element to be taken into account is international tariff benchmarks. This would seem to be the only sensible interpretation to be given to the requirement that charges “reflect actual costs insofar as they correspond to those of an efficient and structurally comparable network operator”. Additionally, the second part of the first paragraph requires a neutral and efficient price signal system for customers and producers that does not discriminate between the distribution and transmission level.

–

Article 18(2) establishes that the tariff shall be based on fixed costs incurred by TSOs and DSOs with an incentive to maintain and improve the quality of the service provision from a short and long term perspective.

–

Transmission and distribution tariffs within a system may not be distancerelated. Thus, each system operator will need to operate on the basis of either a postage stamp tariff system or form of zonal “entry-exit” model.

–

Article 18(3) and 18(5) concern the harmonisation of tariff structures, and locational signals. These issues are dealt with in Sections 4 and 5 below.

4.

Congestion management and capacity allocation

4.1 Introduction 8.33

It is self-evident that in order to create a real competitive European electricity market there must be adequate interconnection capacity between control areas in the EU. At present, adequate capacity does not exist between many areas and at almost all EU borders the interconnectors are congested, with significant price differences between many neighbouring countries. 666 See e.g., Recital 32 of the Electricity Directive.

484

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

Progress has been slow and congested interconnectors will be part of the EU electricity market for the foreseeable future. Furthermore, it is very questionable whether, for economic reasons, interconnectors should be built that would totally eliminate all congestion between all Member States at all times.

8.34

The manner in which capacity is allocated at congested interconnectors is crucial, particularly where a TSO is not fully unbundled from generation or supply interests, or where a national market is dominated by a single company or a tight oligopoly. Where the TSO is influenced by generation or supply interests, and capacity is valuable, there will be a natural tendency for the TSO to establish capacity allocation schemes in favour of its affiliated company (for example to import cheap electricity and resell it at a profit).

8.35

Where market power exists, even in the absence of generation or supply interests, the dominant company or companies may have an economic interest to bid for all available import capacity, sometimes paying very high prices, thereby preventing competitors entering the market and putting downwards pressure on domestic prices.667

8.36

4.2 Constraints on available capacity The available amount of capacity is subject to a number of constraints, in particular, long-term capacity reservation agreements and public service obligations, which are discussed below.

8.37

4.2.1 Long‑term capacity reservation agreements When a company purchases electricity in a different control area (i.e. from another country) for import, it will usually also contract at the same time to purchase equivalent transmission capacity on the interconnector(s) in question for the relevant period. This mitigates the economic risk of entering into the electricity purchase contract. However, such contracts can also lead to foreclosure concerns. It was not normally possible for an operator to allocate all of given interconnector’s physical capacity on the market, but only the portion not covered by existing long term contracts. One post-liberalisation concern of the European Council was that a large percentage of cross-border electricity capacity between 667 For example, assume that country A has an import capacity of 5% of domestic demand. Prices in the neighbouring country are 20 % lower. The ex‑incumbent in country A may be willing to pay very high prices for the available capacity to prevent imports putting downward pressure on the overall market, meaning less profit on its 95 % sales to the domestic market.

485

8.38

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

areas with high price differentials was reserved under long-term contracts. Even worse, these long-term contracts had been entered into pre-liberalisation with vertically-integrated incumbents. Nevertheless, at the time the first Cross-border Electricity Regulation was drafted, it was thought that existing contracts of this type would not be affected by the Electricity Directive and Regulation.

8.39

Following the VEMW case,668 it is clear that transmission capacity must be allocated in a non-discriminatory manner.669 This case involved a Dutch company Samenwerkende Elektriciteits Produktiebedrijven NV (“SEP”) that had been formerly entrusted with the operation of services of general economic interest (“SGEI”) under Article 106(2) TFEU. SGEIs allow derogations from Union law provisions. In the Netherlands at that time only SEP was authorised to import electricity for public distribution until July 1999, holding an “import monopoly”. Dutch law dictated priority access rights for SEP’s legal successor, Nederlands Elektriciteit Administratiekantoor BV (“NEA”), until 2009. VEMW and others brought action against SEP/NEA’s priority access.

8.40

SEP argued that priority access rights are justified to cover the risks of long term supply contracts, which include high fixed costs and a relatively low price per MW. It also submitted that the principles of protection of legitimate expectations and of legal certainty require maintenance of preferential access to the grid. Nevertheless, the Court of Justice found that the principle of non-discrimination precludes national measures granting an undertaking preferential capacity for the cross-border transmission of electricity, whether those measures derive from: (i) the system operator, (ii) the controller of system management or; (iii) the legislature, in the case where such measures have not been authorised within the framework of the procedure in Article 24 of the First Electricity Directive.670 The Court stated that Article 24 would be “meaningless if it were to be accepted that a Member State may unilaterally, and without complying with that proce‑ dure, apply differing treatment to electricity importers on grounds that are pre‑ cisely capable of justifying, under Article 24 of the Directive, a derogation from Articles 7 (5) and 16 thereof ”. The Court also held that the non-discrimination rule must be read in the light of Article 3(1) of the First Electricity Directive, 668 Case C-17/03, VEMW and Others [2005] – ECR 1-4938. 669 Ibid., paragraphs 42 and 46. 670 Directive 96/92 of 19 December 1996 concerning common rules for the internal market in electricity, replaced by Directive 2003/54 26 June 2003 concerning common rules for the internal market in electricity, which was repealed by Directive 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity, which will be repealed on 31 December 2020 by Directive 2019/944/EU of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU.

486

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

under which Member States “are required to refrain from all discrimination in regard to the rights and obligations of electricity undertakings”.671 In Citiworks, the CJEU also held that the 2003 Electricity Directive’s provisions on third party access to distribution applies to all networks, unless one of the specific exemptions or derogations applies.672

8.41

4.2.2 Public service obligations In theory, part of an interconnector’s capacity may be reserved by a Member State on the grounds of public service obligations. However, if a Member State reserves capacity on this ground, the usual public service obligation test applies,673 i.e. it would need to demonstrate that this is the least distortive way of fulfilling the objective in question. In practice, no Member State has yet attempted to justify capacity reservation on public service grounds.

8.42

4.3 Congestion management methods There are four methods for allocating congested cross-border capacity on electricity (and gas) networks:

8.43

4.3.1 The “first come, first served” method Under this method, the TSO continues to allocate capacity according to when requests are received until all available capacity has been allocated. TSOs usually continue to accept requests until net transfer capacities are full in both directions. Whilst this method works well as a bilateral trade method and has the advantage of simplicity, it suffers from numerous drawbacks in allocating congested capacity. Under this method, the procedure used for allocating capacity is crucial, leaving open a risk of discrimination where a vertically integrated company is involved.674 Furthermore, in the event that safeguards are put into place to prevent discriminatory capacity allocation – such as adequate publicity and 671 Interestingly, the Commission noted in a 2006 Communication that “… on certain borders, long-term preliberalisation capacity reservations still exist despite the ruling of the European Court of Justice that such reservations are not compatible with EC law, unless they were notified under Directive 96/902/EC” (Communication from the Commission: Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (final report), Brussels, 10.01.2007, COM (2006) 851 final, paragraph 23. 672 Case C-439/06 Citiworks [2008] ECR I-3913. 673 See Chapter 10. 674 The natural tendency of a vertically integrated TSO in such circumstances is to ensure that its parent company receives prior warning of the allocation and therefore always “comes first”.

487

8.44

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

sufficient advance notice prior to the start date for the allocation – the mechanism will still be unworkable for congested infrastructure, as requests exceeding available capacity will be received. Additionally, this mechanism is not based on a willingness to pay for capacity, meaning that it does not provide an efficient priority mechanism where transactions are conducted in real time or daily, as in these situations, all requests are submitted at almost the same time.

4.3.2 Pro-rata method 8.45

Under this method, all capacity applications received during a pre‑defined and published period are combined and each request is reduced proportionally by a percentage relating to the over‑subscription, the idea being that no congestion will remain. While this method appears fair, it is extremely difficult to operate in practice where capacity is significantly congested. Further, an entity seeking capacity expecting a pro‑rata reduction is incentivised to request more capacity than it actually needs i.e., this method results in a notably economically inefficient use of the allocation system, given that there are no incentives to reduce congestion.675

4.3.3 Explicit auction method 8.46

Available congested capacity may be auctioned by the TSO. Under explicit auctions, transmission capacity on an interconnector is auctioned to market participants independently of and separate from the marketplaces in which the electricity is being auctioned. Provided that the auction is organised in an objective and transparent manner, this method is non-discriminatory.676 Nevertheless, auctioning processes may still be manipulated in markets characterised by dominance or oligopoly, as companies may have incentives to bid for all available capacity in order to prevent competition from developing on the home market. These situations may be controlled by national regulatory authorities, if they monitor congestion management mechanisms and intervene where they are disproportionate or are applied in a discriminatory manner.677 For example, caps 675 While this practice could in theory be reduced by limiting the number of applications an undertaking may place, this would be easy to circumvent in various ways; including through the establishment of numerous subsidiaries. 676 For example, care needs to be taken to ensure that the manner in which capacity is divided (year, month, day, etc) is not done so in a way that it benefits incumbent companies. 677 See Article 37(10) of Directive 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC, which will be repealed on 31 December 2020 by Directive 2019/944/EU of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU.

488

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

can be placed on the total capacity that can be bid for.678 Similar considerations also apply to markets characterised by tight oligopoly. Where there is congestion, the price for the auctioned capacity, will in principle, be close to the wholesale electricity price difference between the two control zones concerned. This will result in the TSO acquiring a large proportion of the profits from the capacity sales, which it can then use to lower overall prices for transmission services or for building new interconnection capacity. Arguably, this outcome is preferable to the alternative outcome under the previous two mechanisms, which results in windfall profits accruing to the undertakings fortunate enough to acquire the capacity under the “first come first served” and pro‑rata mechanisms.

8.47

Spare capacity in one Member State may be sold abroad at a low price, which in turn would force down prices in the importing country. One theoretical disadvantage of an auction is that it prevents spare capacity from being sold abroad. However, unless interconnector capacity is so significant that imports would affect the market price equilibrium in the importing country, it is unlikely that the exporter acquiring the capacity will undercut the prevailing market price in the importing country, even if it has acquired the capacity at close to zero cost. It is more likely to sell at, or very close to, the market price, taking the high profits. Indeed, the market equilibrium price in the importing country will be set on the basis of the demand/supply balance on the relevant market, including the available interconnector capacity. Thus, in reality, whether capacity is auctioned679 or allocated on a pro‑rata basis680 will not change the resultant price that capacity holders sell electricity for in export markets.

8.48

Where auctions exist in neighbouring markets, co‑ordinated auctioning can take place. This means that the auctions take place at the same time and offer capacity in similar blocks. Capacity can also be made available by an auction covering several interconnectors, enabling transit contracts to be bid for.

8.49

678 In the Guidelines on congestion management annexed to the Regulation regarding auctioning, it is explicitly stated that “ in order not to risk creating or aggravating problems related to any dominant position of market participant(s) capping of the amount of capacity that can be bought/possessed/used by any single market participant in an auction shall be seriously considered by the competent regulatory authorities in the design of any auction mechanisms”. 679 Thus making the interconnection capacity available at a higher price. 680 Thus selling the interconnection capacity at a lower, cost‑based price.

489

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

4.3.4 Implicit auction 8.50

Under an implicit auction, cross-border transmission capacity is implicitly included in auctions of electricity in a given market for power. The implicit auction process matches buyers and sellers of power across the order books of the power exchanges on each side of the interconnector i.e., interconnector capacity is allocated implicitly (based on prices in the two markets) rather than through an explicit auction of capacity.681 As is the case with implicit auctions, this method of allocation may be more efficient than the “first come first served” and prorata allocation methods, as bids reflect the value placed by market participants on the capacity, and highest priority is provided to participants willing to pay the highest price. Where two electricity exchanges exist in neighbouring control areas, all or part of the available interconnection capacity may be made available to the exchanges.

8.51

The exchange in the lower-priced area then exports electricity on the basis of the available interconnection capacity to the area of high pricing. As a consequence, demand in the low priced exchange is increased and the “low” price in this area will increase to reflect this. The electricity sold into the high price area will be bid into the exchange at the price of the low price area plus transmission tariffs (which is not based on an auctioned price for the interconnection capacity and is thus relatively cheap). As a consequence, the electricity exchange price in the high price area will decrease. In other words, the demand curve at the electricity exchange in the low price area will shift upwards, the curve at the exchange in the high price area will move downwards. The extent of the shift, and thus the effect on price, will depend upon the level of capacity of the interconnector available.

8.52

There are significant advantages in using implicit auctions, the most important being that out of all the capacity allocation models, implicit auctions are most likely to have the greatest effect in reducing prices in high price areas. Any bid into one market is also available in the connected market to the extent that capacity is available, so generators cannot attempt to segment neighbouring markets by trying to bid different prices for each.

8.53

Implicit auctioning also avoids the need for “use it or lose it” procedures since the network users are not explicitly given capacity. Instead the market operator will use all capacity to equalise, to the largest extent, the prices in the markets involved. There will only be unused capacity if the prices can be fully equalised. 681 The use of explicit auctioning methods is not mentioned within the CACM NC.

490

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

Furthermore, the fact that a bid in one market area is automatically valid in another area leaves less room for manipulation. With an explicit auction, it may be possible for a company with market power in one or both connected areas to manipulate auction outcomes for its own gain, as the auction may allow the incumbent to observe prices for interconnection capacity before it makes its bids for the supply of electricity into the two separate areas. It may then be able to secure some of the congestion rents for itself. With an implicit auction, it is more likely that society as a whole, rather than individual undertakings, receives the benefit of the interconnection capacity as any profits due to sales from the low price area into the high price area go to the TSO. The TSO will then use these funds to increase capacity (or improve its availability), or return the benefit to customers through lower transmission tariffs.

8.54

The only disadvantage of implicit auctions is that they can only be used if both electricity exchanges on both sides of the interconnector are adequately liquid and competitive. Otherwise, gaming and manipulation possibilities may still remain. However, issues relating to market dominance are common to any capacity allocation procedures. Furthermore, in practice, implicit auctions have tended to increase liquidity in both markets. There is no reason to suppose that market splitting is any more vulnerable in this respect. However explicit auctions may permit a cap to be placed on the capacity allocated to any individual company, while this is not possible under implicit auctions.

8.55

4.3.5 From non market-based capacity allocation systems to marketbased capacity allocation systems Post-liberalisation, a large number of interconnectors were applying non marketbased methods (including the “first come first served” method) to allocate capacity. The Union has pushed to introduce market-based allocation methods which should maximise the share of cross-border capacity available for day-ahead trade.

8.56

It is generally accepted that implicit auctions are the most efficient method of allocating cross-border capacity, and this is the preferred auction mechanism for the Union. However, given the differences existing between national electricity markets and the dependence of such a method on high levels of co-ordination and harmonisation, it is difficult to use implicit auctions. This is the why, currently, transmission capacity and electricity are generally purchased separately via explicit auctions. If further EU level harmonisation takes place, there is no reason why the use of implicit auctions may not be a reality one day, but at present this remains a distant possibility.

8.57

491

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

4.4 Requirements of the Regulation 8.58

Article 16 of the Regulation sets out the principles capacity allocation and congestion management: Article 16 General principles of capacity allocation & congestion management “1. Network congestion problems shall be addressed with non-discriminatory market-based solutions which give efficient economic signals to the market participants and transmission system operators involved. Network congestion problems shall be solved by means of non-transaction -based methods, namely methods that do not involve a selection between the contracts of individual market participants. When taking operational measures to ensure that its transmission system remains in the normal state, the transmission system operator shall take into account the effect of those measures on neighbouring control areas and coordinate such measures with other affected transmission system operators as provided for in Regulation (EU) 2015/1222. 2. Transaction curtailment procedures shall be used only in emergency situations, namely where the transmission system operator must act in an expeditious manner and redispatching or countertrading is not possible. Any such procedure shall be applied in a non-discriminatory manner. Except in cases of force majeure, market participants that have been allocated capacity shall be compensated for any such curtailment. 3. Regional coordination centres shall carry out coordinated capacity calculation in accordance with paragraphs 4 and 8 of this Article, as provided for in point (a) of Article 37(1) and in Article 42(1).

Regional coordination centres shall calculate cross-zonal capacities respecting operational security limits using data from transmission system operators including data on the technical availability of remedial actions, not including load shedding. Where regional coordination centres conclude that those available remedial actions in the capacity calculation region or between capacity calculation regions are not sufficient to reach the linear trajectory pursuant to Article 15(2) or the minimum capacities provided for in paragraph 8 of this Article while respecting operational security limits, they may, as a measure of last resort, set out coordinated actions reducing the cross-zonal capacities accordingly.

492

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

Transmission system operators may deviate from coordinated actions in respect of coordinated capacity calculation and coordinated security analysis only in accordance with Article 42(2).



By 3 months after the entry into operation of the regional coordination centres pursuant to Article 35(2) of this Regulation and every three months thereafter, the regional coordination centres shall submit a report to the relevant regulatory authorities and to ACER on any reduction of capacity or deviation from coordinated actions pursuant to the second subparagraph and shall assess the incidences and make recommendations, if necessary, on how to avoid such deviations in the future. If ACER concludes that the prerequisites for a deviation pursuant to this paragraph are not fulfilled or are of a structural nature, ACER shall submit an opinion to the relevant regulatory authorities and to the Commission. The competent regulatory authorities shall take appropriate action against transmission system operators or regional coordination centres pursuant to Article 59 or 62 of Directive (EU) 2019/944 if the prerequisites for a deviation pursuant to this paragraph were not fulfilled.



Deviations of a structural nature shall be addressed in an action plan referred to in Article 14(7) or in an update of an existing action plan.

4. The maximum level of capacity of the interconnections and the transmission networks affected by cross-border capacity shall be made available to market participants complying with the safety standards of secure network operation. Counter-trading and redispatch, including cross-border redispatch, shall be used to maximise available capacities to reach the minimum capacity provided for in paragraph 8. A coordinated and non-discriminatory process for cross-border remedial actions shall be applied to enable such maximisation, following the implementation of a redispatching and counter-trading cost-sharing methodology. 5. Capacity shall be allocated by means of explicit capacity auctions or implicit auctions including both capacity and energy. Both methods may coexist on the same interconnection. For intraday trade, continuous trading, which may be complemented by auctions, shall be used. 6. In the case of congestion, the valid highest value bids for network capacity, whether implicit or explicit, offering the highest value for the scarce transmission capacity in a given timeframe, shall be successful. Other than in the case of new interconnectors which benefit from an exemption under Article 7 of Regulation (EC) No 1228/2003, Article 17 of Regulation (EC) No 714/2009 493

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg or Article 63 of this Regulation, establishing reserve prices in capacity-allocation methods shall be prohibited. 7. Capacity shall be freely tradable on a secondary basis, provided that the transmission system operator is informed sufficiently in advance. Where a transmission system operator refuses any secondary trade (transaction), this shall be clearly and transparently communicated and explained to all the market participants by that transmission system operator and notified to the regulatory authority. 8. Transmission system operators shall not limit the volume of interconnection capacity to be made available to market participants as a means of solving congestion inside their own bidding zone or as a means of managing flows resulting from transactions internal to bidding zones. Without prejudice to the application of the derogations under paragraphs 3 and 9 of this Article and to the application of Article 15(2), this paragraph shall be considered to be complied with where the following minimum levels of available capacity for cross-zonal trade are reached: (a) for borders using a coordinated net transmission capacity approach, the minimum capacity shall be 70 % of the transmission capacity respecting operational security limits after deduction of contingencies, as determined in accordance with the capacity allocation and congestion management guideline adopted on the basis of Article 18(5) of Regulation (EC) No 714/2009; (b) for borders using a flow-based approach, the minimum capacity shall be a margin set in the capacity calculation process as available for flows induced by cross-zonal exchange. The margin shall be 70 % of the capacity respecting operational security limits of internal and cross-zonal critical network elements, taking into account contingencies, as determined in accordance with the capacity allocation and congestion management guideline adopted on the basis of Article 18(5) of Regulation (EC) No 714/2009.

The total amount of 30% can be used for the reliability margins, loop flows and internal flows on each critical network element.

9. At the request of the transmission system operators in a capacity calculation region, the relevant regulatory authorities may grant a derogation from paragraph 8 on foreseeable grounds where necessary for maintaining operational security. Such derogations, which shall not relate to the curtailment of capacities already allocated pursuant to paragraph 2, shall be granted for no more than one-year at a time, or, provided that the extent of the derogation decreases significantly after 494

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg



the first year, up to a maximum of two years. The extent of such derogations shall be strictly limited to what is necessary to maintain operational security and they shall avoid discrimination between internal and cross-zonal exchanges. Before granting a derogation, the relevant regulatory authority shall consult the regulatory authorities of other Member States forming part of the affected capacity calculation regions. Where a regulatory authority disagrees with the proposed derogation, ACER shall decide whether it should be granted pursuant to point (a) of Article 6(10) of Regulation (EU) 2019/942. The justification and reasons for the derogation shall be published. Where a derogation is granted, the relevant transmission system operators shall develop and publish a methodology and projects that shall provide a long-term solution to the issue that the derogation seeks to address. The derogation shall expire when the time limit for the derogation is reached or when the solution is applied, whichever is earlier.

10. Market participants shall inform the transmission system operators concerned within a reasonable period in advance of the relevant operational period whether they intend to use allocated capacity. Any allocated capacity that is not going to be used shall be made available again to the market, in an open, transparent and non-discriminatory manner. 11. As far as technically possible, transmission system operators shall net the capacity requirements of any power flows in opposite directions over the congested interconnection line in order to use that line to its maximum capacity. Having full regard to network security, transactions that relieve the congestion shall nevernot be refused. 12. The financial consequences of a failure to honour obligations associated with the allocation of capacity shall be attributed to the transmission system operators or NEMOs who are responsible for such a failure. Where market participants fail to use the capacity that they have committed to use, or, in the case of explicitly auctioned capacity, fail to trade capacity on a secondary basis or give the capacity back in due time, those market participants shall lose the rights to such capacity and shall pay a cost-reflective charge. Any cost-reflective charges for the failure to use capacity shall be justified and proportionate. If a transmission system operator does not fulfil its obligation of providing firm transmission capacity, it shall be liable to compensate the market participant for the loss of capacity rights. Consequential losses shall not be taken into account for that purpose. The key concepts and methods for the determination of liabilities that accrue upon failure to honour obligations shall be set out in advance in respect of the financial consequences, and shall be subject to review by the relevant regulatory authority. 495

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg 13. When allocating costs of remedial actions between transmission system operators, regulatory authorities shall analyse to what extent flows resulting from transactions internal to bidding zones contribute to the congestion between two bidding zones observed, and allocate the costs based on the contribution to the congestion to the transmission system operators of the bidding zones creating such flows except for costs induced by flows resulting from transactions internal to bidding zones that are below the level that could be expected without structural congestion in a bidding zone.

8.59

That level shall be jointly analysed and defined by all transmission system operators in a capacity calculation region for each individual bidding zone border, and shall be subject to the approval of all regulatory authorities in the capacity calculation region.”

These principles were developed in the Guidelines on the management and allocation of available transmission capacity of interconnections between national systems, which were laid down in Annex 1 of the 2009 Regulation (“Capacity Guidelines”) and are now implemented in the current Cross-border Electricity Regulation. An examination of the principles in the Regulation and the Capacity Guidelines gives rise to the following observations.

4.4.1 Requirement for market based methods 8.60

A key requirement of the Cross-border Electricity Regulation and the Capacity Guidelines is that congested capacity must be allocated on the basis of “non‑dis‑ criminatory market–based solutions which give efficient economic signals to the market participants and transmission system operator involved”. This, in principle, would exclude “first come first served” or pro‑rata mechanisms, which are also explicitly mentioned in the Capacity Guidelines. The Capacity Guidelines state that “capacity shall be allocated only by means of explicit (capacity) or im‑ plicit (capacity and energy) auctions”,682 and that capacity should be given to the “highest value bids”.683 It appears that this assumption is confirmed in the Crossborder Electricity Regulation. Article 16 (5) and (6) lay down that congestion and capacity shall be allocated through explicit or implicit auctions, ruling out the “first come first serve” and the “pro rata” mechanisms.684

682 At paragraph 2.1; Capacity Guidelines; Article 16(1) and Article 16(5) of the Regulation. 683 At paragraph 2.7; Capacity Guidelines, Article 16(6) of the Regulation. 684 Article 16(5) and (6) of the Cross-Border Electricity Regulation.

496

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

The Capacity Guidelines also impose a number of detailed conditions on the auction methodology. In particular, it requires intraday auctions (i.e. auctions concerning only capacity offered on an intraday basis) to be established by 1 January 2008,685 capacity to be offered through a series of auctions,686 and for capacity to be offered for different time periods (i.e. day, week, month).687 The latter condition is necessary to meet the needs of market participants and to ensure that the maximum possible capacity is made available to the market.

8.61

In the event of capacity cancellation, compensation shall be paid “except in the case of force‑majeure”, which can only take place in “emergency situations”.688

8.62

4.4.2 Maximisation of capacity use TSOs are under a general obligation to make the maximum possible capacity available for cross-border flows.689 To achieve this objective, this requires the implementation of “use‑it‑or‑lose‑it” rules,690 which allow capacity holders to declare to the TSO whether they intend to use the nominated capacity, and make unused capacity available to the market. This is specified in more detail in the Guidelines which state as follows:

8.63

“2.5 The access rights for long and medium-term allocations shall be firm transmission capacity rights. They shall be subject to the use-it-or-lose-it or use-it-or-sellit principles at the time of nomination. […] 2.11 Market participants shall firmly nominate their use of the capacity to the TSOs by a defined deadline for each timeframe. The deadline shall be set such that TSOs are able to reassign unused capacity for reallocation in the next relevant timeframe – including intra-day sessions.”

Other methods provided in the Regulation designed to ensure the most efficient use of interconnection capacity are: (i) the obligation to net the capacity rights of any power flows in the opposite direction over the congested inter-

685 686 687 688 689 690

At paragraph 1.9 Capacity Guidelines. At paragraph 2.1 Capacity Guidelines. At paragraphs 2.6 and 3.2 Capacity Guidelines. Article 16(2) of the Regulation. Article 16(4) of the Regulation. Article 16(5) of the Regulation.

497

8.64

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

connection line, which is designed to use that line to its maximum capacity,691 (ii) the prohibition on defining a reserve price for capacity allocation (because such a minimum price may leave interconnection capacity idle in times of low congestion),692 and (iii) the rights of capacity holders to sell their capacity on the secondary market.693

4.4.3 Requirement for co-ordination between TSOs 8.65

In calculating available transmission capacity, TSOs must coordinate with each other and take into account their physical, rather than contractual, capacity. The Regulation requires the netting of opposite electricity flows.694 Consider the example of an electricity supply contract of 10 units from country A to B, and a contract of 5 units from country B to A. Contractually, 15 units must be carried on the line which might be declared congested. Therefore, after the netting, only 5 units need to physically flow through the line. As a result, market participants wishing to sell electricity in the opposite direction to the prevailing flow will not be refused capacity, given that they are contributing to congestion reduction.

8.66

The Capacity Guidelines provide further details on cross-border interactions, including the effects of “loop flows” between several Member States.695 However, the methodology used to define the maximum available capacity used by transmission system operators often still only considers bilateral flows from country A to country B, meaning that it is insufficient as it does not take into account loop flows. If loop flows are properly taken into account, more capacity can usually be made available without damaging security margins.

4.4.4 Distribution of congestion rents 8.67

A congested interconnector can generate a high income when capacity is auctioned. As explained above, the auction price for interconnection capacity is normally close to that for the wholesale electricity price difference between the connected systems. Where there is congestion and significant differences exist in wholesale prices, the auction price may exceed the cost‑based tariff, generating high profits. Nevertheless, the TSO will normally not be allowed to retain 691 “Nominations of transmission rights in the opposite direction shall be netted in order to make efficient use of the interconnection” (see point 4.2 and Article 16(4)). This also includes a requirement that transactions relieving congestion should never be denied. 692 At point 2.9 Capacity Guidelines; Article 16 (6) of the Regulation. 693 At point 2.12 Capacity Guidelines; Article 16 (7) of the Regulation. 694 Article 16 (4) of the Regulation. 695 At paragraphs 3.5 (a) and (b)) Capacity Guidelines.

498

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

such income beyond a reasonable rate of return, as it would constitute a scarcity rent as a result of the TSO’s monopoly over operation of the network. Article 19(2) and (3) of the Cross-border Electricity Regulation specifies how congestion revenue should be used. The previous 2003 Cross-border Electricity Regulation listed three possible uses for the congestion revenue: (i) guaranteeing actual availability of allocated capacity (i.e. buy back capacity rather than cancel capacity rights in the event of difficulties), (ii) investment in new infrastructure or (iii) reducing the general level of network tariffs.

8.68

The current Regulation attempts to limit the use of the third option, as it does not remedy the cause of the problem, i.e., the lack of sufficient interconnection capacity.696 In practice, most of the congestion revenue has been used to lower general network tariffs.697

8.69

4.5 The forthcoming CACM guidelines/network code698 In July 2014, a proposed Regulation establishing Guidelines on Capacity Allocation and Congestion Management (i.e. a network code under the Regulation, and hence referred to as the “CACM NC”) was sent to the Electricity cross-border Committee.699 A favourable opinion was given on this draft Regulation by the Member States on 5 December 2014, and was adopted by Member States in comitology.700 The definitive adoption of CACM NC is expected in Q2 2015, 696 As noted in paragraph 16(8) of the Regulation. 697 In its original proposal for the new Cross-border Electricity Regulation, the Commission proposed entirely deleting the third option and replacing it with the option of having a separate account in which the congestion revenue could be placed if it could not immediately be used for any of the two other options. During the negotiations on the third energy package, Member States were reluctant to follow the Commission’s proposal to delete the third option, and it was instead agreed that this option would be submitted to national regulatory authorities for approval. The national regulatory authorities would also be able to define a maximum amount of revenue to be spent on this purpose. 698 Rather confusingly, the CACM network code is also referred to as a set of “Guidelines”. In the 20-21 May Florence Forum, the Forum urged the Commission “to submit the Regulation of CACM into the Comitology procedure as soon as possible and (took note) that the Commission could propose to adopt CACM as binding Guidelines in the Comitology procedure”. ENTSO-E noted that it “welcomes these conclusions and hopes that the decision to change the label of Capacity Allocation and Congestion management (CACM) from “Network Code” to “Guidelines” leads to a quick adoption process without materially changing CACM’s content or affecting its legal value. While naming CACM “Guidelines” could find justification in its specific structure, many other codes will maintain their network codes label”. 699 The CACM NC developed in close cooperation with ACER, ENTSO-E and stakeholders, in order to adopt effective, balanced and proportionate rules in a transparent and participative manner. 700 Comitology in the European Union refers to a process by which EU law is modified or adjusted and takes place within “comitology committees” chaired by the European Commission. The official term for the process is committee procedure. Comitology committees are part of the EU’s broader system of committees that assist in the making, adoption, and implementation of EU laws. The comitology system was reconfigured by

499

8.70

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

after scrutiny from the European Parliament and Council.701 On 24 July 2015, the Regulation establishing guidelines for capacity allocation and congestion management was adopted, which reflects the proposal made in July 2014.702

8.71

The central aim of the CACM NC is to create a single and harmonised approach on cross-border electricity trading in Europe, while leaving open the possibility for further harmonisation in the near future. The CACM NC sets out coordinated rules for single day-ahead and intraday coupling, to provide a clear legal framework for efficient capacity allocation and congestion management system. This is intended to contribute towards an increase in effective internal trade in electricity and competition at the wholesale level. The CACM NC includes approaches for allocating available cross-border capacity and provides rules on capacity allocation for day-ahead and intraday scenarios.703

8.72

The CACM NC aims to optimise the way in which cross-border transmission capacities are calculated. It is based on the EU wide “Target Model” for market design (i.e., outlines of market mechanisms aimed at facilitating the development of the internal wholesale electricity market)704 and contains three subsections in relation to intraday, day ahead and capacity calculation, which were merged to ensure consistency between these areas, which heavily interrelate. Such rules are intended to contribute towards a harmonised network code, which would be the next step towards the founding of a target model agreed between the Commission, regulators and relevant Florence Forum stakeholders.

8.73

The Target Model implies that day ahead electricity markets will be coupled across the EU through which transmission capacity is allocated indirectly with any cross-border transaction. Under the Target Model, where an electricity buyer

701 702 703

704

the Lisbon Treaty which introduced the current Articles 290 and 291 TFEU. Whereas Article 291 TFEU provides for a continuation of implementation of EU law through comitology, Article 290 TFEU introduced the delegated act which is now used to amend or supplement EU legislation, whereas beforehand this was also done through comitology. Under Articles 6 (11) and 7(3) of the Cross-border Electricity Regulation, network codes are qualified once they have been adopted by the Commission on the basis following the so-called regulatory procedure with scrutiny. Regulation 2015/1222/EU of 24 July 2015 establishing a guideline on capacity allocation and congestion management (CACM Regulation). The Proposed Guidelines emphasise that a common grid model for single day-ahead and intraday coupling purposes needs to be achieved in order to be able to calculate cross-zonal capacity in a coordinated way. This in turn, will enable the development of an EU-level interconnected system. Single day-ahead and intraday coupling ensures that power usually flows from low- price to high- price areas. See also CACM Regulation, paragraphs 3-5 of the Preamble. There are three “Target Models” for CACM, including cross-zonal intraday capacity allocation based on implicit continuous allocation/trading.

500

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

in one country purchases electricity from a seller located within another country, the buyer does not have to purchase transmission capacity separately, as the capacity is invariably included in the electricity purchase price. If there is congestion between the two Member States then the price will be higher. Conversely, if there is no congestion the cross-border cost will be zero, which would make the electricity prices for the two Member States almost similar. It is intended that several advantages will arise as a result of this target model, for example, cost efficiencies and permitting better integration renewable energy sources to be integrated within the electricity system (i.e. preventing negative pricing).

4.5.1 Congestion The CACM NC defines three kinds of congestion:705 1.

market congestion (defined as “a situation in which the economic surplus for single-day ahead or intraday coupling has been limited by cross-zonal capacity or other active allocation constraints”);

2.

physical congestion (defined as “any network situation, either identified in a common grid model, or occurring in real time, where power flows have to be modified to respect operational security”); and

3.

structural congestion (defined as “congestion in the transmission system that can be unambiguously defined, is predictable, is geographically stable over time and is frequently reoccurring under normal power system condi‑ tions”).

8.74

4.5.2 Flow-based calculation method The most important development is perhaps the introduction of the so-called flow-based calculation method for calculating available capacity, which acknowledges that electricity can flow via different paths and is designed to optimise available capacity in interdependent grids. This calculation method is intended to be used as the primary approach for day-ahead and intraday capacity calculation where cross-zonal capacity between bidding zones is highly interdependent.

8.75

Under flow-based methods, an interconnector’s net transfer capacity is determined using the outcome of market participants’ bids at regional level. A grid

8.76

705 Article 2 numbers 17, 18, and 19 of the CACM Regulation.

501

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

model is used to evaluate the impact of physical flows arising from all commercial bids on congestion across the region. The principle underlying this method is that the market should determine optimum flows because all bids in the region will compete against each other for transmission capacity.

8.77

This is particularly important given that loop flows are expected to increase in the future as a result of (i) an increased volume of intermittent generation caused by renewable energy sources as the proportion of electricity generated by renewables increases in line with EU targets, and (ii) increased grid interconnections and reinforcements arising as a result of Union energy policy which will result in new pathways for electricity flow and remove previous sources of resistance.

4.5.3 Matching of bids and offers using an algorithm 8.78

The CACM NC also dictates that the market coupling operator (“MCO”) will use a specific algorithm to fairly match bids and offers. The final calculations should be made available to all power exchanges in a non-discriminatory way. The CACM NC also stipulates that the process for single day-ahead and intraday coupling should be similar, with the exception that the intraday coupling should use an ongoing process during the day. Capacity calculation for the dayahead and intraday market timeframes are set to be harmonised at a regional level to ensure that capacity calculation is reliable and that optimal capacity is made available to the market. Information on available capacity should also be updated in a timely manner.

8.79

While the CACM NC does not appear to change current bidding zones, which are often defined along national borders, ultimately, a more optimal division of bidding zones will be necessary to permit the best use of the flow based method. Bidding zones therefore need to be defined in a way ensuring efficient congestion management and overall market efficiency, and should be identical for all market timeframes to ensure that the process runs properly. Nevertheless, the CACM NC provides a review process for assessing and redefining bidding zone, and this will almost certainly play a significant role in identifying structural congestion and may eventually help to provide a more efficient system.

4.5.4 Use of implicit allocations 8.80

Under the CACM NC, capacity should be distributed in the day-ahead and intraday market timeframes using implicit allocation methods, which should 502

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

guarantee capacity is allocated and congestion managed in a competent manner. The CACM NC also allows the Commission, in cooperation with ACER, to create or appoint a single regulated entity to perform common MCO functions relating to the market operation of single day-ahead and intraday coupling. For the implicit auctions to take place Union-wide, it expected that all Member States will guarantee an EU price coupling process.

4.5.5 Regional level cooperation Finally, the CACM NC advises that single-day ahead and intraday coupling should be approached and implemented on a step-by-step basis, as the regulatory framework and the physical configuration of the transmission grids vary between Member States. As a result, in some particular cases it may be initiated at a regional level.

8.81

Establishing single day-ahead and intraday coupling process requires cooperation between potentially competing power exchanges. There may still be situations where the price coupling process is unable to produce results, meaning that national and regional level contingency measures are required to ensure the efficient safeguarding and allocation of capacity.

8.82

5.

Locational signals

5.1 Introduction Within any electricity system, whether within at Member State or cross-border level, there are areas of surplus generation and areas of surplus consumption. In the UK for example, there is excess generation in the North and in the Midlands, which is consumed in the South. In Austria, there is excess generation in the North which is consumed in the South. The same issue arises at European level: for example there is surplus generation in France706 and a generation deficit in Italy. In 2007, the Netherlands, the UK and Finland were net importers of electricity, while Poland, the Czech Republic, Germany and Norway were net exporters.

8.83

These imbalances create electricity flows over relatively long distances, causing network costs in terms of losses and the need to construct and maintain additional transmission lines.

8.84

706 Particularly from base‑load from nuclear generation.

503

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

8.85

This state of affairs gives rise to the issues of: (i) who should pay for the network costs caused by the imbalances of the demand and supply of electricity between the different Member States/control areas?, and (ii) how should tariffs ensure that the new generation takes account of the costs they cause to the grid?707

8.86

In relation to the first issue, the Cross-border Electricity Regulation provides the costs of cross-border and transit flows caused by the imbalances of electricity supply and demand between Member States should be handled through the ITC mechanism.

8.87

This therefore increased the importance of the response to the second question on how to pass on the costs of increased transmission caused by individual generators or consumers due to their particular location.

8.88

The appropriate regulatory tool to address this issue would be locational signals, i.e. charging generators in surplus areas (“physically exporting”) higher transmission fees than those located in deficit areas (“physically importing”) to ensure that generators take network costs into account when considering the construction of new capacity.708

8.89

Such a policy might at first sight seem unfair. Consider, for example, two generators situated in the same town in Northern England which is assumed to be in an area of surplus generation. One generator sells all its output to the local supply company for local consumption. The other sells all its output to a fertiliser company in Southern England. Both should not pay a premium for being situated in Northern England if only one, from a contractual viewpoint, is causing the flows, and this logic points towards a charge based on the geographical distance between the contractual input point and the contractual off-take point. In practice, however, the power from both generating plants together causes the network flows due to the fact that both inputs are from the same place. Physical 707 The costs of building different types of generators varies considerably across the EU. These differences are caused, for example, by the ready and cheap availability of certain primary energy resources in certain areas, such as gas from Norway or Russia, coal in major import ports or wind on the Atlantic coast. With the rapid growth in renewable energy, these differences in natural resource allocation and topography may become even more important. In a fully integrated internal market with low congestion, new generation is likely to concentrate in these “cheap” areas, increasing the likelihood of congestion and losses, and also requiring the construction of new transmission lines. 708 Locational signals are economic incentives given to buyers and sellers which reflect their relative geographic location, and reflect the real cost of buying and selling electricity in each network area or node. They provide short-term signals which should lead to the optimal use of currently available system resources which will maximise the overall economic efficiency of the system. Long-term, these short-term signals guide long-term market decisions.

504

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

flows between areas do not result from individual contracts, but from the aggregate effect of surplus capacity in one area compared to another. Hence, in the above example, all generators in Northern England contribute to physical flows to the South irrespective of their individual supply contracts. Locational signals may be created by placing lower charges on generators in deficit areas than on those in surplus areas. As transmission tariffs are made up from two basic components, the generator charge (the “G-charge”) and the load charge (the “L-charge”).709 One way of introducing a locational signal could be to levy a lower G‑charge in deficit areas than is levied in surplus areas. In order to incentivise building new generators in deficit areas, regulators might even decide to levy a “negative charge” in these deficit areas, i.e., a grant.

8.90

5.2 Requirements of the Regulation The Cross-border Electricity Regulation mirrors the above principles in relation to locational signals in Recital (30):

8.91

“(30) To efficiently steer necessary investments, prices also need to provide signals where electricity is most needed. In a zonal electricity system, correct locational signals require a coherent, objective and reliable determination of bidding zones via a transparent process. In order to ensure efficient operation and planning of the Union electricity network and to provide effective price signals for new generation capacity, demand response and transmission infrastructure, bidding zones should reflect structural congestion.”

Article 18(3) and (5) of the Cross-border Electricity Regulation encourage the use of locational signals at EU level and provides principles for their calculation: Article 18 Charges for access to networks “[…] Where appropriate, the level of the tariffs applied to producers and/or consumers shall provide locational signals at Community level, and take into account the amount of network losses and congestion caused, and investment costs for infrastructure. 709 Transmission tariffs are charges to generators and consumers. The input charge is also known as the “Gcharge”, and is imposed on generators. The load charge, charged to consumers, is also known as the “Lcharge” and is the charge for the electricity load.

505

8.92

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg […] Setting the charges for network access under this Article shall be without prejudice to charges on declared exports and declared imports resulting from congestion management referred to in Article 16.”

8.93

Article 18(3) does not set out an obligation to introduce locational signals at national or EU level. It might be difficult to justify the compulsory introduction of locational signals at national level through the Cross-border Electricity Regulation, as it only explicitly concerns cross-border exchanges in electricity. In addition, there is so far little internal congestion in most Member States, which might indicate that the introduction of locational signals at national level should be considered by Member States under the subsidiarity principle.

8.94

There is currently no EU level system of locational charges. However, a large number of interconnectors are congested. Since the Regulation requires the allocation of congested interconnection capacity on the basis of market-based methods, such congestion management may indirectly introduce locational signals.

8.95

If, for example, the capacity on the interconnectors between France and Italy is auctioned, the auction price can be expected to almost match the difference in the wholesale price between the two countries. This will therefore provide an additional cost for exporting generators in France and/or importers in Italy – having an effect similar to one that an increased G‑charge would have on those generators. As a result, it could be argued that locational signals already de facto exist at European level where auctions of congested capacity take place, due to the cost of acquiring congested interconnector capacity. An additional locational signal introducing, for example, a particular G‑charge for surplus areas may therefore not be necessary.

8.96

The Cross-border Electricity Regulation permits the development of network codes for locational signals. Should the Commission decide that the harmonisation of locational signals is warranted, it could prioritise this issue and launch the development of a respective code according to the new procedure in Article 59 of the Cross-border Electricity Regulation.

506

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

6.

Harmonisation of tariffs

Apart from charges for specific ancillary services and losses, the G and L charges are the main source of income for TSOs. Transmission tariffs are imposed on generators, consumers, or on both. While there are good reasons for imposing at least some of the transmission costs on generators through G‑charges to allow for locational signals,710 there is no real technical basis for dividing costs between generators and consumers in any particular way, given that the customer eventually (indirectly or directly) pays all the costs.

8.97

In the past, Member States followed different approaches. In 2005, five Member States711 had significant (but different) G-charges. The remaining countries in the main continental block had a zero G‑charge, which meant that all costs were placed on consumers.

8.98

These differences between Member States are likely to cause distortions in the internal market. Assume, for example, that in Member State A transmission charges are levied according to a split of 25% on G and 75% on L, while in Member State B all charges are levied on L. If the total transmission charge is 6 €/MWh in each Member State, exporting generators from A to B are charged a transmission fee of 7.5 €/MWh, while generators exporting from B to A are charged 4.5 €/MWh.712 Given that transmission tariffs represent 5‑10 % of the total electricity retail price, the different approach to the “G” and “L” split in transmission tariffs represents a potentially important trade distortion. Florence Forum participants have repeatedly recognised the importance of harmonising the “G” and “L” split at EU level. Broadly speaking, there are two basic options for harmonising the split between “G” and “L”:

8.99

1.

harmonising the percentage/ratio of the split between “G” and “L”, or

2.

fixing a uniform G-charge across the entire EU.

710 Without a G charge it is rather difficult to have locational signals. See above book paras 8.73-8.84. 711 The United Kingdom, Ireland, Sweden, Denmark, and Greece. 712 In Member State A the G‑charge would be 1.5 €/MWh, and the L charge 4.5 €/MWh. In Member State B, there would be only a 6 €/MWh charge on L. Thus the exporter from A would pay the 1.5 €/MWh charge to its transmission system operator for putting the electricity onto the grid (G=1.5 €), and 6 €/MWh to the transmission system operator in the importing country for taking it off the grid (L=6 €). The exporter from B to A, however, would pay nothing to its transmission system operator for putting the electricity onto the grid (G=0) and only 4.5 €/MWh to the transmission system operator in A for taking the electricity off the network. (L=4.5 €).

507

8.100

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

Both options would only work well if the percentage/ratio is harmonised, as considerable differences in the absolute level of the G‑charges could persist and continue to distort competition between generators.

8.101

While no agreement has yet been reached on this issue, there are two legal instruments for achieving harmonised transmission tariff structures: First, the first 2003 Cross-border Electricity Regulation already allowed guidelines to be adopted in order to reach “a progressive harmonisation of underlying principles for the setting of charges applied to producers and consumers (load).” This provision is found in Article 18(2) of the 2009 Regulation: “2. Guidelines may also determine appropriate rules leading to a progressive harmonisation of the underlying principles for the setting of charges applied to producers and consumers (load) under national tariff systems, including the reflection of the inter‑transmission system operator compensation mechanism in national network charges and the provision of appropriate and efficient locational signals, in accordance with the principles set out in Article 14.

8.102



The Guidelines shall make provision for appropriate and efficient harmonised locational signals at Community level.



Any such harmonisation shall not prevent Member States from applying mechanisms to ensure that network access charges borne by consumers (load) are comparable throughout their territory.”

Secondly, the 2009 Regulation also lists tariff harmonisation as one of the twelve areas in Article 8(6) in which ENTSO-E in cooperation with the Commission and the Agency may develop network codes: “(k) rules regarding harmonised transmission tariff structures including locational signals and inter‑transmission system operator compensation rules”.

7. 8.103

Transparency

Information on available network capacity is important for the efficient functioning of the market, and in particular for managing congestion. As noted as far back as 1996 in the Directive on Security of Electricity Supply (“the Security of Electricity Supply Directive”), a “competitive single EU electricity market neces‑ sitates transparent and non-discriminatory policies on security of electricity supply 508

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

compatible with the requirements of such a market. The absence of such policies in individual Member States, or significant differences between Member States would lead to distortion of competition”. 713 In the 2003 Cross-border Electricity Regulation, the relevant provision on information was limited to interconnection capacities, and the information was valued with reference to its ability to ensure the technical safety of the network operation, rather than by the value of the information for other market participants. Annex 1 contains detailed provisions on transparency and specifies data requirements for TSOs.714 As in the first Cross-border Electricity Regulation, the requirements mainly focus on interconnectors and the role of TSOs. The current Cross-border Electricity Regulation considerably widens the scope of the transparency obligation, adding three more paragraphs (4)–(7) to the relevant Article: Article 50 Provision of information “1. Transmission system operators shall put in place coordination and information exchange mechanisms to ensure the security of the networks in the context of congestion management. 2. The safety, operational and planning standards used by transmission system operators shall be made public. The information published shall include a general scheme for the calculation of the total transfer capacity and the transmission reliability margin based upon the electrical and physical features of the network. Such schemes shall be subject to the approval of the regulatory authorities. 3. Transmission system operators shall publish estimates of available transfer capacity for each day, indicating any available transfer capacity already reserved. Those publications shall be made at specified intervals before the day of transport and shall include, in any event, week‑ahead and month‑ahead estimates, as well as a quantitative indication of the expected reliability of the available capacity.

713 Directive 2005/89/EC of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment, paragraph 3 of the Preamble, which was repealed by Regulation 2019/941/ EU of 5 June 2019 on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC. 714 See paragraph 5.

509

8.104

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg 4. Transmission system operators shall publish relevant data on aggregated forecast and actual demand, on availability and actual use of generation and load assets, on availability and use of the networks and interconnections, and on balancing power and reserve capacity. For availability and actual use of small generation and load units, aggregated estimate data may be used. 5. The market participants concerned shall provide the transmission system operators with the relevant data. 6. Generation undertakings which own or operate generation assets, where at least one generation asset has an installed capacity of at least 250 MW, shall keep at the disposal of the national regulatory authority, the national competition authority and the Commission, for five years all hourly data per plant that is necessary to verify all operational dispatching decisions and the bidding behaviour at power exchanges, interconnection auctions, reserve markets and over-the-counter-markets. The per-plant and per hour information to be stored shall include, but shall not be limited to, data on available generation capacity and committed reserves, including allocation of those committed reserves on a per-plant level, at the times the bidding is carried out and when production takes place. 7. Transmission system operators shall exchange regularly a set of sufficiently accurate network and load flow data in order to enable load flow calculations for each transmission system operator in its relevant area. The same set of data shall be made available to the regulatory authorities, and to the Commission and Member States upon request. The regulatory authorities, Member States and the Commission shall treat that set of data confidentially, and shall ensure that confidential treatment is also given by any consultant carrying out analytical work on their request, on the basis of those data.”

8.105

Paragraphs (4)–(7) contain requirements to collect and publish generation and load data. This implies that generators and consumers must also provide the relevant information to the TSOs. These extensive data requirements should make it possible for TSOs to safely and efficiently operate the networks and also allow market participants to understand the market dynamics and develop and adapt their business strategies accordingly.

8.106

Paragraph (6) concerns data which are not meant to be published but must still be held by generators. This data is intended to allow the authorities to verify whether generators have manipulated wholesale prices, for example, by intentionally withholding generation capacity during peak hours. This provision 510

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

seems to be a response to repeated allegations that generators have tried to influence wholesale prices on power exchanges in their favour. This physical transparency provision corresponds to a similar obligation on trading transparency under the record keeping obligation in Article 40 of the 2003 Electricity Directive, which required suppliers to keep at the disposal of competent authorities’ data on all transactions in wholesale derivatives. Finally, the Cross-border Electricity Regulation mentions that ENTSO, in cooperation with the Commission and ACER, may develop new codes in relation to “transparency rules”, providing the Commission with a legal “hook” to specify or possibly extend transparency requirements for TSOs or other market participants in the future.

8.107

At a more general level, it is arguable that there is a need for increased transparency and supervision in the energy wholesale markets. In December 2007, the Commission asked the European associations of the energy and the financial regulators i.e. the European Regulators’ Group for Electricity and Gas (“ERGEG”) and the Committee of European Securities Regulators (“CESR”) to investigate this issue. The two associations published their final advice on how to foster fair electricity and gas trading in January 2009.715 The proposals on record-keeping, transparency and exchange of information seek to promote transparency and market integrity in energy trading.

8.108

8.

Network security and calculation of available capacity

There is a clear interaction between network security standards716 and issues related to cross-border exchanges of electricity, given that the operational rules adopted encompass the way in which TSOs calculate available transmission capacity between Member States.

8.109

The calculation of available capacity is highly complex and is based on a number of assumptions, which have a crucial impact on the results. A common security rule applied is the N-1 rule, which broadly means that even in the event of a failure of any major component of the system such as a power plant or transmission line, the system should continue to function. This rule limits the amount of capacity which can be made available both on internal lines and on interconnectors.

8.110

715 The ERGEG and CESR advice are available on the ERGEG (www.energyregulator.eu) and CESR (www. cesr.eu) websites. 716 Discussed in Chapter 13 on Security of Supply.

511

Chapter 8 The regulation on cross-border electricity exchanges: substantive rules Christof Schoser, revised and updated by Lena Sandberg

8.111

TSO incentives are another important factor influencing the volume of available capacity. If TSOs have a budget (i.e., provided by the regulator) which can be used for taking preventive action against network imbalances, moral hazard may come into play and the TSO may be less conservative in estimating safe minimum levels of capacity. Preventive action may, for example, mean that the TSO compensates a generator in a critical location for cancelling dispatching (“counter trading”). This might increase available capacity at the borders. Indeed, if sufficient funds are available for this type of action, it is in principle possible to make an infinite amount of capacity available – as is often the case within national networks. The Svenska Kraftnet case referred to in Chapter 4 is instructive here since the outcome may imply that it is an abuse of a dominant position to adopt different congestion management procedures within national networks to those adopted at national borders.

8.112

The various provisions on network security in the Cross-border Electricity Regulation, the Third Electricity Directive and the Security of Electricity Supply Regulation717 aim to achieve network security by promoting cooperation between the TSOs, by enhancing predictability through the publication of information and methods and by encouraging the definition of security standards and rules in advance.

717 Regulation (EU) 2019/941 of 5 June 2019 on risk-preparedness in the electricity sector.

512

Chapter 9 The gas regulation: substantive access rules Floris Gräper

Chapter 9 The gas regulation: substantive access rules

1.

Introduction

The third package introduced major amendments to the first Regulation on conditions for access to gas networks (EC) 1775/05. The first Regulation was limited in substance as it essentially implemented in law the Guidelines for Good Practice which were accepted by all participants of the Madrid Forum in September 2003.

9.1

In similar fashion to the process by which the Guidelines for Good Practice for transmission networks were made legally binding, the amended Regulation (715/2009) now provides for legally binding rules for LNG terminals and storage facilities, and a modification process through Comitology. The access rules for storage are dealt with in more detail in Chapter 10. In 2016, in the context of its Clean Eenergy Package, the Commission also put forward proposals for the internal energy market which led to a new Electricity Regulation which was adopted in June 2019. The measures put forward by the Commission focued on the electricity market mainly because of the impact of renewable and low carbon electricity generation. However, it is expected that the Commission will be asked to come forward with new proposals for the internal gas market. Possible changes have been discussed in a preliminary stage in the 2019 Madrid Forum.

9.2

As will be discussed in Chapter 10, an important element of the Gas Regulation is the ability of the Commission to adopt binding guidelines and, in conjunction with the ENTSO-G and ACER, binding detailed network codes on a range of subjects. The guidelines and network codes allow for harmonised rules for the efficient functioning of the internal gas market through more detailed and technical requirements that build on the substantive rules set out in the Regulation.

9.4

513

9.3

Chapter 9 The gas regulation: substantive access rules Floris Gräper

2.

Access rules in the the Gas Regulation

9.5

The access rules in the Regulation cover six main areas: charges for access to the network, third party access services, capacity allocation and congestion management, transparency, balancing and the operation of the secondary market for capacity.

9.6

For LNG and storage, rules have been defined with respect to third party access services, capacity allocation and congestion management, transparency and the operation of the secondary market for capacity.

9.7

Where the regulatory principles for these six areas are covered in the Gas Regulation, more detailed rules, practices and procedures are laid down in so-called Network Codes that are developed by ENTSO-G on the basis of framework guidelines prepared by ACER and which are made legally binding through the comitology Process (see Chapter 12 on the establishment of network codes). These Netork Codes are very detailed and contain the technical standards aimed at further integrating and improving the interpoperability of the internal gas market. The main features of each of the network codes are summarised in Chapter 12. In the sections below, the main principles covered by the Gas Regulation with respect to the six areas are covered.

3.

Charges for access to networks

9.8

Article 32(1) of the gas Directive and Article 13 of the gas Regulation require access to be given to transmission networks on the basis of non-discriminatory, transparent and objective (regulated) tariffs. The non-discrimination requirement means that the same or equivalent services must have equivalent terms and conditions. Article 32(1) of the Directive further states that regulatory authorities must approve or fix tariffs or tariff methodologies, but is not specific in how these tariffs must be structured.

9.9

Article 13 of the Regulation, in conjunction with the provisions on capacity allocation in Article 16(2) gives guidance as to the structure of the transmission tariffs. Article 16(2) of the Regulation requires that transmission capacity must be allocated in a way that facilitates investment in new infrastructure and is compatible with the market mechanisms including spot markets and trading hubs. Article 13 establishes that entry and exit capacities must be priced separately and independently. Tariffs must no longer be linked to contractual paths. 514

Chapter 9 The gas regulation: substantive access rules Floris Gräper

Article 13 of the Regulation provides: Article 13 Tariffs for access to networks “Tariffs, or the methodologies used to calculate them, applied by the transmission system operators and approved by the regulatory authorities pursuant to Article 41(6) of Directive …*, as well as tariffs published pursuant to Article 32(1) of that Directive, shall be transparent, take into account the need for system integrity and its improvement and reflect the actual costs incurred, insofar as such costs correspond to those of an efficient and structurally comparable network operator and are transparent, whilst including an appropriate return on investments, and, where appropriate, taking account of the benchmarking of tariffs by the regulatory authorities. Tariffs, or the methodologies used to calculate them, shall be applied in a nondiscriminatory manner. Member States may decide that tariffs may also be determined through market-based arrangements, such as auctions, provided that such arrangements and the revenues arising therefrom are approved by the regulatory authority. Tariffs, or the methodologies used to calculate them, shall facilitate efficient gas trade and competition, while at the same time avoiding cross-subsidies between network users and providing incentives for investment and maintaining or creating interoperability for transmission networks. Tariffs for network users shall be non-discriminatory and set separately for every entry point into or exit point out of the transmission system. Cost-allocation mechanisms and rate setting methodology regarding entry points and exit points shall be approved by the national regulatory authorities. The Member States shall ensure that, after a transitional period, network charges shall not be calculated on the basis of contract paths. Tariffs for network access shall neither restrict market liquidity nor distort trade across borders of different transmission systems. Where differences in tariff structures or balancing mechanisms would hamper trade across transmission systems, and notwithstanding Article 41(6) of Directive 2009/73/EC, transmission system operators shall, in close cooperation with the relevant national authorities, actively pursue convergence of tariff structures and charging principles, including in relation to balancing.” 515

Chapter 9 The gas regulation: substantive access rules Floris Gräper

9.10

The main requirements found in the Directive and Regulation regarding tariff and capacity regimes are therefore: –

They must be non-discriminatory;

–

They must be cost-reflective, or market based;

–

They must facilitate trade and competition, not restrict market liquidity and be compatible with market mechanisms including spot markets and trading hubs;

–

They must allow for network users to separately book and pay for entry and exit capacity in the transmission network.

9.11

As mentioned above, the wording of Article 13 includes an explicit prohibition (after a transitional period) from basing transmission charges on contractual paths. This reflects the progressive discussion in the Madrid Forum on the most appropriate tariff regime, taking into account the objectives of cost reflectivity, non-discrimination, simplicity and promoting competition through the tariff regime, which it concluded was best done through an entry-exit regime. Entryexit tariffs have a considerable advantage in the promotion of trade, liquidity and gas-to-gas competition, by limiting the disadvantage small shippers would have in a point-to-point tariff system.

9.12

The discriminatory element in point-to-point systems occurs where network users with large transportation portfolios take advantage of the “portfolio effect”. Gas suppliers with large geographically balanced customer portfolios can optimise their overall transportation portfolio in a point-to-point system by creating internal swaps (“pooling” contractual paths), thus saving on overall capacity costs. New market entrants, with a limited number of clients, cannot do this.

9.13

Especially where entry-exit regimes allow for separate booking of entry and exit capacities, they create the most flexibility for shippers, fostering efficient trade, market liquidity and secondary trading of capacity. This is because under those circumstances shippers and new entrants may book capacity without specifying beforehand where this gas should go.

516

Chapter 9 The gas regulation: substantive access rules Floris Gräper

An important additional advantage of a regime with separate booking of entry and exit capacities is that it allows for the development of notional balancing or trading points. Here, gas delivered at an entry point is immediately available at a virtual point in the system, from which the same or other network user can take it to an exit point. This virtual point can serve as a trading place and balancing point in network users’ portfolios. Similarly, TSOs may use the virtual point to obtain or sell gas needed to ensure that the inputs and off-takes in the network are balanced. By using a virtual trading point, the physical location of seller and buyer are no longer of importance, which stimulates trading opportunities.

9.14

Only entry-exit regimes are able to facilitate these virtual hubs, as contractual path systems cannot allow for flexible trading of gas (and therefore a virtual balancing point) as the gas cannot diverge from its contractual path, even if it does not physically follow that path.

9.15

Thus, an entry-exit system is a flexible notion, permitting each Member State to differentiate the precise mechanics of the system to take account of the particular nature of its network, notably its size and the number of different entry and exit points as well as the interactions with the entry-exit systems of other Member States. The issue of cost reflectivity has been discussed in Chapter 3, on third party access.

9.16

Additional requirements with respect to tariffs follow from the Network Code on Transmission Tariffs (Regulation 2017/460) and the Network Code on Capacity Allocation (Regulation 2017/459). These network codes are discussed in Chapter 12.

9.18

4.

9.17

Third party access services

In order to ensure that third party access is effective, it is necessary that transmission system operators and LNG operators offer the range of services required to enable effective competition and that they provide them in an appropriate form. Article 14 of the Regulation therefore provides that:

517

9.19

Chapter 9 The gas regulation: substantive access rules Floris Gräper

Article 14 Third-party access services concerning transmission system operators “1. Transmission system operators shall: (a) ensure that they offer services on a non-discriminatory basis to all network users. (b) provide both firm and interruptible third-party access services. The price of interruptible capacity shall reflect the probability of interruption; (c) offer to network users both long and short-term services.

In regard to point (a) of the first subparagraph, where a transmission system operator offers the same service to different customers, it shall do so under equivalent contractual terms and conditions, either using harmonised transportation contracts or a common network code approved by the competent authority in accordance with the procedure laid down in Article 41 of Directive 2009/73/ EC.

3. Transportation contracts signed with non-standard start dates or with a shorter duration than a standard annual transportation contract shall not result in arbitrarily higher or lower tariffs that do not reflect the market value of the service, in accordance with the principles laid down in Article 13(1). 4. Where appropriate, third-party access services may be granted subject to appropriate guarantees from network users with respect to the creditworthiness of such users. Such guarantees must not constitute undue market-entry barriers and must be non-discriminatory, transparent and proportionate.”

9.20

9.21

In the annex to the Regulation, specific legally binding Guidelines are already included on these issues, which may be amended by the comitology procedure. These Guidelines cover the following issues: Duration of transmission contracts: Regarding the length of transmission contracts offered by the transmission system operator, paragraph 1 (1) of the Guidelines to the Regulation requires that “transmission system operators shall offer firm and interruptible services down to a minimum period of one day”.

518

Chapter 9 The gas regulation: substantive access rules Floris Gräper

Interruptible capacity contracts permit the transmission system operator to withdraw the capacity contracted by a network user where a situation specified in the contract develops, subject to agreed compensation (if any). Such contracts are important because they permit the transmission system operator to maximise the use of the grid, notably in the case of contractual congestion – it can resell contracted capacity on an interruptible basis (so that if the original capacity holder unexpectedly requires the capacity it has the right to do so). Interruptible capacity is in principle cheaper than firm capacity and therefore represents an attractive option for industrial companies which can have their gas supplies interrupted for a short time without significant financial harm. Article 14 (1) (b) requires that the “price of interruptible capacity shall reflect the probability of interruption, if not otherwise laid down by the relevant regulatory authorities”. As the Regulation requires that transmission system operators always offer cheaper interruptible capacity, Article 14 (1) (b) also deals with the case where plenty of firm capacity is available. In such circumstances a purchaser of capacity would always opt for interruptible capacity, because in reality the possibility of interruption would be zero. Thus, in such circumstances, the price of interruptible capacity would be the same as the price of firm capacity. Standardised contracts and nomination procedures Standardised contracts and nomination procedures to facilitate the use of the grid by a wide variety of companies and to reduce the cost of entry. Paragraphs 1 (2), 1 (4) and 1 (5) of the Guidelines provide: “2. Harmonised transportation contracts and common network code shall be designed in a manner that facilitates trading and re utilisation of capacity contracted by network users without hampering capacity release. 4. Transmission system operators shall implement standardised nomination and re nomination procedures. They shall develop information systems and electronic communication means to provide adequate data to network users and to simplify transactions, such as nominations, capacity contracting and transfer of capacity rights between network users. 5. Transmission system operators shall harmonise formalised request procedures and response times according to best industry practice with the aim of minimising response times. They shall provide for on line screen based capacity booking and confirmation systems, nominations and re nominations procedures no later than 1 July 2006 after consultation with ten relevant network users.” 519

9.22

9.23

9.24

Chapter 9 The gas regulation: substantive access rules Floris Gräper

9.25

9.26

A number of these requirements are now covered by the Network Codes that have since been developed and which deal with issues such as standardised procedures for capacity booking and nominations, as well as transparency and interoperability rules. Charges for information requests Charges imposed by transmission system operators for information requests are subject to Paragraphs 1 (6) and 1 (7) of the Guidelines annexed to the Regulation, which provide: “6. Transmission system operators shall not separately charge network users for information requests and transactions associated with their transportation contracts and which are carried out according to standard rules and procedures. 7. Information requests that require extraordinary or excessive expenses such as feasibility studies may be charged separately, provided the charges can be duly substantiated.”

On the subject of coordination and transparency with respect to maintenance, advance knowledge of when certain parts of a gas network will be unavailable due to maintenance is important for all competitors. Whilst this issue is more relevant to transparency than third party access services, it is nonetheless dealt with in this section of the Guidelines to the Regulation, in paragraphs 1 (8), 1 (9) and 1 (10):

“8. Transmission system operators shall co operate with other transmission system operators in co ordinating the maintenance of their respective networks in order to minimise any disruption of transmission services to network users and transmission system operators in other areas and in order to ensure equal benefits with respect to security of supply including in relation to transit. 9. Transmission system operators shall publish at least once a year, by a predetermined deadline, all planned maintenance periods that might affect network users’ right from transportation contracts and corresponding operational information with adequate advance notice. This shall include publishing on a prompt and non discriminatory basis any changes to planned maintenance periods and notification of un planned maintenance, as soon as that information becomes available to the TSO. During maintenance periods, TSOs shall publish regularly updated information on the details of and expected duration and effect of the maintenance. 520

Chapter 9 The gas regulation: substantive access rules Floris Gräper 10. Transmission system operators shall maintain and make available to the regulatory authority upon request a daily log of the actual maintenance and flow disruptions that have occurred. Information shall also be made available on request to those affected by any disruption.”

With respect to the creditworthiness of network users, Article 14(3) allows TSOs to require proportionate, non-discriminatory and transparent guarantees. The guarantees must not act as a barrier to market entry, and must allow new entrants with smaller balance sheets to gain effective entry to the transmission network. It is submitted that the issue of credit worthiness is covered by the third party access rules mentioned in Article 8(6) (c) of the Regulation, which defines the areas for which harmonised network codes must be developed. Where creditworthiness criteria are different across the EU, this in itself would act as a barrier to cross border trade.

9.27

4.1 Third party access services concerning storage and LNG facilities For LNG and storage, under the Regulation broadly the same requirements as for transmission by TSOs are contained in Article 15: Article 15 Third-party access services concerning storage and LNG facilities “1. LNG and storage system operator shall: (a) offer services on a non discriminatory basis to all network users that accommodate market demand; in particular, where an LNG or storage system operator offers the same service to different customers, it shall do so under equivalent contractual terms and conditions; (b) offer services that are compatible with the use of the interconnected gas transportation systems and facilitate access through cooperation with the transmission system operator; and (c) make relevant information public, in particular data on the use and availability of services, in a time-frame compatible with the LNG or storage facility users’ reasonable commercial needs, subject to the monitoring of such publication by the national regulatory authority. 521

9.28

Chapter 9 The gas regulation: substantive access rules Floris Gräper 2. (only applicable to storage operators) 3. LNG and storage facility contracts shall not result in arbitrarily higher tariffs in cases in which they are signed: (a) outside a natural gas year with non-standard start dates; or (b) with a shorter duration than a standard LNG and storage facility contract on an annual basis. 4. Where appropriate, third-party access services may be granted subject to appropriate guarantees from network users with respect to the creditworthiness of such users. Such guarantees shall not constitute undue market-entry barriers and shall be non discriminatory, transparent and proportionate. 5. Contractual limits on the required minimum size of LNG facility capacity and storage capacity shall be justified on the basis of technical constrains and shall permit smaller storage users to gain access to storage services.”

9.29

The LNG system operator is thus obliged to cooperate with the connected transmission system operator in designing services that are compatible with the use of that system, and it must offer services on a non-discriminatory basis. This is particularly important given that LNG system operators are not subject to legal and functional unbundling and may therefore be part of a vertically integrated group and thus may have a commercial interest to structure services in a way that benefits their group. This is especially relevant in relation to paragraph 5 where contractual limits on minimum size of LNG facility capacity must be based on – objective – technical criteria.

5. 9.30

Capacity allocation and congestion management

The measures in the third package are to a large extent meant to remedy the issues with respect to so-called “contractual congestion”. Contractual congestion arises where the transmission system operator is unable to make capacity available because it all capacity has been reserved, for example under long term capacity reservation agreements, even though the capacity may not actually be used for the transmission of gas.

522

Chapter 9 The gas regulation: substantive access rules Floris Gräper

9.31

This gives rise to two questions: –

how to allocate available capacity? and

–

how to deal with existing capacity that is contractually reserved and unused but de facto unavailable to new competitors?

In addition to the general obligation of non discrimination imposed upon transmission system operators pursuant to Article 13 (1)(b) of the gas Directive, the question of how available capacity must be allocated is dealt with in Article 16 (2) and (5) of the gas Regulation:

9.32

Article 16 (2) and (5) “2. The transmission system operator shall implement and publish non-discriminatory and transparent capacity-allocation mechanisms, which shall: (a) provide appropriate economic signals for efficient and maximum use of technical capacity and facilitate investment in new infrastructure and facilitate cross-border exchanges in gas; (b) be compatible with the market mechanisms including spot markets and trading hubs, while being flexible and capable of adapting to evolving market circumstances; (c) be compatible with the network access systems of the Member States. 5. Transmission system operators shall regularly assess market demand for new investment. When planning new investments, transmission system operators shall assess market demand and take into account security of supply.”

This Article (and the accompanying detailed guidelines set out in the Annex to the Regulation) gives rise to the following points of interpretation.

9.33

First, the allocation mechanism must be compatible with the network access systems of the Member States and be compatible with market mechanisms such as spot markets and trading hubs. This requires the allocation mechanism to be compatible with the requirement of separate entry and exit booking, where entry capacity can be booked separately (and at a different time) from the exit capacity.

9.34

523

Chapter 9 The gas regulation: substantive access rules Floris Gräper

9.35

Second, the allocation mechanism must be able to price the entry and exit capacities in a way reflecting the contribution that bookings at these points make to for example alleviating congestion, as might be the case with backhaul services for example. The requirement that the allocation mechanism must facilitate cross-border trade is taken to mean that no distinction in allocation methodology is allowed between capacity bookings at cross border points and internal entry and or exit points.

9.36

Third, the article leaves a choice of allocation methods. One may expect that the first come first served method will usually be used in circumstances where available capacity is abundant, be it on the basis of adequate and non discriminatory advance notice of the availability of capacity. In any case, for all available capacity, no preferential treatment can be given to for example existing capacity holders.

9.37

Fourth, the requirement in the 5th paragraph of this Article suggests that TSOs must regularly assess the development of market needs. This may be done through open seasons or open subscription periods but, more importantly through the regional bi-annual regional investment plans that TSOs must publish according to Article 12 of the Regulation as well as the Ten Year Network Development Plans that ENTSOG must publish serve as a means to indicate demand for capacities and investment needs.

9.38

Moreover, TSOs publish national network development plans, as the willingness of network users to commit to longer term contracts (as is typically the case in open subscription or open season procedures) has diminished strongly. This is in part also due to some of the measures introduced in the various network codes that have a strong focus on the development of short-term and liquid gas markets.

9.39

When capacity remains unused, and there is demand for that capacity congestion management rules may help to achieve a more efficient allocation of capacity which in turn may be beneficial for price formation in the internal gas market.

9.40

Congestion management is dealt with in Article 16 (3) and (4) of the Regulation. It reads:

524

Chapter 9 The gas regulation: substantive access rules Floris Gräper

Article 16 (3) and (4) “3. The transmission system operator shall implement and publish non-discriminatory and transparent congestion management procedures which facilitate crossborder exchanges in gas on a non-discriminatory basis and which shall be based on the following principles: (a) in the event of contractual congestion, the transmission system operator shall offer unused capacity on the primary market at least on a day-ahead and interruptible basis; (b) network users who wish to re-sell or sublet their unused contracted capacity on the secondary market shall be entitled to do so.

In regard to point (b) of the first subparagraph, a Member State may require notification or information of the transmission system operator by network users.

4. In the event that physical congestion exists, non-discriminatory, transparent capacity allocation mechanisms shall be applied by the transmission system operator or, as appropriate, by the regulatory authorities.”

The Article must be read in conjunction with Article 22 of the Regulation regarding the trading of capacity rights. This Article states:

9.41

Article 22 gas Regulation “Each transmission, storage and LNG system operator shall take reasonable steps to allow capacity rights to be freely tradable and to facilitate such trade in a transparent and non-discriminatory manner. Each such operator shall develop harmonised transportation, LNG facility and storage contracts and procedures on the primary market to facilitate secondary trade of capacity and recognise the transfer of primary capacity rights where notified by network users. The harmonised transportation, LNG facility and storage contracts and procedures shall be notified to the regulatory authorities.”

It is clear that the standardised contracts referred to in this Article, and which must be notified to the national regulatory authority, will be of considerable importance in increasing liquidity on the secondary capacity market. 525

9.42

Chapter 9 The gas regulation: substantive access rules Floris Gräper

9.43

The requirements for capacity allocation and congestion amangement in the Gas Regulation are mainly directed at the national level and continue to allow for first-come-first-served principles at cross border points which may favour incumbent network users. Also, information on the use an availability of capacity was at the time of the development of the Regulation often either incomplete or not readily available to be of use. Finally, the product definition and allocation procedures would be different in neighbouring entry exit systems which made it difficult for network users to efficiently contract transport capacity across borders or multiple entry exit systems.

9.44

The provisions of the Regulation have since however been complemented by more detailed rules on both congestion management principles (as laid down in Commission Decision of 24 august 2012 amending annex I of the Regulation, hereafter referred to as CMP) and in Commission Regulation (EU) No 2017/459 of 16 March 2017 in which the Network Code on Capacity allocation mechanisms (hereafter NC CAM) was established. The network codes are discussed in Chapter 3.

9.45

The Regulation also contains an Annex with more detailed (binding) guidelines which have recently been amended by a Commission Decision dated 24 august 2012 (2012/490/EU, on Congestion management Procedures, hereafter the CMP). The requirements of the CMP are applicable to all cross-border interconnections and at interconnection points between entry and exit systems in a country.

6. 9.46

Capacity allocation and congestion management for LNG

The provisions in the Regulation on capacity allocation and congestion management for LNG facilities essentially mirror the arrangements for the transmission system, in slightly adapted form. Article 17 reads: Article 17 Principles of capacity-allocation mechanisms and congestion-management procedures concerning storage and LNG facilities “1. The maximum storage and LNG facility capacity shall be made available to market participants, taking into account system integrity and operation. 526

Chapter 9 The gas regulation: substantive access rules Floris Gräper 2. LNG and storage system operators shall implement and publish non-discriminatory and transparent capacity allocation mechanisms which shall: (a) provide appropriate economic signals for the efficient and maximum use of capacity and facilitate investment in new infrastructure; (b) be compatible with the market mechanism including spot markets and trading hubs, while being flexible and capable of adapting to evolving market circumstances; (c) be compatible with the connected network access systems. 3. LNG and storage facility contracts shall include measures to prevent capacityhoarding, by taking into account the following principles, which shall apply in cases of contractual congestion: (a) the system operator must offer unused LNG facility and storage capacity on the primary market without delay; for storage facilities this must be at least on a day ahead and interruptible basis; (b) LNG and storage facility users who wish to re-sell their contracted capacity on the secondary market must be entitled to do so.”

Here too, the focus is on making available maximum capacity, and ensuring that the capacity allocation process can be matched with the allocation procedures in the connected systems. Typically, open seasons and first-come-first served allocation methodologies are used in LNG, but auctions are also possible. As LNG facilities need not be unbundled, the potential for capacity hoarding may be more pronounced, which is the basis for the requirement that measures are taken to prevent capacity hoarding through the making available of unused terminal capacity in the primary market and by allowing the secondary trading of capacity (which also follows from Article 22 of the Regulation).

9.47

The definition of capacity in an LNG terminal is somewhat more difficult than for pipeline gas. For example, the ability to use the Terminal depends both on the availability of a “berthing” slot for an LNG vessel, as well as available capacity in the LNG tanks and re-gasification capacity. Moreover, given the time needed to ship LNG to a particular terminal and the precise scheduling of offloading capacity there is no scope for the sale of interruptible capacity. If an

9.49

527

9.48

Chapter 9 The gas regulation: substantive access rules Floris Gräper

LNG vessel is offloading, the process cannot be interrupted. Therefore, congestion management is focussed very much on the sale of “capacity products” on the secondary market and the use of the use-it-or-lose-it instrument, whereby a particular slot, accompanying storage capacity and re-gasification capacity are re-sold on a “firm” basis.

9.50

One of the main difficulties here, compared to pipeline gas is that, as stated above, the capacity which is re-sold is defined in multiple terms, amongst which the berthing slot, storage capacity and re-gas capacity, and that the non-use of either of these may be legitimate in the context of optimising a trading strategy, and would not necessarily entail “hoarding” of capacity.

7.

Transparency

7.1 Introduction 9.51

Transparency is a vital element of third party access. If a potential supplier is not able to determine with a reasonable level of accuracy the availability of capacity to supply a new customer during the contract lifetime, it will not be able to compete. To a certain extent this issue is already dealt with in the gas Directive. Article 13 (1) (d) states that one of the tasks of a transmission system operator is to “provide system users with the information they need for efficient access to the system”. Furthermore, Article 41 (1) (i) of the gas Directive, requires national regulatory authorities to “monitoring the level of transparency, including wholesale prices and ensuring compliance of natural gas undertakings with transparency obligations”

9.52

However, the Regulation seeks to provide a common basic level of transparency. Thus, Article 18 of the Regulation sets out the principles regarding transparency:

528

Chapter 9 The gas regulation: substantive access rules Floris Gräper

Article 18 Transparency requirements concerning transmission system operators “1. The transmission system operator shall make public detailed information regarding the services it offers and the relevant conditions applied, together with the technical information necessary for network users to gain effective network access. 2. In order to ensure transparent, objective and non-discriminatory tariffs and facilitate efficient utilisation of the gas network, transmission system operators or relevant national authorities shall publish reasonably and sufficiently detailed information on tariff derivation, methodology and structure. 3. For the services provided, each transmission system operator shall make public information on technical, contracted and available capacities on a numerical basis for all relevant points including entry and exit points on a regular and rolling basis and in a user friendly and standardised manner. 4. The relevant points of a transmission system on which the information must be made public shall be approved by the competent authorities after consultation with network users. 5. The transmission system operator shall always disclose the information required by this Regulation in a meaningful, quantifiably clear and easily accessible manner and on a non-discriminatory basis. 6. The transmission system operator shall make public ex-ante and ex-post supply and demand information, based on nominations, forecasts and realised flows in and out of the system. The national regulatory authority shall ensure that all such information is made public. The level of detail of the information that is made public shall reflect the information available to the transmission system operator.

The transmission system operator shall make public measures taken as well as costs incurred and revenue generated to balance the system.



The market participants concerned shall provide the transmission system operator with the data referred to in this Article.”

Article 18 therefore covers two issues, technical information (Article 18 (1)), and commercially relevant information (Article 18 (2) - (6)). 529

Chapter 9 The gas regulation: substantive access rules Floris Gräper

9.53

The requirements of Article 18(1) with respect to technical information are further elaborated in Section 3(1) of the Guidelines annexed to the Regulation, which state in considerable detail the technical information that network users are considered to need. A further requirement in this respect follows from Article 20, which requires system operators to retain all information referred to in Article 18 and section 3 of the annexed guidelines for a period of five years.

9.54

Article 18 (2) - (6) concerns the publication of information on technical, available and contracted capacity as well as the use of that capacity. These requirements too, are further elaborated in the annexed Guidelines to the Regulation which were amended twice through the Comitology procedure (described in more detail in Chapter 12) by Commission Decisions 2010/685/EU of November 2010, and 2012/490/EU (the CMP) of 24 August 2012. The amended Guidelines contain detailed rules on the content, the format and the time schedule of information to be published. Also, the amended Guidelines define the relevant points for which information must be published.

9.55

A major change that was introduced with the CMP amendment to the Transparency Guidelines is the obligation for TSOs to publish information not only on their website, but also on a “union wide central platform established by ENTSOG on a cost-efficient basis”.

9.56

This has been implemented by ENTSOG in their so-called Transparency Platform, which built on the experience gained in the voluntary platform which was established by Gas Infrastructure Europe in 2008, and subsequently transferred to ENTSOG in 2010. In order to better meet the requirements of the Transparency Guidelines, and to take into account the additional publication obligations included in the CMP a redesigned platform was built and has been online since October 2014. 7.2 Definition of relevant points

9.57

With respect to capacity, in a typical gas network there are relatively few entry points and very many exit points. An exit point will be a specific exit point from the gas transmission network (i.e. the exit point to a distribution system or an exit point to an industrial customer directly connected to the transmission grid). In order to enter into a transportation contract with the TSO, a network user must be able to identify either one (or more) entry points, and/or exit points, or both (in de-coupled entry-exit systems it is possible to have a transportation 530

Chapter 9 The gas regulation: substantive access rules Floris Gräper

contract between a physical entry point and the virtual trading point, or between the virtual hub and a physical exit point). The amended Guidelines to the Regulation now more clearly emphasise that network points are considered relevant in the context of transparency requirements where information about the technical and commercial capacity situation of these points is necessary for effective access and use of the transmission system by network users. Points that are, for a transmission operator very relevant but information about which is not necessary to be able to effectively contract and make use of transmission capacity are therefore generally exempt from the list of relevant points.

9.58

Article 18(3) of the Regulation further requires that the actual points published shall be approved by national regulatory authorities.

9.59

7.3 Level of detail to be published Whilst Article 18 does not specify exactly which information must be published at the points identified, Section 3.3 of the Guidelines to the Regulation (as amended from time to time) provides considerably detailed requirements. In addition, Article 18(6) now requires transmission system operators to make public information on the overall supply and demand situation, on the basis of forecasts, nominations and realised flow data. This information is supposed to assist market participants to gain better insight in the movement of wholesale prices. This has become more important as trading of gas is becoming more widespread.

9.60

The changes made to the Transparency requirements in the Guidelines through the two amendments in 2010 and 2013 have been substantial, and have drastically increased both the amount of information as well as the time schedule with which the information needs to be updated, with a strong preference for real time information. One of the amendments made in the CMP decision was specifically aimed at the information related to congestion issues (points (h), (i), (j), (k) and (l) added to paragraph 3.3.(1) of the Guidelines). The CMP added the requirement for TSOs to publish information on unsuccessful requests for capacity, on the differential between the cleared price and the reserve price in auction procedures, on the unavailability of firm capacities in auctions and on capacities made available through the new CMP measures (overbook and buy back, Use it or lose it schemes and surrender of capacity).

9.61

531

9.62

Chapter 9 The gas regulation: substantive access rules Floris Gräper

8. 9.63

Transparency for LNG

The transparency requirements for LNG terminal operators are broadly similar to the requirements on Transmission system operators. Article 19 of the gas Regulation stipulates: Article 19 Transparency requirements concerning storage facilities and LNG facilities “1. LNG and storage system operator shall make public detailed information regarding the services it offers and the relevant conditions applied, together with the technical information necessary for LNG and storage facility users to gain effective access to the LNG and storage facilities. 2. For the services provided, LNG and storage system operator shall make public information on contracted and available storage and LNG facility capacities on a numerical basis on a regular and rolling basis and in a user-friendly standardised manner. 3. LNG and storage system operator shall always disclose the information required by this Regulation in a meaningful, quantifiably clear and easily accessible way and on a non discriminatory basis. 4. LNG and storage system operator shall make public the amount of gas in each storage or LNG facility, or group of storage facilities if that corresponds to the way in which the access is offered to system users, inflows and outflows, and the available storage and LNG facility capacities, including for those facilities exempted from third party access. That information shall also be communicated to the transmission system operator, which shall make it public on an aggregated level per system or subsystem defined by the relevant points. The information shall be updated at least daily.

In cases in which a storage system user is the only user of a storage facility, the storage system user may submit to the national regulatory authority a reasoned request for confidential treatment of the data referred to in the first subparagraph. Where the national regulatory authority comes to the conclusion that such request is justified, taking into account, in particular, the need to balance the interest of legitimate protection of business secrets , the disclosure of which 532

Chapter 9 The gas regulation: substantive access rules Floris Gräper would negatively affect the overall commercial strategy of the storage system user, with the objective of creating a competitive internal gas market, it may allow the storage system operator not to make public the data referred to in the first subparagraph, for a duration of up to one year.

The second subparagraph shall apply without prejudice to the obligations of communication to and publication by the transmission system operator referred to in the first subparagraph, unless the aggregated data are identical to the individual storage system data for which the national regulatory authority has approved non-publication.

5. In order to ensure transparent, objective and non-discriminatory tariffs and facilitate efficient utilisation of the infrastructures, the LNG and storage facility operators or relevant regulatory authorities shall make public sufficiently detailed information on tariff derivation, methodologies and structure of tariffs for infrastructure under regulated third-party access.”

Paragraph 4 of this article contains an important requirement specific to LNG (and storage) to publish information on all aspects on access to the facility; which for LNG will includes information on the amount of gas in the storage tanks, the available re-gasification capacity, information on outflows of gas and incoming amounts of LNG, information on the availability of berthing slots for LNG vessels etc.

9.64

Moreover, this information must also be published by LNG terminal operators enjoying a regulatory exemption from third party access. This latter requirement must be understood to facilitate the secondary market for access to the terminals as well as the proper and meaningful execution of congestion management procedures such as the Use-it-or-lose-it provisions.

9.65

9.

Balancing

Access to the network will require network users to balance their input and offtake of gas. The need to balance input and offtake in a portfolio may be challenging especially as offtake of gas may be quite unpredictable, and the different systems may have specific limitations or requirements. Whereas most networks allow for some imbalance between the gas that is taken out of the system and the gas that is injected into the system (by “buffering” the system to an extent) there are limits to the “tolerance” of the system and at some point the TSO may 533

9.66

Chapter 9 The gas regulation: substantive access rules Floris Gräper

need to take action in order to restore the balance in the system. This will usually either require the injection of extra gas (in case of a shortage) or the taking out of gas. In order to incentivise network users to maintain a balanced portfolio (and thus preventing possible balancing actins by the TSO) the TSO will usually charge network users for imbalances. This may be done on the basis the actual cost of maintaining a balanced system by the TSO or it may be done on the basis of a more penalising set of imbalance charges. It is clear then that effective access will require clear and non-discriminatory rules with respect to balancing by network users and the way in which users are incentivised to avoid imbalances.

9.67

9.68

9.69

As was explained in Chapter 3, the Gas Directive clearly envisages the development of liquid markets in which balancing of portfolios may be done on the basis of a market mechanism. Article 21 of the Regulation sets out the basic requirements that TSOs and Regulators must take into account when designing balancing rules and imbalance charges. Since the entry into force of the Regulation a Network Code on Gas Balancing of Transmission Networks was established, formally through a Commission Regulation (312/2014). Under Article 13(3) of the gas Directive, TSOs are responsible for adopting rules for balancing the gas transmission system which must be objective, transparent and non discriminatory, including rules for the charging of imbalances. Further, balancing charges are subject to regulatory oversight. This is explicitly stated in Article 40(6) which states that “Regulatory authorities shall be responsible for fixing or approving prior to their entry into force, at least the methodologies used to calculate or establish the terms and conditions for … the provision of balancing services”. In addition, it is submitted that Article 31(1) requires that these tariffs are published. Thus, balancing charges require the approval of the national regulatory authority. Notwithstanding this, and to ensure a common minimum level of harmonisation of the approaches taken on balancing charges, the Regulation provides some basic principles to be respected by transmission system operators in proposing balancing mechanisms/tariffs and by national regulatory authorities in approving them. An important consideration in this respect is the development of the entryexit tariff and capacity booking system which, as was shown in section 3 of this Chapter by allowing separate and independent booking of entry and exit capacities allows for the development of notional balancing or trading points. Here, gas delivered at an entry point is immediately available at a virtual point in the system, from which the same or other network user can take it to an exit point.

534

Chapter 9 The gas regulation: substantive access rules Floris Gräper

This virtual point can serve as a balancing point in network users’ portfolios. TSOs may use the virtual point to obtain or sell gas needed to ensure that the inputs and off-takes in the network are balanced.

9.70

This development and the fact that the Regulation will require the implementation of separated entry-exit tariff systems, led to amendments to the balancing principles in the Regulation.

9.71

Article 21 of the Regulation states: Article 21 Balancing rules and imbalance charges “1. Balancing rules shall be designed in a fair, non-discriminatory and transparent manner and shall be based on objective criteria. Balancing rules shall reflect genuine system needs taking into account the resources available to the transmission system operator. Balancing rules shall be market-based. 2. In order to enable network users to take timely corrective action, the transmission system operator shall provide sufficient, well-timed and reliable on-line based information on the balancing status of network users.

The information provided shall reflect the level of information available to the transmission system operator and the settlement period for which imbalance charges are calculated.



No charge shall be made for the provision of such information.

3. Imbalance charges shall be cost-reflective to the extent possible, whilst providing appropriate incentives on network users to balance their input and off-take of gas. They shall avoid cross-subsidisation between network users and shall not hamper the entry of new market entrants.

Any calculation methodology for imbalance charges as well as the final tariffs shall be made public by the competent authorities or the transmission system operator, as appropriate.

535

Chapter 9 The gas regulation: substantive access rules Floris Gräper 4. Member States shall ensure that transmission system operators endeavour to harmonise balancing regimes and streamline structures and levels of balancing charges in order to facilitate gas trade.”

9.72

These principles are largely self explanatory. The main requirement is that balancing rules must be market based. This is a reference to the development of notional balancing points which will allow for market based balancing in the sense that network users will be able to buy and sell gas on the basis of “real time” information on their balancing position in order to maintain a balanced portfolio.

9.73

In this context reference is made to Chapter 3 where the recitals to the gas and electricity Directives were discussed, which, for gas, stated: Recital 31: “In order to ensure effective market access for all market players, including new entrants, non discriminatory and cost reflective balancing mechanisms are necessary. This should be achieved through the setting up of transparent market based mechanisms for the supply and purchase of gas, needed in the framework of balancing requirements. National regulatory authorities should play an active role to ensure that balancing tariffs are non-discriminatory and cost reflective. At the same time, appropriate incentives should be provided to balance the in put and off take of gas and not to endanger the system”

9.74

9.75

These recitals clearly foresee a transition in the treatment of balancing from a regulatory point of view: where markets are not yet sufficiently liquid (thus making market based balancing difficult or incomplete), access to specific balancing services to be provided by the TSO will require regulatory oversight. Where a market for balancing is established, essentially the tariffs for being out of balance are determined in this market. Regulatory oversight then should concentrate on the residual balancing role of the TSO (to provide for situations that the market cannot accommodate (extreme situations etc.) as well as possible penalty supplements). For this to be possible, market participants will need to have information on their balancing status in a well-timed manner so as to be able to act on this information. Also, information on the overall status of the system is useful in this regard as it will tell network users whether their actions are actually in support of the overall system or whether their behaviour is making matters worse. 536

Chapter 9 The gas regulation: substantive access rules Floris Gräper

The Network Code on Gas Balancing (Commission Regulation (EU) no 312/2014 of 26 March 2014 supplements the requirements of Article 21 of the Gas Regulation by setting out more detailed measures that aim to further harmonise the balancing rules in the EU Member States which should allow for trading of gas across balancing zones.

9.76

The main requirements of the Network Code on Balancing (hereafter referred to as NC BAL) are set out in Chapter 3.

9.77

537

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

Chapter 10 Public service obligations and the EU energy market legislation

1.

Introduction

In order to provide for a Service of General Interest (SGI) Member State’s authorities may impose Public Service Obligations (PSOs) on companies or organisations. Such state interventions make sure that a service considered in the interest of the public is provided in a specific manner and outside the market. How a PSO is designed has consequences not only in terms of providing the publicly desired service but also for the functioning of the market. Poorly designed PSOs can hinder the market development and the competition.

10.1

The Public Service Obligations play an important role in the energy policy. As the PSOs have a potential to distort the competition or hinder the development of the market, the EU electricity and the gas markets legal framework, for example Article 3 of the Gas Directive,718 allows PSOs only subject to various conditions. This paper reviews the rules governing the PSOs from the perspective of the development of the energy market legislation and the jurisprudence of the Court. It shows that the Court gives clear guidance how to design PSOs and that the EU legislator made the rules for the PSOs, over time more targeted, diminishing potentially the distortive effects on the energy markets.

10.2

The development of the legal framework in the recent years i.e. the adoption of the legislative acts of the Clean Energy Package, takes place as a reaction to the important changes on the electricity and the gas markets of the EU. These are in particular the development of renewables, more interdependence between the

10.3

718 Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, OJ L 211, 14.8.2009, p. 94–136

539

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

Member States in terms of the security of supply and the progress in the market integration and resulting convergence in the energy prices.

10.4

The EU internal market for electricity and gas matured over the recent years following the adoption of the Third Energy Package. A number of technical rules, the so-called network codes, have been put in place making trade of electricity and gas easier across the borders. These rules allow prices of electricity and gas at wholesale level to follow the same patterns and converge across many Member States for majority of time. In particular, the markets in the Nord-West of the EU developed quicker and through market coupling in electricity and price setting in gas hubs, the convergence of prices increases. With the growing interdependence between the Member States, and the construction of additional interconnectors, the price convergence increases making the markets more exposed and prone to developments in the neighbouring countries. In this way, the public interventions in one Member State have more direct and stronger effects on the neighbouring Member States.

10.5

With the increase of renewable electricity and the shift in the energy mix towards more solar and wind based electricity production demand needs to adapt to the weather conditions. This requires development of rules for demand side and activation of consumers to adapt their consumption patterns. In a market environment, this requires dynamic price setting reflecting the changes in supply.

10.6

The market integration, the development of interconnectors and the shift to renewables based electricity and gas production changes the way, how to ensure the security of supply i.e. through necessary coordination between Member States. Increased coordination contributes to the long-term security of supply and to the handling of the short-term supply cuts.

10.7

Over the years, Member States justified Public Service Obligations by the need to ensure affordable prices and to ensure security of supply. The above political and economical developments have direct impact on the design and the justification of the Public Service Obligations.

540

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

2.

Concepts of the Public Service Obligations and the Services of General Interest

The Member States are allowed, subject to certain condition, to establish obligations on companies (Public Service Obligations) to perform a service in the interest of the society (Service of General Interest). Hence, before discussing the design of the Public Service Obligations it is necessary to discuss the concepts of services of general interest.

10.8

The concepts of the Services of General Interest and the Public Service Obligations are not explicitly defined neither in the Treaty on the Functioning of the European Union (TFEU)719 nor in the secondary legislation and hence Member States have a wide margin of discretion in establishing them. From the perspective of the EU law, what matters is not a definition of the concept as such, but the activity that the service relates to and the scope of the harmonised EU regulation. The Member States have to reconcile both: the PSOs to provide an SGI shall not obstruct the implementation of the TFEU and harmonised EU legislation. At the same time, the implementation of the EU rules shall not obstruct an implementation of the SGIs and the related PSOs. Existence of a lawful SGI and a PSO is only possible when correctly declared and designed by the Member State relevant authorities. This in turn depends on the level of harmonisation of the sectoral legislation that is in place and regulates a given service.

10.9

The 2012 Commission service’s Staff Working Document,720 guides the use of the SGIs, SGEIs, SSGIs and PSOs. As explained in this Communication, services of general interest (SGIs) may relate to economic and non-economic activities. If no economic activities are involved, the services are referred to as social service of general interest (SSGIs). Such services of non-economic activities are not covered by the EU legislation and are only subject to the general rules of the TFEU such as the transparency and the non-discrimination. This reading is confirmed by the Protocol 26 of the TFEU which states in its Article 2 that:

10.10

The provisions of the Treaties do not affect in any way the competence of Member States to provide, commission and organise non-economic services of general interest.

719 Including its Protocol 26 on Services of General Interest 720 Commission Staff Working Document “Guide to the application of the European Union rules on state aid, public procurement and the internal market to services of general economic interest, and in particular to social services of general interest”

541

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

10.11

On the other hand, the Services of General Economic Interest (SGEIs) are “eco‑ nomic activities which deliver outcomes in the overall public good that would not be supplied (or would be supplied under different conditions in terms of objective quality, safety, affordability, equal treatment or universal access) by the market without public intervention”.721 In case of such services and the related public service obligations the discretion of the Member States can be restricted when the services and the related obligations contradict the harmonised EU law.722

10.12

In this vain Article 106(2) of the TFEU stresses that “106(2) Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.”

10.13

In summary, as the below graph shows, services of general interest compromise both: SGEIs and SSGIs. A service qualifies as SGEI always when an economic activity is involved. The discretion of the Member States to design a Public Service Obligation in SGEI depends on whether EU legislation foresees harmonisation of a given economic activity. If so, the PSO must not hinder the implementation of the EU legislation. Therefore, PSOs depend on the interaction with the existing EU law as interpreted by the related Court jurisprudence. SGI GENERAL INTEREST SSGI

SGEI

Social

721 722

Economic

Ibidem In case some of the social services involve an economic activity, such service would amount to an SGEIs.

542

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

3.

Public Service Obligations and the Third Energy Package ­Directives

Articles 3(2) of the 2009 Third Energy Package Gas and Electricity Directives repeated the rules established in 1998 by the First and 2003 by the Second Energy Packages establishing the general principle for applying Public Service Obligations in the energy sector. The related recitals stress the need to respect the EU legislation while designing such obligations.

10.14

According to recitals 44 and 47 of the Gas Directive 2009/73:

10.15

“(44) Respect for the public service requirements is a fundamental requirement of this Directive, and it is important that common minimum standards, respected by all Member States, are specified in this Directive, which take into account the objectives of common protection, security of supply, environmental protection and equivalent levels of competition in all Member States. It is important that the public service requirements can be interpreted on a national basis, taking into account national circumstances and subject to the respect of Community law. … (47) The public service requirements and the common minimum standards that follow from them need to be further strengthened to make sure that all consumers, especially vulnerable ones, can benefit from competition and fair prices. The public service requirements should be defined at national level, taking into account national circumstances; Community law should, however, be respected by the Member States. …”

Article 3(1) and (2) of Gas Directive 2009/73 states: “2. Having full regard to the relevant provisions of the Treaty, in particular Article [106] thereof, Member States may impose on undertakings operating in the gas sector, in the general economic interest, public service obligations which may relate to security, including security of supply, regularity, quality and price of supplies, and environmental protection, including energy efficiency, energy from renewable sources and climate protection. Such obligations shall be clearly defined, transparent, non-discriminatory, verifiable and shall guarantee equality of access for natural gas undertakings of the Community to national consumers. In 543

10.16

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba relation to security of supply, energy efficiency/demand-side management and for the fulfilment of environmental goals and goals for energy from renewable sources, as referred to in this paragraph, Member States may introduce the implementation of long-term planning, taking into account the possibility of third parties seeking access to the system.”

10.17

The list of objectives identified in Article 3 for which a PSO can be established is an open list and other objectives can be identified by the Member States, provided they do not conflict with the EU energy law framework. Similar provisions apply in the Electricity Directive 2009/72.

10.18

As to the practical choice of the services over the recent years, public service obligations related mostly to setting prices of gas and electricity to the final consumers and the security of supply. The remaining potential categories i.e. the environmental protection, including energy efficiency, energy from renewable sources and climate protection were utilised to lesser extend or not utilised at all. Indeed, the categories related to the environmental protection are addressed by dedicated legislative instruments including promotion and support mechanisms allowing reaching the objectives followed by the public services.723 It seems therefore difficult for the Member States to intervene and to design a PSO that would still have additional value to the mechanisms agreed in the EU legislation and at the same time not hinder the implementation of the EU rules.

10.19

Whereas, the area of security of supply and the regulation of prices for a long time remained regulated at the EU level only in a general way leaving a wide margin of discretion to the Member States in the design of PSOs in these areas. This however disturbed the development of the market in many instances, leading to complaints and Court cases.

4. 10.20

Jurisprudence of the Court

In the case C-265/08 (Federutlity) suppliers of gas in Italy complained against a law requiring the “national regulatory authority to set a reference price for natu‑ ral gas which has to be quoted by every supplier in its commercial offers to its domestic customers within the scope of the universal service concept, despite the fact that all customers must be treated as “ free”.724”

723 724

RED, EED, State Aid Guidelines, ETS Directive. «free» relates to the concept of free choice of suppliers established in the Second Energy Package.

544

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

In its ruling, the Court did not exclude the existence of a service of general economic interest involving price regulation. The Court stressed however, that the Member States have to assess, whether it is in the general economic interest to impose obligations on suppliers of gas to maintain certain level of prices, having at the same time regard to the overall objective of stepwise liberalisation of the market.

10.21

In case such an assessment would be positive, the Court established some basic criteria which need to apply in order to consider that the obligation is proportionate and “ in so far as is necessary to achieve the objective in the general eco‑ nomic interest which they pursue and, consequently, for a period that is necessarily limited in time”. The Court established following criteria of a general guidance for the national Courts to assess specific cases.

10.22

“First, such an intervention must be limited in duration to what is strictly necessary in order to achieve its objective, in order, in particular, not to render permanent a measure which, by its very nature, constitutes an obstacle to the realisation of an operational internal market in gas. […] In that context, the referring court should examine whether and to what extent the relevant national law requires the administration to make a periodic re-examination, at close intervals, of the need for it to intervene in the gas sector and the manner of its doing so, having regard to the development of that sector. Secondly, the method of intervention used must not go beyond what is necessary to achieve the objective which is being pursued in the general economic interest. […] It is for the referring court to verify whether that is the case, taking account in particular of the objective of establishing a fully operational internal market for gas and of the investments necessary in order to exert effective competition in the natural gas sector. […] If, following those verifications, it were to be shown that such an intervention is capable of being justified in that way, the requirement of proportionality would imply in particular that it be limited in principle to the price component directly influenced upwards by those specific circumstances. Thirdly, the requirement of proportionality must also be assessed with regard to the scope ratione personae of the measure, and, more particularly, its beneficiaries. In that regard, it should be emphasised that that requirement does not prevent ‘reference prices’ for the supply of natural gas, such as those at issue in the main proceedings, from being applied to all customers whose consumption of natural gas is above a certain threshold rather than being limited to the circle of those, expressly referred to in Article 3(3) of Directive 2003/55, who must necessarily be protected on account of their vulnerability. 545

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba […] Finally, the other conditions mentioned in Article 3(2) of Directive 2003/55, requiring that the public service obligations adopted under that provision be clearly defined, transparent, non discriminatory and verifiable, and that they guarantee equal access for EU gas companies to consumers, must also be fulfilled.”

10.23

The above Court case served as a reference point for further cases where complex issues on price regulation have been raised. This in particular concerned measures that did not exclude competition as such, but measures where price reference capped to keep the prices in check.

10.24

In the ANODE case725 which concerned an obligation in requiring certain sup‑ pliers, including the incumbent supplier, to offer to supply natural gas to final consumers at regulated tariffs, but not precluding competing offers from being made at lower prices than those tariffs by any supplier in the market.

10.25

In its ruling, the Court took a stand that the Public Service Obligation imposed on certain companies to offer regulated prices is “by its very nature an obstacle to the achievement of a competitive market in natural gas as provided for in that provision, and that obstacle exists even though the intervention does not preclude competing offers from being made at lower prices than those tariffs by any supplier in the market”. Nevertheless the Court specified that the PSO “may none the less be accepted within the framework of Directive 2009/73 if three conditions are satisfied”, namely those expressed in the Federutility judgment. The Court stressed the obligation of a Member State to reconcile the objective of liberalisation with the other objectives pursued by the Electricity Directive, such as those expressed in Article 3. The objective relevant in this particular case is the one of security of supply and territorial cohesion. The Court accepted these objectives with some restrictions regarding territorial cohesion, which is not covered by Article 3 but it is an objective that is covered by Article 14 of the TFEU.

10.26

As regards the test of proportionality, the Court did not give a final answer related to the case but pointed out to a number of questions that the national Court has to analyse. In particular the Court asked to establish a link between the objectives of the measure and the PSO which concerned the mechanism of price formation in the market. The Court questioned how the incumbent supplier’s supply contracts, which are long-term contracts indexed to prices of oil products, ensure greater security of supply than the alternative suppliers’ con725 Case C-121/15, Association nationale des opérateurs détaillants en énergie (ANODE)

546

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

tracts, which are affected by the instability of the price of gas on the wholesale market. As regards the objective of territorial cohesion, the Court pointed out that an alternative measure – namely restricting the obligation only to remote territories shall be analysed. Further, the Court pointed out, regarding the necessity test of the measure, that it is for the referring court to assess whether the method of intervention in prices used does not go beyond what is necessary for achieving the objectives of general economic interest pursued and whether there are no appropriate measures that are less restrictive.

10.27

The Court pointed out to the importance of the assessment regarding the scope ratione personae and whether the foreseen threshold of households and undertakings consumption of less than 30,000 kWh/year is proportionate with respect to the objectives of security of supply and territorial cohesion. As regards, the third condition of the Federutility judgment, namely that the State intervention must lay down public service obligations that are clearly defined, transparent, non-discriminatory and verifiable, and guarantee equal access of EU gas undertakings to consumers, the Court pointed out that the assessment needs to be performed by the national Court.

10.28

5.

The Security of Supply Regulation and the Clean Energy Package

The Court judgments are reflected in the legislative changes in the sector of gas and electricity in the areas of the regulated prices and the security of supply. The Electricity Directive (EU) 2019/944726 and Electricity Regulation (EU) 2019/943727 included in the Clean Energy Package give guidance on how the Member States shall design measures diminishing at the same time distortions to the market and making the interventions more transparent.

10.29

In the electricity sector a number of capacity mechanisms and payments were introduced on the basis of Article 3(2) addressing possible security of supply problems. During the recent years the Commission gave non-binding guidance on how the Member States shall design capacity mechanism. This guidance was given by the means of a Communication,728 later in State aid Guidelines

10.30

726 Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU, OJ L 158, 14.6.2019 727 Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity, OJ L 158, 14.6.2019 728 Communication “Delivering the internal electricity market and making the most of public interventions”

547

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

and finally in the Electricity Regulation (EU) 2019/943 adopted as part of the Clean Energy Package. The key element of these rules is an objective test of necessity – a capacity adequacy assessment which needs to be examined in the context of the situation in other Member States and not purely from a national perspective. The initial Commission proposal went even further in this respect, subjecting the introduction of a capacity mechanism by a Member States to a European adequacy assessment. The final compromise of the legislators reconciles the national and the European adequacy assessments and in addition foresees a number of conditions that need to be fulfilled before introduction of a capacity mechanisms. One of these conditions is a market reforms plan, the Member States need to present in a State aid procedure. A design of a capacity mechanism based on Article 3(2) will need to respect these rules. When Member States are notifying the Public Service Obligations to the Commission, the Commission will have the possibility to examine whether the PSO is respecting the provisions of the Electricity Regulation.

10.31

In addition to the rules of the Electricity Regulation, the Regulation on security of supply of electricity established rules on exchange of information between Member States on risks for security of supply and rules how to address the security of supply risks. Rules on th capacity mechanism, together with the rules of Regulation on security of supply of electricity and the rules of the network code on system operation form a detailed rulebook of security of supply from shortterm operation of the networks up to the long-term investment planning. Since all these rules have been embodied in the internal energy market legislation it can be expected that they will deliver results that will be less distortive to the market than the uncoordinated designing of the public service obligations on the level of each of the Member States taken from a national perspective.

10.32

In the gas sector, the Regulation of security of supply puts focus of the Member States to rely on the market to ensure supply. Only in the emergency situations the Member States may refer to additional measures that inevitably will involve public service obligations. All such measures shall be however first reflected and discussed with the neighbouring Member States in order to minimise their negative cross-border impacts.

10.33

Apart from these sector specific rules on security of supply, the EU legislators agreed to revise the rules on PSOs and establish new rules in the Electricity Directive (EU) 2019/944 as part of the Clean Energy Package. These new rules have been agreed in the overall context of the Directive, which introduces a COM (2013) 7243

548

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

number of design futures that aim to help to activate demand response and allow the use of the dynamic prices in particular by applying the smart meters. This is established to help the electricity system to cope with the intermittency of the growing share of the renewables in the electricity mix. Due to the negative effects of the price setting by the Member States such as “accumulation of tariff deficits, the limitation of consumer choice, poorer incen‑ tives for energy saving and energy efficiency investments, lower standards of serv‑ ice, lower levels of consumer engagement and satisfaction, and the restriction of competition, as well as to there being fewer innovative products and services on the market”, the Directive sets in its Article 5 a number of rules governing the Public Service Obligations on regulated prices. This Article develops the overall principles included in the rules former Article 3(2), now Article 9 which in paragraph 2 makes a direct reference to Article 5.

10.34

As a basic principle Article 5 of the Directive establishes that prices shall be set by the suppliers. Protection of vulnerable consumers shall take place by social measures and not via the price regulation. Only in exceptional circumstances price setting by the means of a public service obligation is allowed. As an exceptional circumstance, recital 23 mentions as an example, a situation where supply is severely constrained resulting in a strong price increase.729 Such a price increase would be impacting mostly vulnerable and poor customers as electricity makes high share of their spending.

10.35

In such circumstances the PSOs intervening in the price setting can be allowed to benefit vulnerable and poor customers subject to several conditions prescribed in paragraph four; the public intervention has to pursue a general economic interest and shall not go beyond what is necessary to achieve that general economic interest. It needs also clearly defined, transparent, non-discriminatory and verifiable and guarantee equal access for Union electricity undertakings to customers. It needs to be limited in time and proportionate as regards their beneficiaries – which means that the number of beneficiaries shall be limited proportionally to the problem the public intervention aims to address. At last, the public intervention shall not result in additional costs for market participants in a discriminatory way.

10.36

729 Recital 23: “Public service obligations in the form of price setting for the supply of electricity should be used without overriding the principle of open markets in clearly defined circumstances and beneficiaries and should be limited in duration. Such circumstances might occur for example where supply is severely con‑ strained, causing significantly higher electricity prices than normal, or in the event of a market failure where interventions by regulatory authorities and competition authorities have proven to be ineffective. (…)

549

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

10.37

In presence of competitive price setting no further price intervention is allowed, other than price intervention to protect the vulnerable and the poor consumers. However, broader group of households and microenterprises can also benefit from the regulated price setting “ for the purpose of a transition period to estab‑ lish effective competition for electricity supply contracts between suppliers”. The transitory period is not explicitly limited, but a number of additional conditions should help to finish the price regulation, allow the competition to emerge and to bring the consumers to the competitive market. To that extend, in addition to the conditions in paragraph four, the Member States have to put in place “a set of measures to achieve effective competition and a methodology for assessing progress with regard to those measures”. The Member States have to minimise the negative impacts on the wholesale market and avoid discrimination of the suppliers. The price resulting from such an intervention needs to be above the costs so that competition can emerge. The price shall also be such that it does not lead to cross-subsidization between customers supplied at market prices and those supplied at regulated prices.

10.38

Beside measures limiting the impact of the public intervention on the supply, the Member States need to activate the consumers that benefit from the public intervention. In particular, Member States need to ensure that the consumers have access to the market – that they can choose competitive offers and are informed regularly about the offers and savings they can make. When applying the public interventions Member States need to provide the smart meters, unless the cost benefit analysis is negative. But even in case of a negative cost-benefit analysis it is necessary for the Member States to inform the beneficiaries of the regulated prices of a possibility to install smart meters and provide a necessary assistance.

10.39

Finally the Member States need to notify to the Commission the public interventions in the price setting and prepare reports by January 2022 and January regarding implementation of the Article on market-based price setting and the corresponding public service obligations. By the end of 2025 the Commission is than obliged to present a report to the Parliament and to the Council and may include a legislative proposal that ends the regulated prices. This provision is a compromise between the Member States and the Commission which initially proposed to restrict the regulated prices, after a period of five years, to vulnerable household consumers and only to urgent situations.

550

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

The above development shows that an area in which the Member States have a wide margin of discretion can evolve and the rules can be established that minimise the distortive effects and allow the energy policy to address politically sensitive issue such as the price regulation. It remains open whether similar provisions will be developed for the sector of gas.

6.

Public Service Obligations and state aid

Public Service Obligations concerning an economic activity and having an impact on trade may involve state aid. Whether this is the case has been established by the Court of Justice in its Altmark case730 judgement. In Altmark, the Court held that public service compensation does not constitute State Aid within the meaning of Article 107 of the TFEU provided that four cumulative criteria are met. These criteria are as follows: –

First, the recipient undertaking must actually have public service obligations to discharge, and the obligations must be clearly defined.

–

Second, the parameters on the basis of which the compensation is calculated must be established in advance in an objective and transparent manner.

–

Third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in discharging the public service obligations, taking into account the relevant receipts and a reasonable profit.

–

Finally, where the undertaking which is to discharge public service obligations, in a specific case, is not chosen pursuant to a public procurement procedure which would allow for the selection of the bidder capable of providing those services at the least cost to the community, the level of compensation needed must be determined on the basis of an analysis of the costs which a typical undertaking, if well run and adequately equipped, would have incurred.

In case these criteria are not fulfilled the state aid rules applicable to services of general economic interest are applied. The below graph shows the currently applicable SGEI framework with patterns leading to either no aid or state aid scenarios. Whether concrete Public Service Obligation fulfils the respective criteria is established on a case by cases basis in a state aid procedure. 730

10.40

Case C-280/00.

551

10.41

10.42

Chapter 10 Public service obligations and the EU energy market legislation Bartek Gurba

10.43

State aid is likely to be involved when beneficiaries of the PSOs are companies. Similarly, as in the area of sectoral legislation, the scope for Member States to design Services of General Economic Interest is getting limited once the specific state aid rules are being established. For example the rules on capacity markets, reflected also in the Electricity Regulation, apply to cases of state aid that were adopted as Services of General Economic Interest a decade ago.

10.44

As regards the procedural aspects, the state aid rules and the provisions under the sectoral legislation require the Member States to notify the foreseen public interventions to the Commission. In the area of state aid the Member State has to obtain the Commission decision on the compliance of state aid before it is put in effect (ex-ante examination), whereas in the area of PSOs the Commission pronounces itself on the compliance with sectoral legislation in a compliance check and it can launch infringement proceedings against non-compliance.

552

Chapter 11 Derogations and exemptions Jan Papsch

Chapter 11 Derogations and exemptions

1.

Introduction

In order to achieve a fully open and well-functioning internal energy market and a level playing field for all undertakings in the electricity and gas markets, the Third Package establishes detailed and far reaching regulatory provisions. These provisions apply equally to transmission and distribution infrastructure in all 28 Member States. However, market conditions and existing energy infrastructure in the different Member States vary significantly, to the extent that for the time being not all Member States contain both transmission and distribution networks for gas and electricity. These differences can exist for historical reasons (e.g. the historical integration of the Baltic States in the Russian synchronized electricity system), on the basis of distinct geologic conditions (own gas sources, potential for natural gas underground storage, difficult border terrain for the construction of interconnectors) or due to particular consumption profiles (e.g. the significant increase in electricity consumption on small islands in the main vacation period) as well as due to the size of the Member State and/or its isolated location relative to the interconnected system of the bigger Member States.731

731 These structural differences between Member States are often also reflected in the national energy mix: By way of example, in 2012, 98.6 % of the gross energy consumption in Malta was based on petroleum and petroleum products, compared to only 34 % at the EU level (mainly for transport), see 2012 figures on the national energy mix in the Statistical Pocketbook 2014 EU Energy in Figures, http://ec.europa.eu/energy/ publications/doc/2014_pocketbook.pdf, p. 23 and 211.

553

11.1

Chapter 11 Derogations and exemptions Jan Papsch

11.2

The development of the Internal Energy Market is an ongoing process, and there has to be scope for taking into account such remaining differences in market conditions. The derogation possibilities also serve the purpose of enabling the Third Package to integrate the diverse market and industrial structures of the Member States, avoid institutional paralysis of the Commission and promote needed infrastructure investments.732

11.3

The creation of a functioning and well-integrated internal market, as well as security of supply considerations, also require significant investments into major new infrastructure, such as interconnectors, natural gas storage, and LNG terminals.733 Where the risk involved in making these necessary investments is such that they would not be realized under the regulated system, tailor-made solutions can enable important infrastructure projects.734 Such solutions can be found on the basis of exemption decisions, requiring a detailed case-by-case assessment of both the national authorities and the Commission.

11.4

However, any deviation from the regulatory provisions has to be transparent and limited to the extent and time period necessary, without giving the possibility to postpone the full integration into the internal market and the regulated system more than necessary. For this reason, while a considerable number of derogations and exemptions are foreseen under the Electricity and Gas Directives, they are generally limited in time and applicable only as long as and to the extent that they remain justified.

11.5

Exemptions and derogations granted by way of a Commission Decision can also include various conditions in order to further advance market integration, compensating negative effects of the granted derogation on market functioning, or environmental objectives, notably the integration of renewable energies. In summary, it can thus be said that although exemptions are a necessary component of a legal regime transforming the complex EU energy market, they should be kept to a minimum in order to ensure a level playing field.735 732 ‘Opt-out’ Clauses for EU Energy Islands in the Third Liberalization Package: Striking Balances?, Adrien de Hauteclocque / Nicole Ahner, EUI Working Paper RSCAS 2012/71, p. 2; by the same authors, see also EU Energy Law and Policy Issues, Chapter I: “Opt-out” clauses for EU energy islands in the third liberalization package: striking balances? p. 4. 733 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions, Progress towards completing the Internal Energy Market, COM(2014) 634 final of 13 October 2014, chapter 3. 734 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions, Progress towards completing the Internal Energy Market, COM(2014) 634 final of 13 October 2014, page 9. 735 Kim Talus, EU Energy Law and Policy, A critical account, Oxford Universiy Press 2013, P. 89.

554

Chapter 11 Derogations and exemptions Jan Papsch

A basic distinction can be made between derogations directly foreseen in secondary law, which have essentially been included as the result of negotiations in the legislative process, and derogations on the basis of a case-by-case analysis by the Commission. While this distinction says nothing on the content of the derogation, it is not a mere formality. Where the Commission has a role in the case by case assessment, the exemption policy can react to changes in market development and legal framework. Such derogations are generally limited in time and subject to conditions aiming at a full market integration in the long run. Derogations subject to a Commission decision relate to small systems or outermost regions (electricity) and emergent regions (gas), derogations from third party access obligations pursuant to take or pay contracts, and perhaps most importantly exemptions for major new infrastructures.

11.6

Such safguards are not always foreseen for derogations directly granted in the secondary law. They relate to TSO unbundling for certain Member States, DSO unbundling for small DSOs, derogations for isolated or emergent markets in natural gas, derogations under the Gas Regulation, and the limited application of the Electricity Directive and Regulation to Malta and Cyprus. Additional derogations granted in the accession process have by now run out.

11.7

In addition to the above, Member States have the possibility to derogate from certain clearly delimited provisions of the Directives in so far as their application would obstruct the performance of public service obligations (Article 3 (14) of the Electricity Directive, Article 9 of the recast Electricity Directive, and Article 3 (10) of the Gas Directive, for more details see Chapter 10, Section 3.2).736 They can take non-market measures in the event of a declared emergency under Regulation 2017/1938 (see Chapter 10)737 and maintain the application of diverging pre-existing unbundling provisions (Article 9 (9) of the Directives and Article 43(8 of the recast Electricity Directive, see chapter on unbundling.

11.8

2.

Derogations directly provided in secondary law

The electricity and gas Directives as well as the gas Regulation and recast Electricity Regulation directly provide for several derogations from key regulatory rules. These provisions have been granted in the legislative process and do not need any Commission decision to be appicable. The energy systems of these Member States are particularly small and/or isolated from the main energy sys736 Book paragraph 10.22. 737 Book paragraph 10.39.

555

11.9

Chapter 11 Derogations and exemptions Jan Papsch

tem of the EU, making economies of scale and effective competition difficult to realize. In these cases, the burden created by the full implementation of the Third Package would temporarily or permanently outweigh the benefits,738 thus justifiying their particular legislative treatment.

11.10

Nevertheless, it has to be acknowledged that derogations are often the result of necessary political compromise in the legislative process and thus not always based primarily on economic necessity. In so far as the derogations are transparent, easily applicable, and limited in time, this should be seen as an acceptable concession made by the co-legislators to individual Member States for their willingness to open their energy markets in the medium term and it may not always be best to “look for fully logical reasons” behind each individual derogation.739

11.11

These derogations give the respective Member States the possibility to deviate, in line with EU law, from certain legal provisions. Unless otherwise provided, the derogations are permanent, but the Member State may at any point in time decide to nevertheless apply the normal regulatory framework under EU law.740 Derogations provided for in the Directives deviate from the obligation of the Member State to implement one of the provisions of the Directive.741 Where the derogation does not completely waive the application of a rule (such as for DSO unbundling which is applicable to all DSOs with more than 100 000 connected customers), national law has to define the extent to which it makes use of the derogation.

11.12

While some derogations expressly list Member States to which they are applicable, others define their scope in abstract terms. In order to ensure transparent application of these derogations, they generally742 foresee an obligation to notify the Commission. Should Member States rely on a derogation although the conditions for its application are not met (e.g. because the market is no longer to be seen as isolated), this could be pursued by the Commission in an infringement procedure. 738 ‘Opt-out’ Clauses for EU Energy Islands in the Third Liberalization Package: Striking Balances?, Adrien de Hauteclocque / Nicole Ahner, EUI Working Paper RSCAS 2012/71, p.1. 739 Christopher Jones & William Webster, revised by Emmanuel Cabau, EU Energy Law, Third edition, paragraph 11.37. 740 This was done e.g. by Estonia regarding the unbundling provisions: while Estonia probably still benefited from a derogation as isolated gas market, ownership unbundling of the gas TSO EG Võrguteenus was completed in 2016, see Konkurentsiamet report on Electricity and gas markets in Estonia 2016, p.58-59 and Commission Opinion C(2016) 8255 final of 2 December 2016 on the certification of Elering.. 741 Article 30 of the gas Regulation, which extends the scope of derogations under the gas Directive to the Regulation, however has direct effect. 742 No obligation for notification is e.g. foreseen in Article 26 (4) (Article 35 (4) of the recast Electricity Directive) on unbundling of DSOs.

556

Chapter 11 Derogations and exemptions Jan Papsch

Only a limited number of direct derogations has been provided in the Third Package for electricity. With the exception of Cyprus and Malta, direct derogations for electricity are generally limited to TSO and DSO unbundling provisions.

11.13

For natural gas, to the contrary, a large number of partly overlapping direct derogations has been provided. This is can be largely justified due to particularities of the national gas systems. First, gas plays no significant role in the current energy system of several Member States (such as Cyprus and Malta).743 Second, the Baltic states are not interconnected to the main EU gas transmission network and depend on a single upstream supplier for natural gas,744 which has an impact on market structure. The derogations provided in the Third Package give these Member States the leeway for finding individual solutions for the development of their gas markets taking into account these specificities, aiming nevertheless for a full integration into the internal market in the medium term. As a consequence, the system of derogations under the gas Directive is highly complex745 and exempts some Member States from major parts of the regulatory system in natural gas.

11.14

2.1 TSO unbundling Article 49 (6) of the gas Directive provides that Article 9 (TSO unbundling) shall not apply to Cyprus, Luxembourg and/or Malta. While a gas transmission system does exist in Luxembourg, this is in practice limited to the import of natural gas from neighbouring Member States for direct distribution inside the country. Cyprus and Malta both do not have any gas network. However, both Member States foresee an increasing role for natural gas in their future energy mix.

11.15

Similarily, Article 44 (2) of the electricity Directive (= Article 66 (3) of the recast Electricity Directive) provides that Article 9 (TSO unbundling) shall not

11.16

743 See Statistical Pocketbook EU Energy in Figures 2014 , page 25, http://ec.europa.eu/energy/sites/ener/ files/documents/2014_pocketbook.pdf: neither Malta nor Cyprus have any gas-fired electricity generation (neither do they have coal- or nuclear generation for that matter). 744 See Communication from the Commission to the European Parliament and the Council on the short term resilience of the European Gas system( Stress Test Communication ), COM(2014) 654 final of 16 October 2014, http://ec.europa.eu/energy/doc/nuclear/2014_stresstests_com_en.pdf. 745 This is partcilarly striking for Cyprus, which benefits from several overlapping exemptions under the gas Directive. There are three provisions allowing Cyprus not to apply Article 9: Article 49 (6) provides a permanent derogation, whereas Article 49 (1) and (2) provide for temporary derogations.

557

Chapter 11 Derogations and exemptions Jan Papsch

apply to Cyprus,746 Luxembourg747 and/or Malta. For such relatively small Member States which do not dispose of major transmission systems,748 the creation of an unbundled transmission system operator may be seen as disproportionate. Other requirements than unbundling (such as third party access (except for Malta) and the setting of non-discriminatory transmission tariffs which avoid cross-subsidization ) however still apply, which may in practice require the creation of a (vertically integrated) TSO.

11.17

11.18

It is not expressly provided in the third package whether the derogation from Article 9 waives the need to apply any form of unbundling.749 As regards the provisions on certification of transmission system operators the Commission has applied these also in case of exemptions being granted to individual infrastructures. This applies either to parts of the capacity which are not subject to an unbundling exemption or to provisions which are not covered by such an exemption, especially the rules on legal and functional unbundling as specified in the second package. Following the reasoning of the Commission in exemption procedures, the provisions on certification could thus also be applied to Member States having a derogation from unbundling. It also appears reasonable to maintain the level of unbundling which had been achieved in the Second Packge, and not allow Member States to fully reintegrate TSOs which have already been subject to legal and functional unbundling.750 However, to date no such certification has taken place for the Member States in question, and in the absence of fully applicable unbundling provisions this is clearly not seen as a priority by the Commission. In the recast Electricity Directive, the situation is even more complex: Article 66 (3) provides expressly that the ISO and ITO provisions as well as certifica746 Cyprus already benefitted from a derogation under the second gas Directive pursuant to Commission Decision of 25 September 2006 granting the Republic of Cyprus a derogation from certain provisions of Directive 2003/54/EC, OJ L 270 p.72. 747 Luxembourg was already subject to a derogation under Article 26 (1) of the Second electricity Directive. The Commission proposal for a recast electricity Directive no longer contained this derogation due to the close integration of the Luxembourg system into the continental grid, but the final compromise again maintains it. 748 This does not apply to all Member States in the same degree: While Luxembourg has a transmission system, Malta only has a distribution network. 749 Adrien de Hauteclocque / Nicole Ahner, EU Energy Law and Policy Issues, Chapter I: ‘Opt-out’ clauses for EU energy islands in the third liberalization package : striking balances? P.13. 750 Adrien de Hauteclocque / Nicole Ahner, EU Energy Law and Policy Issues, Chapter I: ‘Opt-out’ clauses for EU energy islands in the third liberalization package : striking balances? P.14. It is however highly doubtful whether the Commission could impose the ITO or ISO model on Member States benefitting from a derogation, as suggested by de Hautecloque/Ahner, as the intention of the derogation was clearly not to impose additional unbundling steps with a high administrative burden on these Member States.

558

Chapter 11 Derogations and exemptions Jan Papsch

tion should not be applied to Cyprus. No such provision is made for Malta and Luxembourg. In principle, one would thus e contrario need to argue that with the exception of Article 43 on ownership unbundling, all other unbundling provisions apply in full to Malta and Luxembourg. However, it is very doubtful that this was the intention of the legislators. In practice, it is thus much more likely that both Member States will be free from any form of advanced unbundling rules. Furthemore, Article 44 (2) subparagraph 2 of the electricity Directive provides for a very narrow interpretation of the notion of “undertaking performing any of the functions of generation or supply” for the purpose of ownership unbundling pursuant to article 9 (1) b) of the Directive. It provides that:

11.19

For the purposes of Article 9(1)(b), the notion “undertaking performing any of the functions of generation or supply” shall not include final customers who perform any of the functions of generation and/or supply of electricity, either directly or via undertakings over which they exercise control, either individually or jointly, provided that the final customers including their shares of the electricity produced in controlled undertakings are, on an annual average, net consumers of electricity and provided that the economic value of the electricity they sell to third parties is insignificant in proportion to their other business operations.

This interpretation, which was maintained in Article 66 (3) of the recast electricity Directive, limits the scope of application of Article 9 (1) (b) of the Directive under certain conditions and is thus correctly placed under the “derogations” heading. It allows generators of electrity which are also final customers to control ownership-unbundled TSOs if: (i)

the activity of generating electricity is economically insignificant compared to their other business activities; and

(ii)

the undertaking remains, on an annual average, a net consumer of electricity.

Initially this provision was apparently targeted to accommodate the Finnish model of wood and paper manufacturers with own electricity generation which wanted to maintain investments in the TSO. It also allowed the certification of the Slovenian TSO ELES as ownership unbundled, notwithstanding shareholdings of the same state entity in electricity consumers.751 This derogation 751 See Commission opinion C(2014) 9865 final of 17 December 2014, page 3.

559

11.20

11.21

Chapter 11 Derogations and exemptions Jan Papsch

can in principle have negative impact on the neutrality of the TSO. However, this risk also exists to some degree in case of investments in major electricity consumers which do not generate their own electricity but have an interest in particular TSO investments. Thus, it is up to the national regulator to ensure efficient investments of the TSO in such scenarios, especially via the investment planning provisions.

2.2 DSO unbundling 11.22

Article 26 (4) of the electricity Directive (= Article 35 (4) of the recast electricity Directive) provides that Member States may decide not to apply DSO unbundling requirements to integrated electricity undertakings serving less than 100.000 connected customers or small isolated systems. Small isolated systems are defined by Article 2 of the Directive as systems which in 1996 had a consumption of less than 3000 GWh and where less than 5 % of the annual consumption is obtained through interconnections to other systems. Of course, using 1996 consumption as a reference figure is becoming increasingly awkward, as consumption may have significantly evolved since then. Nonetheless, this approach was maintained in the recast electricity Directive. in order to avoid changes which could impact currently derogated systems, or allow for derogation in systems which currently already apply unbundling rules.

11.23

This practically important derogation covers in some Member States the majority of DSOs (especially municipal companies) by number of DSOs, albeit these smaller and/or isolated DSOs represent in most countries a clear minority of total customers.752 The derogation can also include areas with more than 100,000 customers if they are small isolated systems, e.g. French overseas departments. Other than in case of derogations for small isolated systems under Article 44 of the Directive, no Commission decision is necessary for the DSO unbundling derogation, which empowers the Member States to unilaterally make use of the derogation. If requested by the Member State, the Commission can however bilaterally confirm application of this provision to a certain territory.753 While the threshold of 100 000 customers can appear arbitrary,754 a clear threshold can be justified by the need to ensure legal certainty and avoid excessive administrative 752 Status Review of DSO Unbundling with Reference to Guidelines of Good Practice on Functional and Informational Unbundling for Distribution System Operators, European Regulator’s Group for Electricity and Gas (ERGEG) E09-URB-20-05, 9 September 2009, p.12 for electricity and 13 for gas, http://www. energy-regulators.eu/portal/page/portal/EER_HOME/EER_PUBLICATIONS/CEER_PAPERS/ Cross-Sectoral/2009/C09-URB-20-05_DSO-Unbunling_09-Sep-09.pdf 753 This has been requested by Member States especially for some isolated systems. 754 Kim Talus, EU Energy Law and Policy, A critical account, Oxford Universiy Press 2013, P. 93.

560

Chapter 11 Derogations and exemptions Jan Papsch

effort for small distribution systems. Where appropriate in view of national circumstances, a gradual approach can be applied.755 The importance of the threshold can also be seen from the fact that in 2009, none of the Member States which did not apply a threshold had any DSOs with less than 100 000 customers.756 Article 26 (4) of the gas Directive provides for an identical derogation for integrated natural gas undertakings serving less than 100 000 connected customers. No derogation is foreseen for isolated distribution systems in the gas Directive, as self-sufficient isolated distribution systems generally do not exist for natural gas.

11.24

2.3 Isolated markets (gas) One major difference between gas and electricity is that the former has for most Member States always been to a large extent an import product. Whereas electricity is traditionally generated nearby the place of consumption, natural gas is found only in few places, can be stored, and can be transported over long distances. This can create particular vulnerabilities where Member States are dependend on a single source of gas, in particular where the source of gas is not in another EU Member State. This is especially the case for the Baltic states, Finland and parts of South-Eastern Europe.757 In the case of the Baltic states and Finland, this problematic is further reinforced by their isolated position compared to the main EU gas grid, which makes their interconnection more difficult.

11.25

To take into account such particular situations, Article 49 (1) of the gas Directive grants derogations for isolated markets. The provision reads:

11.26

Article 49 (1) “Member States not directly connected to the interconnected system of any other Member State and having only one main external supplier may derogate from Articles 4, 9, 37 and/or 38. A supply undertaking having a market share of more than 75% shall be considered to be a main supplier. Any such derogation shall automati755 See Staff Working Paper “The unbundling regime”, 22 January 2010, page 29, http://ec.europa.eu/energy/ sites/ener/files/documents/2010_01_21_the_unbundling_regime.pdf 756 ERGEG status review, page 13. 757 See Stress Test Communication, COM(2014) 654 final of 16 October 2014.

561

Chapter 11 Derogations and exemptions Jan Papsch cally expire where at least one of the conditions referred to in this subparagraph no longer applies. Any such derogation shall be notified to the Commission.”

11.27

The provision thus grants derogation from rules on authorisation procedures, TSO unbundling, market opening and direct lines. To be seen as isolated, the market of a Member State has to cumulatively fulfill the following conditions: (i)

It is not interconnected to the system of any other Member State and

(ii)

It has one main external supplier with more than 75% market share.

11.28

Member States relying on this derogation have to notify this to the Commission, and the derogation automatically expires if the conditions are no longer fulfilled. No Commission Decision is required for the derogation to apply or to expire.

11.29

While the derogation only applies to four Articles, it effectively allows Member States to delay market opening, imposes no special obligations on the non-dicsriminatory authorisation of new capacities758 and requires no additional unbundling. This derogation can thus significantly hinder market integration.

11.30

Nevertheless, some important provisions of the Directive remain applicable. First and foremost, full DSO unbundling is required under Chapter V of the Directive. Also, rules on third party access to pipelines and LNG terminals, as well as access to storage (Articles 32 and 33) fully apply. The implementation of the remaining rules has to be ensured by a full-fleged independent NRA under Chapter VIII of the Directive. While it is certainly correct that the implementation of these provisions is costly for a Member State which is legally not obliged to open its’ market,759 they are important to enable the long-term development of a functioning market in all Member States. Especially, it is important to note that the derogation remains applicable even if several competing downstream suppliers are active inside a Member State which depends on a single external upstream supplier. In this scenario, effective DSO unbundling and an independent NRA are key requirements for effective downstream competition, which may in turn be the driver for full market integration also at the transmission level. Finally, the derogation becomes automatically inapliccable if the Member State in question is connected to the main EU gas network or the main supplier has a market share of less than 75%. As the second condition may be fulfilled 758 It is however important to note that general public procurement law remains fully applicable. 759 See previous edition, paragraph 11.29.

562

Chapter 11 Derogations and exemptions Jan Papsch

without any additional investments taking place and may not be prevented by the Member State (as other suppliers can benefit from third party access), the Member State has to be ready to implement market opening on short notice. For Cyprus, Estonia, Latvia and/or Finland, the gas Directive establishes that they are to be seen as isolated markets. While for Cyprus the derogation ends with the end of isolation,760 the Baltic States and Finland are for this purpose defined as a common system. Thus, for those Member States, the derogation applies for as long as neither Finland nor Lativa or Estonia are connected to the interconnected system of any Member State other than Finland, Estonia, Latvia or Lithuania.761

11.31

Against this background, it is important to assess which impact the start of operations of the Lithuanian LNG terminal has on the derogation granted to the other baltic states and Finland. While the purpose of the provision is clearly to see all four states as commonly isolated, one could argue that the formulation is such that the connection of Lithuania, which has no derogation, to other Member States does not necessarily impact the derogation. This would however not be in line with the general reasoning of seeing the four states as commonly isolated. As the interconnection of Lithuania to the other Member States is strong and thus in practice sufficient to have in practice direct impact on the market in the other Baltic States, there are good grounds to argue that in view of the purpose of the derogation, the ned of the isolation of Lithuania also ends the isolation of the other Member States. This reasoning would be even stronger after the start of operations of e.g. the planned LNG terminal in Estonia and/or Finland. While in theory, it could be argued that those states which do not have a direct connection to another Member State would still be entitled to a derogation, systematically the provision has to be interpreted as seeing all four Member States as jointly isolated. As expressly stated in Article 49 (1) of the Directive, as soon as any oft the Member States benefitting from the derogation gets directly connected to other Member States, all of these Member States lose the derogation. This interpretation also follows from other language versions of the Directive.762

11.32

760 If an LNG terminal is constructed, this would thus mean that the isolated market derogation for Cyprus expires before the more extensive emergent market derogation the added value of the isolated market derogation for Cyprus thus appears limited to Article 37 (2) and thus factually nonexistent. 761 While Lithuania is not covered by the derogation, the other Member States are thus still to be regarded as isolated if they are connected to Lithuania, independent of whether Lithuania is isolated or not. 762 DE: Die Artikel 4, 9, 37 und/oder 38 gelten für Estland, Lettland und/oder Finnland erst ab dem Zeitpunkt, zu dem einer dieser Mitgliedstaaten direkt an das Verbundnetz eines anderen Mitgliedstaats mit Ausnahme von Estland, Lettland, Litauen und Finnland angeschlossen ist; FR: Les articles 4, 9, 37 et/ou 38 ne s appliquent pas à l Estonie, à la Lettonie ni à la Finlande jusqu à ce que l un de ces États membres soit directement relié au réseau interconnecté d un État membre autre que l Estonie, la Lettonie, la Lituanie et

563

Chapter 11 Derogations and exemptions Jan Papsch

11.33

Such express derogation is not foreseen for Lithuania. While it could be argued that prior to construction of the Klaipėda LNG terminal, Lithuania would have fulfilled the general criteria for an isolated market,763 the fact that contrary to the other Baltic states it is not mentioned rather indicates that the EU legislator expressly did not want to grant such a derogation to Lithuania.

2.4 Emergent markets (gas) 11.34

Important infrastructure investments can be particularly risky in areas where the future development of a functioning gas market is not fully ensured, and vertically integrated investment strategies may be required to make realization of these investments possible.764 The problem of enabling risky long-term investments is for all markets covered by the provisions for major new infrastructures. Different to mature markets, emergent markets may however require derogations not only for interconnectors and similar major infrastructures, but also for the creation of the internal gas system itself.765 In fact, in most EU member States, a core system of gas infrastructure has been established over several decades and mostly by vertically integrated undertakings subject to only limited direct competition. Where this has not been the case prior to the gas Directive entering into force, a special regime may be justified.

11.35

Article 49 (2) of the gas Directive therefore provides for a temporary derogation for emergent markets: Article 49 (2) “A Member State, qualifying as an emergent market, which, because of the implementation of this Directive, would experience substantial problems may derogate from Articles 4 and 9, Article 13(1) and (3), Articles 14 and 24, Article 25(5), Articles 26, 31 and 32, Article 37(1) and/or Article 38. Such derogation shall automatically expire from the moment when the Member State no longer qualifies as an emergent market. Any such derogation shall be notified to the Commission.”

la Finlande. 763 Kim Talus, EU Energy Law and Policy, A critical account, Oxford Universiy Press 2013, P. 95. 764 Kim Talus, EU Energy Law and Policy, A critical account, Oxford Universiy Press 2013, P. 96. 765 This is a major difference to electricity: While every Member State has a highly developed national electricity grid in place and the lack of infrastructure thus results mainly from lack of interconnection capacities and changes to the generation and demand structure, some Member States have only very limited natural gas transport or distribution systems in place.

564

Chapter 11 Derogations and exemptions Jan Papsch

Article 2 (31) of the gas Directive defines emergent markets as Member States in which the first commercial supply of its first long-term natural gas supply contract was made not more than 10 years earlier.766 The derogation for emergent markets only applies where the Member State would experience substantial problems because of the implementation of the Directive. In such cases, the Member State may derogate from a very broad range of provisions: Articles 4 (authorisation procedures), 9 (TSO unbundling), 13 (1) and (3) (Tasks of TSOs, storage and LNG operators), 14 (ISOs), 24, 25 (5), 26 and 31(DSO unbundling), 32 (third party access), 37 (1) (market opening and reciprocity) and 38 (direct lines).

11.36

After the end of the 10-year-period of derogation, market opening may also be gradually introduced, so that full market integration has to be achieved only 13 years after the first delivery under a long-term contract. A similar gradual market opening had been applicable under the second package, with market opening for non-houselhold customers by 2004 and for households by 2007.

11.38

Member States with emergent markets may thus derogate from most of the operative requirements of the Directive. Compared to isolated markets, this even includes DSO unbundling and third party access. If a Member State choses to make full use of the derogation, implementation of the remaining obligations under the Directive indeed appears to provide little direct benefit, as effective competition could work neither on the upstream nor on the downstream level. Beyond the mere preparation for later steps of market integration after the end of the emergent market derogation, the remaining obligations (especially the establishment of a NRA) are therefore meaningful mainly if the Member State choses to apply only some of the derogations. This may e.g. be reasonable if the market is not at the same time emergent and isolated, and the Member State wishes to increase the potential for upstream competition by enforcing TSO unbundling, but wants to maintain fully integrated DSOs to facilitate the development of a core distribution network.

11.39

Portugal and Greece initially qualified as emergent markets. For both Member States, first shipments were made in 1996 and the deragotation has thus expired in the meantime. For the future, it can be expected that Malta will qualify for this derogation.

11.40

766 The gas Directive thus assumes functioning gas markets to be based at least partly on long term supply contracts, and thus not exclusively on short-term supplies or own production. This is also confirmed by recital 42 of the gas Directive.

565

11.37

Chapter 11 Derogations and exemptions Jan Papsch

11.41

For Cyprus, the qualification as an emergent market is directly established in the Directive. This derogation will expire when Cyprus is no longer to be qualified as an emergent market. As Cyprus currently has no gas supply, there are good reasons to assume that 10-year-deadline has not started yet, but this is expected for the future in view of significant gas resources discovered in Cypriot waters.

11.42

While Article 49 (4) of the gas Directive also foresees a derogation possibility for specific regions inside a Member State which could be classified as emergent markets, these derogations are not automatic. Instead, they depend on a Commission Decision (see below under section 3.2).

11.43

For Greece however, Article 49 (8) of the gas Directive provides that as regards distribution networks in certain geographical areas for which it has issued licenses prior to 15 March 2002, it may derogate from Articles 4, 24, 25, 26, 32, 37 and/or 38 of the gas Directive. For these regions, the emergent market derogation thus does not require a Commission Decision. The regions covered by this provision should be identical to those subject to the prior Commission Decision adopted in 2008 for the regions of Sterea Ellada and Evia, Central Macedonia, Eastern Macedonia and Thrace.767 It is important to note that this derogation does not include provisions on TSOs which would otherwise be covered by an emergent market derogation. After the general derogation as an emergent market has run out, the derogation for Greece is thus limited to the specific purpose of maintaining pre-existing DSO licences.

11.44

Latvia had still under the second gas Directive informed the Commission that it makes use of the derogation as an emergent gas market, in view of obligations accepted in the course of the privatization of AS Latvijas Gaze. While it is claimed that the Commission accepted this declaration from the Latvian Government768 and still can be misunderstood as referring to Latvia as beneficiary of an “emergent market” derogation,769 Latvia today clearly does not qualify at as an emergent market: construction of the Inčukalns Underground Gas Storage 767 Commission Decision C (2008) 4773 of 11 September 2008 granting Greece a derogation from certain provisions of Directive 2003/55/EC of the European Parliament and of the Council for the geographical areas of Sterea Ellada and Evia, Central Macedonia, and Eastern Macedonia and Thrace. 768 Lejins/Alejns, Energy Law in Latvia, http://rln.lv/en/publications/European_Energy_Review.pdf, p. 3 no Commission decision in this respect has been adopted. 769 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions, Progress towards completing the Internal Energy Market, COM(2014) 634 final of 13 October 2014, Annex 2, page 134. Similarily, Annex 1 to the Communication on the short-term resilience of the European Gas System, COM(2014) 654 final of 16 October 2014, http://ec.europa.eu/energy/doc/nuclear/2014_stresstests_com_annex_en.pdf, page 1.

566

Chapter 11 Derogations and exemptions Jan Papsch

was completed in 1968 and the pipeline linking Latvia to western Siberia exists since 1972.770 Even if supplies were initially not based on long-term contracts, it could be argued that a series of medium-term contracts with identical suppliers has a similar effect. In any event, the first long-term contracts were concluded more than 10 years ago, so that applying the derogation for emergent markets appears unfounded, and especially third party access provisions to pipelines and underground storages771 as well as DSO unbundling have to be ensured. The same applies for Estonia. Notified derogations and Commission decisions under Article 49 (1), (2) and (5) must pursuant to Article 49 (7) of the gas Directive be published in the Official Journal. Failure to publish a Decision in the Official Journal however does not impact legal validity of the derogation Decision, as the publication serves the purpose of transparency and is no requirement for the Decision to enter into force.

11.45

2.5 Derogations under the electricity and gas Regulations Under the third package, no derogations were provided under the electricity Regulation, which is thus in principle applicable to all interconnections.

11.46

With start of application of the recast electricity Regulationm a number of derogations will however be introduced. This has several reasons. First and foremost, the electricity Regulation has significantly grown and covers many new areas, such as capacity mechanisms. Political agreement on these areas required derogation possibilities. Second, the regulation also lifts a number of important rules from network codes and guidelines directly to a higher legislative level (e.g. on balancing markets, imbalance settlement periods or gate closure times) and develops some concepts further (e.g. the regional security coordinators becoming regional coordination centres). Where network codes and guidelines already provided for derogations e.g. for islands not connected to the main synchronous areas, these derogations were thus in part also lifted into the Regulation.

11.47

For Cyprus, such derogations were directly enshrined in law. Article 64 (2) provides that unless Cyprus is connected to the transmission system of another Member State before that date, large parts of the market principles as well as the core rules on capacity mechanisms do not apply before 1 January 2026. Thereaf-

11.48

770 http://www.lg.lv/?id=195&lang=eng. 771 The importance of the application of these provisions in Latvia for market functioning and security of supply in the Baltic states is also stressed by Annex 1 to the Communication on the short-term resilience of the European Gas System, COM(2014) 654 final of 16 October 2014, http://ec.europa.eu/energy/doc/ nuclear/2014_stresstests_com_annex_en.pdf, page 1

567

Chapter 11 Derogations and exemptions Jan Papsch

ter, Cyprus may request prolongation of the derogation from the Commission. Thus, as of January 2026, Cyprus is deemed to be a small system, but otherwise no automatic derogation under the Regulation applies.

11.49

Article 30 of the gas Regulation provides that derogations or exemptions granted under the gas Directive also entail that the gas Regulation shall not apply. This includes the following provisions: (a) natural gas transmission systems situated in Member States to which derogations under Article 49 of the gas Directive are applicable (emergent and isolated markets);772 (b) major new infrastructure which is subject to an exemption decision under Article 36 of the gas Directive;773 (c)

natural gas transmission systems which have been granted derogations under Article 48 of the gas Directive (derogations in relation to take-orpay commitments).

11.50

As provided in the TAP decision, this provision does not mean that any given exemption decision automatically allows to deviate from the entire gas Regulation. The exemption decision may (and should) to the contrary limit the scope of possible deviations to what is necessary for the exemption to be implemented. This is particularly true for only partly exempted infrastructure.774

11.51

While the recast electricity Regulation contains no similar provision in its operative part, recital (73) of the Regulation provides that no provisions in the Regulation should prevent the application of derogations pursuant to Article 66 of the recast electricity Directive. Thus, derogations under Article 66 should, where they directly contradict obligations under the Regulation, be intepreted such that they also waive the obligation to apply the directly contradicting part of the Regulation. However, this needs to be applied restrictively, to maintain sufficient legal certainty. Thus, obligations under the Regulation which are logically related to derogations under the Directive, but neither contradict them nor become completely void of purpose, should remain applicable. 772 Member States may apply to the Commission for a temporary derogation und Article 30 (1) (a) of the gas Regulation also for a period of up to two years after expiration of the derogation under the gas Directive. 773 The derogation under (b) does not entail derogation from the application of Article 19 (4) of the gas Regulation on transparency obligations for LNG and storage facilities. 774 C(2013) 2949 final, page 14 (national decisions), paragraph 151 (on short-term products) and Article 7 (operative part).

568

Chapter 11 Derogations and exemptions Jan Papsch

2.6 Limited application of the electricity Directive to Malta Article 44 (2) of the electricity Directive provides that Articles 26 (DSO unbundling), 32 (third party access) and 33 (market opening and reciprocity) of the electricity Directive shall not apply to Malta.775 Malta can therefore refuse market opening on a permanent basis, even after the start of operation of interconnections with other Member States.776 Whereas the Commission had during the negotiations for a recast electricity Directive proposed removing or limiting in time the derogation from third party access, this was not agreed by the co-legislators. All derogations are thus maintained and the Sicily-Malta cable remains the only interconnection in the EU which is automatically excempt from third party access. No objective justification for this is apparent.

11.52

Remaining obligations include especially condtions for public service obligations and consumer protection (Article 3), security of supply monitoring, regional solidarity and cooperation(Articles 5 to 7), the publication fo technical rules (Article 8) and the creation of independent NRAs (Chapter VIII) with however significantly limited competences777 under the Directive.

11.53

However, no derogation from application of the electricity Regulation is foreseen for Malta, so that the provisisions contained therein, including its annex, would apply also to an interconnector between Malta and Italy. Unless such an interconnector is fully operated as part of the Italian transmission system, it would thus require the creation of a TSO in Malta.

11.54

2.7 Former derogations granted during the accession process Some of the ten new Member States joining in 2004 requested derogation from certain parts of the Directives as part of the accession process. These derogations have in the meantime run out. 775 Malta had already received a derogation as a small isolated system under the Second electricity Directive, see Commission Decision of 28 November 2006 granting Malta a derogation from certain provisions of Directive 2003/54/EC of the European Parliament and of the Council, OJ L/2006 332/32. 776 An interconnection with Sicily is foreseen for the near future. 777 See ‘Opt-out’ Clauses for EU Energy Islands in the Third Liberalization Package: Striking Balances?, Adrien de Hautecloque / Nicole Ahner, EUI Working Paper RSCAS 2012/71, p. 14 for a list of the remaining competences of the Cypriot NRA CERA ‘stating that even for those powers, most competences where still allocated to the national Government instead of the NRA’.

569

11.55

Chapter 11 Derogations and exemptions Jan Papsch

11.56

In the case of Estonia,778 it was agreed that electricity market opening could be restricted by granting a temporary derogation from the application of Article 21(1)(b) and (c) of the electricity Directive until 31 December 2012. Full market opening could therefore be delayed until 1 January 2013 (by 1 January 2009, the opening of the market was required to represent at least 35 % of consumption). The derogation was based on the specific role of oil shale as a resource for power generation in Estonia, in order to allow for investmens in the renewal of oil shale-based power plants to take place. Long-term power purchase agreements would otherwise have placed the incumbent at a significant economic disadvantage.

11.57

Slovenia had been granted a derogation from non-discriminatory access to interconnection capacity pursuant to the electricity Regulation.779 The derogation was granted in order to allow for the temporary maintenance of preferential access to the interconnection capacity. It was limited to 50 % of interconnection capacities and expired at the end of 2007.

3.

Derogation and Exemption Decisions

11.58

In addition to the derogations directly resulting from secondary legislation and derogations for which the secondary legislation empowers Member States to decide on their application, Member States can be granted further derogations on the basis of Commission Decisions. These Decisions can refer to the entire territory of the Member State, a part of this territory, or to a particular major new infrastructure. While systematically all these Decisions allow for limited deviations from the regulatory rules, the Third Package contains no general derogation clause but rather a set of detailed provisions for derogations under special conditions.

11.59

Derogation Decisions refer to individual applications in large part based on the principles behind the automatic derogations discussed hereabove. They are 778 Directive 2004/85/CE of the Council of 28 June 2004 modifying Directive 2003/54/CE concerning the application of certain dispositions to Estonia. By judgment of 28 November 2006 in Case C-413/04, Par‑ liament v. Council, the Grand Chamber of the ECJ partly annulled this Directive for having the wrong legal basis. The Directive was thus replaced by the – on substance identical – Directive 2008/3/EC of the European Parliament and of the Council of 15 January 2008 amending Directive 2003/54/EC as regards the application of certain provisions to Estonia. 779 Council Regulation (EC) No 1223/2004 of 28 June 2004 amending Regulation (EC) No 1228/2003 of the European Parliament and of the Council as regards the date of application of certain provisions to Slovenia. By judgment of 28 November 2006 in Case C-414/04, Parliament v. Council, the Grand Chamber of the ECJ annulled this Regulation for having the wrong legal basis.

570

Chapter 11 Derogations and exemptions Jan Papsch

based on an assessment whether the particular situation in the specific area justifies temporary non-application of parts of the regulatory framework. Thus, the area has to be e.g. particularly isolated or market development has to be in its early stages. Furthermore, derogations can be based on existing take-or-pay obligations of individual undertakings (Article 48 of the gas Directive). To summarize, derogations allow maintaining the status quo ante instead of fully applying the changes required by the Third Package or the recast electricity Regulation. For a particular type of derogations, a different terminology is used: exemption Decisions. These decisions can allow for special regulatory rules for new major infrastructure. Instead of allowing for delays in market integration, they aim at enabling the realization of important infrastructure projects where this is deemed not possible under the full regulated system. Compared to other types of derogations, a large number of exemption decisions for major new infrastructure has been adopted. By December 2018, in total 40 exemption decisions have been adopted, taking into account that in some cases one project can be subject to several Decisions.780

11.60

3.1 Small systems (electricity) Different from Article 49 (1) of the gas Directive, isolated markets do not benefit from a direct derogation in the electricity Directive. Neither does the electricity Directive foresee a derogation for emergent markets similar to Article 49 (2) of the gas Directive, as contrary to the situation for gas, the electricity systems in all Member States are long established and can in no way be qualified as emergent. This more advanced state of development of the electricity compared to the gas system allows for a more restrictive treatment of derogations, as in principle, all EU electricity markets should be developed enough to apply the full regulatory framework.

11.61

However, this may not apply to all regions in the EU (or indeed small Member States). In fact, certain isolated areas are characterized by very particular geographical conditions and demand profiles, as is e.g. the case for mediteranean islands with very low demand in winter and significant increases of demand during short tourism seasons. While such particular demand profiles can be catered for without derogations if they appear within larger interconnected systems, they may require a special regulatory framework if they appear in an isolated context. Furthermore, total isolation may not be required to justify a deroga-

11.62

780 This includes 9 Decisions for electricity interconnectors, 16 for gas pipelines, 14 for LNG terminals (1 of which has been withdrawn) and two (negative) decisions for the same underground gas storage facility.

571

Chapter 11 Derogations and exemptions Jan Papsch

tion. Also in case of very limited connections (e.g. connection via one offshore cable), small regions can be subject to specific challenges, such as maintaining sufficient backup capacity to balance the system also in case of interruption of the connection. Furthermore, outermost territories located far away from the European continent will not be connected to the internal market in the foreseeable future and thus have no direct market impact. For these reasons, the recast electricity Directive and recast electricity Regulation also provide for derogation possibilities to outermost regions and small connected systems. To avoid a very wide opening for derogation possibilities, application of derogations to small connected systems will need a narrow interpretation of what can constitute a separate “system” in this regard. Interpretation of the term “system” should take full account of the purpose of the derogation provision, notably to allow for maintaining social coherence and equal competitive conditions between mainland and islands in a situation where system security on the island requires additional measures or implies significantly higher costs than on the mainland. To the very least, some kind of physical and/or geographical barrier separating the “small connected system” from the “main system” should be defined, e.g. the ocean or difficult mountain terrain.

11.63

The economies of scale of electricity production result in significant differences in the energy mix between small to medium-sized island areas and mainland territories. At present, even larger islands like the Member States Malta and Cyprus rely extensively on petroleum-product-based electricity generation.781 On the continent, due to their unfavourable position in the merit order compared to other technologies with lower marginal costs, such generation plants serve at best as last resort in peak periods or as a reserve in case of contingencies and are otherwise seen as economically not viable. If a larger generation facility782 can at all be installed on an island, it is likely that, in such as system, the level of demand means that there is room for very few conventional generation facilities. While this consideration can increasingly be put into question by the existence of more competitive small-scale renewable generation facilities, perhaps combined with energy storage, these may often not yet be sufficiently competitive or reliable to serve as main source of electricity generation. Under the current circumstances, the increased share of renewable generation may even create additional prob781 In Cyprus and especially in Malta, petroleum products represent almost the entire gross inland energy consumption, with only some renewable energies (6.8 % for Cyprus and 1.4 % for Malta) as alternative – see 2012 figures on the national energy mix in the Statistical Pocketbook 2014 – EU Energy in Figures, http:// ec.europa.eu/energy/publications/doc/2014_pocketbook.pdf, p. 23, 201 and 211. 782 On islands with access to natural gas, this especially includes gas-fired power plants, which on the mainland sometimes have similar problems due to high marginal cost of the primary resource as oil-based electricity generation.

572

Chapter 11 Derogations and exemptions Jan Papsch

lems for island-based conventional power plants.783 Especially for islands inside a Member State, such considerations require a case by case assessment. If the competitive existence of alternative suppliers cannot be achieved due to physical limitations of scale, competition can effectively be impossible to establish. In these cases, a tightly regulated784 monopoly may be from a general welfare perspective the most adequate solution, requiring derogation from Chapter VIII. If a monopoly has to be accepted, the practically complex unbundling of DSOs (and TSOs, if transmission lines exist at all) may also be seen as unnecessarily burdensome and costly. The same could in theory apply to the unbundling of accounts, although the latter also makes cross-subsidies more visible and therefore facilitates efficient regulation of the monopoly, so that a derogation is less likely to be justifiable.

11.64

Article 44 (1) of the electricity Directive therefore provides:

11.65

Article 44 (1) electricity “Member States which can demonstrate, after this Directive has been brought into force, that there are substantial problems for the operation of their small isolated systems, may apply for derogations from the relevant provisions of Chapters IV, VI, VII, and VIII, as well as Chapter III, in the case of micro isolated systems, as far as refurbishing, upgrading and expanding existing capacity are concerned, which may be granted to them by the Commission. The Commission shall inform the Member States of those applications before taking a decision, taking into account respect for confidentiality. That decision shall be published in the Official Journal of the European Union.”

Small isolated systems are defined in Article (2) (26) as follows: Article 2(26) electricity785 “Small isolated system” means any system with consumption of less than 3000 GWh in the year 1996, where less than 5 % of annual consumption is obtained through interconnection with other systems.” 783 Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraph 57 in consequence, the derogation could only be granted for conventional generation. 784 ‘Opt-out’ Clauses for EU Energy Islands in the Third Liberalization Package: Striking Balances?, Adrien de Hauteclocque / Nicole Ahner, EUI Working Paper RSCAS 2012/71, p.3. 785 Article 2 (42) of the recast Electricity Directive.

573

11.66

Chapter 11 Derogations and exemptions Jan Papsch

11.67

Micro isolated systems are defined in Article (2) (27) as follows: Article 2 (27) electricity “Micro isolated system” means any system with consumption less than 500 GW/h in the year 1996, where there is no connection with other systems;”

11.68

In principle, Member States may thus request derogation from almost all of the substantive requirements of the Directives except those concerning generation. If a derogation is granted from all the eligible provisions, one may indeed wonder why any investor should want to invest in generation capacity in these islands if it cannot be sure to be entitled to selling this electricity thereafter. This appears realistic only if the derogation is only granted for part of the other provisions, if it is strictly limited in time and the end is foreseeable, or if tight regulation (e.g. purchase obligations for renewable generation) of the monopoly forces it to source electricity from the newly built generation plant.

11.69

The recast electricity Directive with its definition in Article 2(43) further expands the derogation possibility for small systems. It also provides for the possibility to request derogation for small connected systems, thus for systems which had a consumption of less than 3000 GWh in 1996 but are connected to other systems. One should expect the Commission to be much more restrictive in approving derogations for connected systems, however these may e.g. be justifiable as regards unbundling of backup systems. Micro isolated systems, on the other hand, no longer exist as a separate category in the recast legislation. This is because the provisions from which additional derogations could be granted before are no longer maintained and the category thus no longer requires different treatment.

11.70

Article 66 of the recast electricity Directive reads as follows: Article 66 Derogations786 “1.  Member States which can demonstrate that there are substantial problems for the operation of their small connected systems and small isolated systems, may apply to the Commission for derogations from the relevant provisions of Articles 7 and 8 and of Chapters IV, V and VI. 786 Provisions in italics have been added in the course of negotiations compared to the Commission proposal.

574

Chapter 11 Derogations and exemptions Jan Papsch

Small isolated systems and France, for the purpose of Corsica, may also apply for a derogation from Articles 4, 5 and 6.



The Commission shall inform the Member States of such applications before taking a decision, taking into account respect for confidentiality.

2. Derogations granted by the Commission as referred to in paragraph 1 shall be limited in time and subject to conditions that aim to increase competition in and the integration of the internal market and to ensure that the derogations do not hamper the transition towards renewable energy, increased flexibility, energy storage, electromobility and demand response.

For outermost regions within the meaning of Article 349 TFEU, that cannot be interconnected with the Union electricity markets, the derogation shall not be limited in time and shall be subject to conditions aimed to ensure that the derogation does not hamper the transition towards renewable energy.



Decisions to grant derogations shall be published in the Official Journal of the European Union.

3.  Article 43 shall not apply to Cyprus, Luxembourg and Malta. In addition, Articles 6 and 35 shall not apply to Malta and Articles 44, 45, 46, 47, 48, 49, 50 and 52 shall not apply to Cyprus.

For the purposes of point (b) of Article 43(1), the notion ‘undertaking performing any of the functions of generation or supply’ shall not include final customers who perform any of the functions of generation and/or supply of electricity, either directly or via undertakings over which they exercise control, either individually or jointly, provided that the final customers including their shares of the electricity produced in controlled undertakings are, on an annual average, net consumers of electricity and provided that the economic value of the electricity they sell to third parties is insignificant in proportion to their other business operations.

4. Until 1 January 2025, or until a later date set out in a decision pursuant to paragraph 1 of this Article, Article 5 shall not apply to Cyprus and Corsica. 5.   Article 4 shall not apply to Malta until ... [8 years after the entry into force of this Directive]. That period may be extended for a further additional period, not exceeding eight years. The extension for a further additional period shall be made by means of a decision pursuant to paragraph 1.” 575

Chapter 11 Derogations and exemptions Jan Papsch

11.71

The new provision thus allows, as before, to derogate for small isolated systems from most of the Directive. Corsica is for this purpose to be treated as a small isolated system. Similarly to the derogations for Cyprus, Luxembourg and Malta, this is part of the political compromise and has no obvious economical or technical justification. The possibility to derogate from third party access requirements (Article 6) is particularly regrettable, as this would allow delays to market integration to the detriment of the inhabitants of the isolated regions. As derogations require Commission approval, it should however be expected that requests for derogations to third party access will be subject to particular scrutiny on the side of the Commission services.

11.72

Furthermore, the recast electricity Regulation adds the possibility for derogation of small isolated systems, small connected systems or outermost regions, as well as for Corsica787, from a number of core provisions of the electricity Regulation. Article 64 provides as follows: Article 64 Derogations788 “1.    Member States may apply for derogations from the relevant provisions of Articles 3 and 6, Article 7(1), Article 8(1) and (4), Articles 9, 10 and 11, Articles 14 to 17, Articles 19 to 27, Articles 35 to 47 and Article 51 provided that: (a)  the Member State can demonstrate that there are substantial problems for the operation of small isolated systems and small connected systems; (b)  outermost regions within the meaning of Article 349 of TFEU cannot be interconnected with the Union’s energy market for evident physical reasons.

In the situation referred to in point (a) of the first subparagraph, the derogation shall be limited in time and shall subject to conditions aiming to increase competition and integration with the internal market for electricity.



In the situation referred to in point (b) of the first subparagraph, the derogation shall not be limited in time.

787 The derogation for Corsica is difficult to justify but does not go as far as the equally difficult and automatic derogations for Malta. Furthermore, derogations for Corsica would remain limited in time. 788 The entire provision is new compared to the Commission proposal.

576

Chapter 11 Derogations and exemptions Jan Papsch

The Commission shall inform the Member States of those applications before adopting the decision, protecting the confidentiality of commercially sensitive information.



A derogation granted under this Article shall aim to ensure that it does not obstruct the transition towards renewable energy, increased flexibility, energy storage, electromobility and demand response.



In its decision granting a derogation the Commission shall set out to what extent the derogation is to take into account the application of the network codes and guidelines.

2.  Articles 3, 5 and 6, Article 7(1), points (c) and (g) of Article 7(2)) Articles 8 to 17, Article 18(5) and (6), Articles 19 and 20, Article 21(1), (2) and (4) to (8), point (c) of Article 22(1), points (b) and (c) of Article 22(2), the last subparagraph of Article 22 (2), Articles 23 to 27, Article 34(1), (2) and (3), Articles 35 to 47, Article 48(2) and Articles 49 and 51 shall not apply to Cyprus until its transmission system is connected to other Member States’ transmission systems via interconnections.

If the transmission system of Cyprus is not connected to other Member States’ transmission systems by means of interconnections by 1 January 2026, Cyprus shall assess the need for derogation from those provisions and may submit a request to prolong the derogation to the Commission. The Commission shall assess whether the application of the provisions risks causing substantial problems to the operation of the electricity system in Cyprus or whether their application in Cyprus is expected to provide benefits to the functioning of the market. On the basis of that assessment, the Commission shall issue a reasoned decision to prolong the derogation in full or in part. The decision shall be published in the Official Journal of the European Union.

3.  This Regulation shall not affect the application of the derogations granted under Article 66 of Directive (EU) 2019/…(61).



4.  In relation to the attainment of the 2030 interconnection target, as stipulated under the Regulation (EU) 2018/1999, the electricity link between Malta and Italy shall be duly taken into account.”

577

Chapter 11 Derogations and exemptions Jan Papsch

11.73

Thus, Member States may request derogations from a number of core Articles of the Regulation, relating to general market principles, the balancing market, intraday and day-ahead markets, forward markets, bidding limits and the value of lost load as well as the provisions on cross-border capacity and the use of congestion rents. Most of these market rules already existed in network codes and guidelines, which generally contain derogation possibilities for regions not connected to large synchronous areas. In addition, derogations are possible from most rules on capacity mechanisms, which could be justifiable based on specific back up requirements on islands e.g. justifiying stronger reliance on polluting generation such as diesel generators.

11.74

For Cyprus, an automatic derogation is granted until 2026 or, if that were to happen earlier, until connection with another national transmission system. This is generally understandable for provisions related to market functioning, as a non-interconnected Member State has no impact on the internal market. However, some provisions (connection codes setting out technical requirements for generation facilities for instance) have an impact on other markets (the market for the manufacturing of generation facilities in this example). Other provisions (notably emissions performance standards for capacity mechanisms) have an environmental impact. Even for those provisions, it is however justifiable to take account of the specific situation of island markets, which e.g. require a higher share of, possibly polluting, backup generation.

11.75

Paragraphs 3 and 4 of Article 64 should be of limited impact, if any. Paragraph 3 clarifies that the Commission should not use provisions of the Regulation to, through the backdoor, enforce rules for which derogations were granted in the Directive. This reflects a fear by Member States that e.g. rules for market functioning will possibly be incoherent with the application of regulated prices. While this is certainly correct, it is difficult to imagine that the Commission would try to enforce on substance provisions for which an express derogation was granted by the legislator. Paragraph 4 is quite unique, in that it sets out a specific provision for the treatment of one single cable with regards to an objective set out in a different legislation. The provision was requested because the definition for an interconnector was, contrary to the Commission proposal, left unchanged. It thus sets out interconnectors cross or span borders between Member States and connect the national transmission systems of the Member States. As Malta claims not to have a transmission system but merely a distribution system, the classification of this cable was uncertain.789 789 I would argue that any system which receives electricity from a 95 km offshore cable (even if it is just a 200 MW AC cable) connected to a neighbouring transmission system automatically exercises the activity of

578

Chapter 11 Derogations and exemptions Jan Papsch

3.1.1 Assessment criteria To apply for a derogation under Article 44 (1) of the electricity Directive or Article 64 (1) of the recast electricity Regulation the Member State has to demonstrate that two cumulative conditions are fulfilled: (i)

The application has to concern a small isolated system, or, under the recast Directive or recast regulation, a small connected system or an outermost region, and

(ii)

The implementation of all provisions for which a derogation is requested would result in substantial problems for system operation or, in the case of outermost regions, physical connection to the internal market cannot be achieved.

11.76

Wheter or not a system is to be qualified as a small or micro isolated system is fairly easy to determine in view of the clear thresholds for annual consumption and reliance on interconnections.

11.77

1996 was chosen as the reference year for annual consumption as this provision was already included in the first electricity Directive (Artcile 2 (23) of Directive 96/92/EC) which was agreed in December 1996. Whilst the concept of “micro isolated system” is new to the second Directive, it also made sense to base the eligibility criteria on 1996 for the sake of simplicity and consistency and in order to avoid any possibility for a system to be “micro” but not “small”. These provisions were unchanged in the third electricity Directive. Using the same reference year politically also allowed to ensure that all islands currently beenfitting from a derogation could continue to rely on this provision.

11.78

While areas with limited connection to the transmission network also exist inside continental electricity systems,790 practical application of the derogation has so far been limited to geographical islands which are for technical and/or economic reasons not fully integrated into the main transmission network of a Member State. This is not expected to change with the new possibility to derogate small connected systems. Crucially, it would still be required to argue that the area in question forms (i) a separate system and (ii)application of separate

11.79

transmission as this part of the system does not distribute electricity to customers. However, in view of the extensive unbundling derogations for Malta, this discussion has limited practical impact. 790 E.g. the area around Hagen in Germany: due to limited connection capacities to the transmission network, supply in the area of the DSO Enervie depends on local generation capacities, http://www.enervie-gruppe. de/desktopdefault.aspx/tabid-11/31_read-321/.

579

Chapter 11 Derogations and exemptions Jan Papsch

market rules for this system is required. As onshore areas with limited but existing connection already today are obliged to apply the network codes and guidelines, this will be difficult to argue.

11.80

The implementation of the electricity Directive or recast electricity Regulation must result in substantial problems for system operation. For small systems, derogation can be justified in principle for chapters IV (TSO unbundling), VI (DSO unbundling), VII (unbundling of accounts) and VIII (third party access, market opening and direct lines) of the Directive. Thus, the application of these provisions has to result in substantial problems for a derogation to be justified.791 This criteria is relatively vague. The term “substantial problems” is neither defined in the Directive nor did the Commission provide an abstract definition of the term in its decision-making practice. This very open formulation is understandable: it allows the Commission to take into account all potential problems related to the particular situation of small or micro isolated systems, problems which can vary significantly depending on the geographical particularities and consumption profile of the island in question, but also on the basis of technical developments (such as electricity storage and small generation). For small connected systems, the recast electricity Directive provides for derogation possibilities as regards unbundling, direct lines and authorisation procedures, but crucially not third party access. For small isolated systems, derogations from the rules on the free choice of electricity supplier, market-based supply prices and third party access are also possible.

11.81

For micro isolated systems, derogation is furthermore possible from chapter III of the Directive. It should be noted that this derogation is limited to the refurbishing, upgrading and expanding of existing generation capacity – the installation of new capacities thus remains fully subject to the provisons of chapter III. The Commission has interpreted this limitation rather generously, also accepting the installation of temporary capacity within the perimeters of exisiting generation as an expansion.792 This is reasonable, as the temporary placement of capacity on micro islands (read: Diesel generators) does not constitute a durable investment which would fortify the competitive status quo and prevent competing investments as this could happen for long-term construction of new generation capacity. If an application concerns both small and micro isolated islands, 791 In its’ application for the non-interconnected greek islands, Grece limited the application to chapters III and VIII of the Directive, thus accepting full application of chapters IV, VI and VII. 792 Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraph 50-52.

580

Chapter 11 Derogations and exemptions Jan Papsch

any derogations from chapter III can only concern the micro islands.793 As the specific provision for tendering was removed from the recast electricity Directive (thus normal public procurement rules apply) and the derogation possibility for authorisation procedures also applies to small isolated systems, the micro isolated systems concept is no longer of relevance in the recast electricity Directive. Derogations may be combined with public service obligations in order to ensure the supply of electricity for inhabitants of the islands under socially acceptable conditions, requiring coherence with Article 3 (2) of the electricity Directive (Article 9 recast electricity Directive) as well as state aid provisions. The need to finance public service obligations will generally not by itself be a sufficient basis to justify derogations, as cost compensations and social subsidies can also be calculated in a “standard” regulated market.794

11.82

3.1.2 Derogation procedure The procedure for derogations for small electricity systems and outermost regions consists of three steps.

11.83

First, the Member State has to submit an application to the Commission. Therein, the Member State has to demonstrate that the derogation criteria are fulfilled. It is thus the burden of the Member State to submit sufficient information for the Commission to proceed to the assessment and take a reasoned decision. If no reasoning is provided why derogation from a particular provision covered by the application has to be granted, the request will in so far be refused.795 Contrary to derogations granted in the legislative procedure, this requires significant effort in documentation and detailed argumentation by the national authorities (which may be shorter in the case of outermost regions). While the potential scope for derogation is large, the Member State should thus limit the application to those provisions for which a derogation is really required. While the Directive mentions entire chapters to circumscribe the derogation possibility, derogation will often be justified only for individual provisions (e.g. not for third party access).796

11.84

793 Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraph 53-54. 794 See Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraph 67-77. 795 See Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraphs 58, 66, 85. 796 Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provi-

581

Chapter 11 Derogations and exemptions Jan Papsch

11.85

Second, the Commission has to inform the other Member States of the application. While neither the Directive nor the Regulation foresee any particular form for this information, this will generally be done via the Permanent Representations, and a publication in the Official Journal is not required.

11.86

Third, the Commission adopts a formal decision refusing or granting the requested derogation. The Commission disposes of a large margin of appreciation in granting a derogation under this provision. This is indicated already by the wording of the provision: even if Member States can demonstrate that the substantive conditions are fulfilled, the Commission “may” grant a derogation. However, under general obligations for good administrative procedure and in order to ensure an equal treatment of Member States, this will have to be interpreted in a way that whenever the requirements have clearly been demonstrated to be fulfilled, the Commission will be obliged to grant the derogation.

11.87

In order to ensure that derogations are limited to the minium necessary, the Decision may also grant the derogation subject to conditions, especially in view of bringing the structural grounds for the derogation to an end as soon as possible.797 The Commission will generally also have to limit the derogation in time and/or attach review provisions.798 These conditions are further spelled out in the recast electricity Directive and recast electricity Regulation, which state that (i) derogations shall be limited in time and (ii) shall be subject to conditions ensuring that the derogations do not hamper the energy transition and, except for outermost regions, contributing to increased competition and market integration. The Decision then has to be published in the Official Journal.799 While no deadline is foreseen for the Commission to adopt its decision, general administrative principles oblige it to act on any application within reasonable delays.

sions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraph 65-66. 797 See Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12. 798 Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraph 78-82. 799 Taking into account the limited transparency on the use of some other derogations, and fully taking into account the additional procedural burden (e.g. translation into all official languages), this procedural provision greatly increases the transparency and is to be welcomed in order to ensure adequate information for all market participants.

582

Chapter 11 Derogations and exemptions Jan Papsch

3.1.3 Derogation Decisions adopted by the Commission The Commission has already dealt with applications for derogations for small isolated systems such as the Azores, Madeira, Cyprus, Malta and several Greek islands. Most of these decisions have been adopted on the basis of the second electricity Directive. Looking at the Commission’s decision making practice, it appears that the substantive assessment, at least in so far as it is reflected in the decisions, has increased since the third package, and that the Commission is more hesitant to grant full derogations where partial or conditional derogations may be sufficient. It is indeed not exaggerated to consider the substantive reasoning in the early derogation decisions as “fairly obscure”, 800 which may however also be justified in view of the obvious fulfilment of the derogation criteria for very small islands far from the continent.

11.88

Different from exemptions for new major infrastructure (based on the recital 23 of the electricity Regulation and recital 35 of the gas Directive), the electricity Directive does not explicitly clarify if existing derogations continue to apply under the third package. Article 48 however provides that references to the repealed Directive shall be construed as references to the new Directive. The old Decisions thus remain applicable until their scheduled expiry date. The Commission in consequence treats the existing derogations as applicable under the Third Package.

11.89

Finally, taking into account the purpose and legal basis of the granted derogations, whenever a system is no longer to be regarded as isolated, the derogation expires (eventually this has to be established via the review mechanism foreseen in the decision). The limited derogation decisions under the electricity Directive are systematically not meant to have a longer application than the directly applicable derogations under Article 49 (1) of the gas Directive, which automatically lose validity with the end of isolation.

11.90

3.1.3.1 The Azores In the case of the Azores801 a wide-ranging derogation has been provided which encompasses chapters IV, V, VI, VII and (for existing capacity) chapter III of the second electricity Directive. This derogation corresponds to the full range of 800 ‘Opt-out’ Clauses for EU Energy Islands in the Third Liberalization Package: Striking Balances?, Adrien de Hauteclocque / Nicole Ahner, EUI Working Paper RSCAS 2012/71, p. 5. 801 Commission Decision of 20 December 2004 on a derogation from certain provisions of Directive 2003/54/ EC of the European Parliament and of the Council concerning the archipelago of the Azores, OJ L/2004 389/31.

583

11.91

Chapter 11 Derogations and exemptions Jan Papsch

derogations possible under the third electricity directive. As the decision is not subject to conditions and not limited in time, the electricity Directive effectively produces no measurable effect on the Azores. The Commission has however included a review clause in case of substantial changes to the electricity sector in the Azores.

11.92

The Commission accepted in this decision that the very small level of production, the fact that the islands are also isolated from one another, the absence of a high voltage transmission system and the small size of the market made the presence of competing generators very unlikely and the objectives of the Directive could thus not be achieved.

3.1.3.2 Madeira 11.93

In the case of Madeira802 the Commission in 2006 followed a line vey similar to the Azores, granting a full derogation including all provisions of chapters IV to VII and chapter III for existing generation capacity of the second electricity Directive. The derogation is again not limited in time, but subject to review possibilities. In addition to identical reasoning as for the Azores decision, the Commission also underlined that infrastructures on the islands need to be sized according to the maximum demand, which in view of strong demand fluctuations is much higher than the average one.

3.1.3.3 Cyprus 11.94

In addition to the express derogation from Article 9 of the third electricity Directive, Cyprus was until the 31 December 2013 also subject to a derogation decision under the second electricity Directive.803

11.95

The derogation was granted more than two years after submission of the application, as further information had to be submitted to complete the application. Compared to the cases of Madeira and the Azores, the derogation is much more limited, and only entails derogation from the deadlines for market opening under Article 21 (1) b) and d) of the second electricity Directive. Finally, the derogation was limited until the end of 2008 (for non-household customers) and 2013 respectively. 802 Commission Decision of 23 May 2006 on derogation from certain provisions of Directive 2003/54/EC concerning the archipelago of Madeira, OJ L/2006 142/35. 803 Commission Decision of 25 September 2006 granting the Republic of Cyprus a derogation from certain provisions of Directive 2003/54/EC of the European Parliament and of the Council, OJ L/2006 270/72.

584

Chapter 11 Derogations and exemptions Jan Papsch

The decision was justified on the basis of the planned introduction of natural gas in the energy mix in Cyprus, requiring significant investments, as well as the growing share of renewable energies.

11.96

It is doubtful whether the now expired derogation has achieved its objectives: No effective wholesale market exists in Cyprus, natural gas has not yet been introduced into the energy mix (albeit this is still planned for the future and possibly excessive derogations have been granted also in the area of natural gas)804 and despite Cyprus’ remarkable potential in solar and wind, 94.9 % of gross energy consumption in 2012 remained based on petroleum and petroleum products.805 While a positive trend is established for renewables generation, it is difficult to establish if this has been facilitated by the market opening derogation. The derogations granted to Cyprus have been more limited than for natural gas, but may still have gone beyond what was necessary, e.g. by not attaching conditions in order to ensure real market opening by the end of the deadline.

11.97

3.1.3.4 Malta Malta had obtained in 2006 a derogation from chapter IV of the second electricity Directive (transmission system operation, especially TSO unbundling) as well as Articles 20 (1) (non-discriminatory third party access) and 21 (1) (market opening).806 The derogation was granted o the basis that given the size and structure of the electricity market, effective competition cannot develop. The derogation was justified by reference to the fact that no transmission system existed on the island, and that given the size and structure of the market, market opening would create substantial problems for security of supply and additional costs to consumers.

11.98

The derogation decision is not limited in time, but includes a review clause. In view of the very substantive direct derogations granted to Malta in the third electricity Directive, which were prolonged in the recast Directive and recast Regulation, the derogation decision has no remaining impact.

11.99

804 For the gas derogations: ‘Opt-out’ Clauses for EU Energy Islands in the Third Liberalization Package: Striking Balances?, Adrien de Hauteclocque / Nicole Ahner, EUI Working Paper RSCAS 2012/71, p. 15. 805 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions, Progress towards completing the Internal Energy Market, COM(2014) 634 final of 13 October 2014, Annex 2, page 38. 806 Commission Decision of 28 November 2006 granting Malta a derogation from certain provisions of Directive 2003/54/EC of the European Parliament and of the Council, OJ L/2006 332/32.

585

Chapter 11 Derogations and exemptions Jan Papsch

3.1.3.5 Greek non-interconnected islands 11.100

In 2003, Greece had submitted an application for a wide-ranging derogation from the second electricity Directive as regards 32 Greek islands. A new and updated application was submitted in 2012. The Commission decided to grant parts of the requested derogation in August 2014.807 Taking into account the initial application for derogation, the derogation was granted with effect from 2003.

11.101

The derogation covers Article 33 (market opening) but is limited until 2019 at the latest. A derogation from Article 7 (1) for existing conventional capacity is granted for all micro isolated islands, limited in time until 2021. As regards Crete, as well as for non-conventional generation, the derogation was refused. The derogation furthermore will cease to apply once an island is interconnected to the mainland, and imposes for all new generation to take into account the possibility of building an interconnection, without including lost value of stranded assets into the calculation. Other requests for derogation, in particular as regards third party access and direct lines, were refused.

11.102

As grounds for the derogation for these islands, the Commission has acknowledged the following problems, and regarded their combined impact as substantial:808 –

The size of the load that needs to be served on the islands does not allow for larger, more efficient and cost effective conventional power plants to be installed, also because in order for an isolated system to be able to operate within acceptable safety margins, it cannot rely on a single power plant.

–

The annual load factor the isolated system is significantly lower than on the mainland (0.38 compared to 0.65).

–

Plans for future interconnectors endanger the future economic viability of new generation capacity, thus creating disencentives for investment on the island.

807 Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12. 808 Commission Decision of 14 August 2014 granting the Hellenic Republic a derogation from certain provisions of Directive 2009/72/EC of the European Parliament and of the Council, OJ 2014/L 248/12, paragraph 48.

586

Chapter 11 Derogations and exemptions Jan Papsch

–

Small demand inside the isolated system and lack of interconnection capacity mean that generation has to fully match demand and is affected already by minor reversals of demand.

–

Large differences in demand over the course of a year (average ratio of 6.27 of maximum over minimum demand, compared to 3 on the mainland) require significant additional generation capacity for short peak periods (mainly due to population peaks in the tourism season).

The detailed assessment and conditionality of this derogation decision clearly go beyond the practice under the second electricity Directive. This is to be welcomed, as the possibility of derogations by the Commission should not mainly be seen as an extension of political negotiation possibilities as is the case for derogations directly contained in the Directive. Rather, derogations resulting from Commission Decisions result in a waiver of legal obligations already existing for the Member State in question. In order to ensure effective implementation of the Directive and also maintain trust of third parties into the mandatory character of its provisions, such derogations have to be limited to the necessary minimum.

11.103

3.2 Emergent regions (gas) As explained above, important infrastructure investments can be particularly risky in areas where the future development of a functioning gas market is not fully ensured and a core grid still has to be built. Thus, it can be argued that an investor providing a gas network and introducing gas for a new area for the first time may need a period during which it retains special or monopoly rights to justify the large scale of the investments. If clearly circumscribed regions (e.g. islands or remote areas with limited access possibilities) exist within a Member State, this argument applies just as much as for an entire Member State. The third gas Directive, unchanged from Article 28 (4)‑(5) of the second gas Directive, recognises this possibility in Article 49 (4)‑(5): Article 49 (4) gas “Where the implementation of this Directive would cause substantial problems in a geographically limited area of a Member State, in particular concerning the development of the transmission and major distribution infrastructure, and with a view to encouraging investments, the Member State may apply to the Commission for a 587

11.104

Chapter 11 Derogations and exemptions Jan Papsch temporary derogation from Articles 4 and 9, Article 13(1) and (3), Articles 14 and 24, Article 25(5), Articles 26, 31 and 32, Article 37(1) and/or Article 38 for developments within that area.”

Article 49 (5) gas “The Commission may grant the derogation referred to in paragraph 4, taking into account, in particular, the following criteria: – the need for infrastructure investments, which would not be economic to operate in a competitive market environment; – the level and pay back prospects of investments required; – the size and maturity of the gas system in the area concerned; – the prospects for the gas market concerned; – the geographical size and characteristics of the area or region concerned, and socio economic and demographic factors. For gas infrastructure other than distribution infrastructure, a derogation may be granted only if no gas infrastructure has been established in the area or if gas infrastructure has been established for less than 10 years. The temporary derogation shall not exceed 10 years from the time gas is first supplied in the area. For distribution infrastructure a derogation may be granted for a period not exceeding 20 years from when gas is first supplied through the said infrastructure in the area.”

3.2.1 Assessment criteria and procedure 11.105

While the reasoning behind the derogation for emergent gas regions is similar to Article 49 (2) for emergent national gas markets, the criteria to be applied are more complex and it is more difficult to show that a derogation is really required.

588

Chapter 11 Derogations and exemptions Jan Papsch

First, this is already shown by the stronger role of the Commission. Whereas for emergent markets covering an entire Member State, the Commission is merely to be informed (and thus limited to an ex-post control via infringement procedures), emergent regions require an ex-ante Decision of the Commission to receive a derogation.

11.106

Second, whereas Article 49 (2) remains very abstract in requiring the Member State to “experience substantial problems”, the Commission receives very clear criteria for its assessment of the need of derogation under Article 49 (4)-(5). It is clear from this text that the grant of such a derogation is not automatic and requires substantive case-by-case assessment.809

11.107

This is logical as it is perfectly conceivable that a company will be willing and able to build new infrastructure to supply an area in return for a regulated return on investment on the assets in terms of network fees. In principle, TSOs are even obliged to realize the investments foreseen in the 10-year Network Development Plan. If a company is convinced that adequate demand exists in order to finance the infrastructure, it should in theory be irrelevant which company is supplying gas through the network in question, as the network will be financed by network fees. Furthermore, part of the investment risk can also be covered by the regulated tariff system.

11.108

However, in practice, the level of demand for new gas infrastructure may be difficult to predict, and a company may not be willing to take the risk of investment, even if limited in a regulated system, without having the possibility of cross‑subsidising infrastructure costs with supply profits and/or expect potentially high profits from an initial period of monopoly supply rights as a reward for the risk‑taking. While the regulated system ex-post aims at ensuring adequate compensation for infrastructures recognized as necessary, it is difficult for the regulator to guarantee a certain positive long-term return on investment instead of merely reducing the risk for an investment to be loss-making.

11.109

Pursuant to Article 49 (5) an exemption can only be granted by the Commission if it can be determined that the market is really emergent, and that the derogation is essential to enable construction of the infrastructure. The assessment is in this respect similar to the risk-assessment for major new infrastructure under Article 36 (1) b) of the Directive. Contrary to Article 36, Article 49 (5) interestingly does not expressly foresee an assessment of the effects of the derogation on competition, market functioning or security of supply. As the criteria listed are

11.110

809 Monica Waloszyk, Law and Policy of the European Gas Market, Edward Elgar 2014, p. 198.

589

Chapter 11 Derogations and exemptions Jan Papsch

however non‑exhaustive, the Commission should take into consideration also additional criteria such as those listed under Article 36 (1) as well as the manner in which the company receiving the potential exclusive supply concession has been selected.810

11.111

Article 49 (5) second and third subparagraph of the Directive provide the maximum derogation periods that can be granted by the Commission. For distribution infrastructure, a maximum period of 20 years from the time that gas is first supplied through the distribution network in question can be granted. This reflects the practice in at least one Member State, Greece, where 20 year exclusive concessions have been granted for new regional distribution networks. Greece has received a specific exemption for these concessions in the second Directive, which is confirmed in Article 49 (8) of the third Directive. The extension of the maximum derogation period from the 10 years initially foreseen in the first gas Directive puts all Member States on an equal footing. Each case, however, must be considered on its merits by the Commission, and derogations can only be granted for the period that is necessary.

11.112

With respect to other infrastructure than distribution pipelines (especially transmission pipelines), Article 49 (5) second subparagraph of the gas Directive provides that an exemption can only be granted if “no gas infrastructure has been established in the area or has been so established for less than 10 years”. Similar wording existed already in the first gas Directive. The 10 year time period in question will begin on the date that the first pipeline (transmission or distribution) is constructed. The derogation can cover a period of maximum 10 years from the date of the first gas supply in the area. The longer period for distribution systems can be merely the consequence of the Greek practice for Distribution being covered in the Directive. However, this differentiation can also be justified by the more limited impact on neighbouring regions of distribtion versus transmission pipelines, and by the higher probability that financing of new transmission pipelines can rely on demand commitments from major shippers or gas consumers.

11.113

Similarily to isolated systems for electricity, the Commission must inform all Member States of applications for derogation received under Article 49 (4)-(5) of the Directive. Derogation Decisions for emergent regions must pursuant to Article 49 (7) of the gas Directive be published in the Official Journal.

810 Unless the company is chosen through some form of competitive process, normally through a tender, it will be difficult to demonstrate that an exclusive sales right is necessary.

590

Chapter 11 Derogations and exemptions Jan Papsch

3.2.2 Derogations being dealt with by the Commission In 2005, the Commission has provided a derogation as emergent gas region to certain areas of Northern Ireland. The derogation applies for a period of 10 years as of the first gas delivery and derogates from Articles 4 (authorisation procedures), 18 (third party access) and 23 (1) (b) (market opening) and 24 (direct lines).811 The derogation had the purpose to enable the development of the distribution network to those areas and applies only to new network developments.812 This Decision has not been published in the Official Journal. Failure to publish in the Official Journal however does not impact legal validity of the derogation Decision, as the publication serves the purpose of transparency and legal certainty and is no requirement for the Decision to enter into force.

11.114

3.3 Take-or-pay contracts Traditionally, gas supplies have been based on long-term contracts with take-orpay clauses. Gas incumbents with legal or factual monopolies often contracted a large part of their estimated future demand on this basis. In so far as they do not contradict other provisions, especially under competition law, long-term contracts have not lost validity and new contracts may still be concluded.813 They may however cause financial difficulties for the incumbent if it loses significant market share (e.g. because the long-term contract foresees gas prices clearly above the hub price) and remains bound to accept gas deliveries under longterm obligations.

11.115

As was already the case under the first and second gas Directive, Article 48 of the third gas Directive provides for the theoretical possibility to limit third party access in order to mitigate risks in such situtations:

11.116

811 PH (2005)791 Commission Decision providing a derogation from certain dispositions of Directive 2003/55/EC relating to Northern Ireland, 1 June 2005. 812 Commission Implementation report on the internal energy market 2007, SEC(2006) 1709, http:// ec.europa.eu/energy/energy_policy/doc/10_internal_market_country_reviews_en.pdf, p.72. 813 Recital 42 of the gas Directive provides that “long term contracts will contniue to be an important part of the gas supply of Member States and should be maintaine das an option for gas supply undertakinsg in so far as they do not undermine the objective of this Directive and are compatible with the Treaty, including the competition rules”. This recital existed already in the second gas Directive (then recital 25).

591

Chapter 11 Derogations and exemptions Jan Papsch

Article 48 gas Derogations in relation to take‑or‑pay commitments “1. If a natural gas undertaking encounters, or considers it would encounter, serious economic and financial difficulties because of its take‑or‑pay commitments accepted in one or more gas‑purchase contracts, it may send an application for a temporary derogation from Article 32 to the Member State concerned or the designated competent authority. Applications shall, in accordance with the choice of Member States, be presented on a case‑by‑case basis either before or after refusal of access to the system. Member States may also give the natural gas undertaking the choice of presenting an application either before or after refusal of access to the system. Where a natural gas undertaking has refused access, the application shall be presented without delay. The applications shall be accompanied by all relevant information on the nature and extent of the problem and on the efforts undertaken by the natural gas undertaking to solve the problem.

If alternative solutions are not reasonably available, and taking into account paragraph 3, the Member State or the designated competent authority may decide to grant a derogation.

2. The Member State, or the designated competent authority, shall notify the Commission without delay of its decision to grant a derogation, together with all the relevant information with respect to the derogation. That information may be submitted to the Commission in an aggregated form, enabling the Commission to reach a well‑founded decision. Within eight weeks of receipt of that notification, the Commission may request that the Member State or the designated competent authority concerned amend or withdraw the decision to grant a derogation.

If the Member State or the designated competent authority concerned does not comply with that request within a period of four weeks, a final decision shall be taken expeditiously in accordance with the advisory procedure referred to in Article 51(2).



The Commission shall preserve the confidentiality of commercially sensitive information.

592

Chapter 11 Derogations and exemptions Jan Papsch 3. When deciding on the derogations referred to in paragraph 1, the Member State, or the designated competent authority, and the Commission shall take into account, in particular, the following criteria: (a) the objective of achieving a competitive gas market; (b) the need to fulfil public‑service obligations and to ensure security of supply; (c) the position of the natural gas undertaking in the gas market and the actual state of competition in that market; (d) the seriousness of the economic and financial difficulties encountered by natural gas undertakings and transmission undertakings or eligible customers; (e) the dates of signature and terms of the contract or contracts in question, including the extent to which they allow for market changes; (f ) the efforts made to find a solution to the problem; (g) the extent to which, when accepting the take‑or‑pay commitments in question, the undertaking could reasonably have foreseen, having regard to the provisions of this Directive, that serious difficulties were likely to arise; (h) the level of connection of the system with other systems and the degree of interoperability of those systems; and (i) the effects the granting of a derogation would have on the correct application of this Directive as regards the smooth functioning of the internal market in natural gas. A decision on a request for a derogation concerning take‑or‑pay contracts concluded before 4 August 2003 should not lead to a situation in which it is impossible to find economically viable alternative outlets. Serious difficulties shall in any case be deemed not to exist when the sales of natural gas do not fall below the level of minimum offtake guarantees contained in gas‑purchase take‑or‑pay contracts or in so far as the relevant gas‑purchase take‑or‑pay contract can be adapted or the natural gas undertaking is able to find alternative outlets.

593

Chapter 11 Derogations and exemptions Jan Papsch 4. Natural gas undertakings which have not been granted a derogation as referred to in paragraph 1 of this Article shall not refuse, or shall no longer refuse, access to the system because of take‑or‑pay commitments accepted in a gas purchase contract. Member States shall ensure that the relevant provisions of Articles 32 to 44 are complied with. 5. Any derogation granted under the above provisions shall be duly substantiated. The Commission shall publish the decision in the Official Journal of the European Union. 6. The Commission shall, within 4 August 2008, submit a review report on the experience gained from the application of this Article, so as to allow the European Parliament and the Council to consider, in due course, the need to adjust it.”

3.3.1 Derogation only from Article 32 11.117

The scope for any derogation under Article 48 (1) is surprisingly limited, as the only derogation possible on these grounds is for third party access. If the incumbent is not in control of the infrastructure in question, this derogation would not provide any benefit to the incumbent. Thus, under the third gas Directive, the provision is only meaningful regarding distribution pipelines and pipelines operated by an ITO. While it could be argued that unbundled TSO could be forced to accept access only by the incumbent undertaking814 in order to implement the provision for all unbundling models, the wording of Article 48 only gives a right to the natural gas undertaking to refuse access. Where the undertaking in difficulties has no control over the access, such a right has no meaning, and should not be construed to put an obligation on independent third parties.

11.118

By excluding third party access to its infrastructures, the incumbent could indirectly limit market opening, by making it impossible for its competitors to supply certain customers. Thus the incumbent’s competitors would be unable to honor their obligations both towards these customers and, potentially, towards their (take-or-pay) suppliers. As the derogation would therefore drastically impede normal market functioning, distort contractual relationships and could reduce trust into supply contracts with non-incumbents, it clearly has to be applied only in extreme circumstances as an option of last resort. This may be one of the reasons why the provision has never been applied to date.815 The other 814 Third edition, footnote 450. 815 While a small number of informal requests had been submitted to the Commission, the substantiation requested by the Commission convinced the national authorities not to pursue this approach.

594

Chapter 11 Derogations and exemptions Jan Papsch

major reason is that a significant number of take-or-pay contracts have been renegotiated, with the supplier agreeing (or being forced by arbitration tribunals) to resolve any problems which could have arisen for its contract partner. As the provision has not been used so far, it appears unlikely that conditions for its use will be met in the future. In particular, it appears several years after the start of application of the Directive unlikely that problems which could arise under take-or-pay contracts could not have been resolved by relying on other means than refusal of third party access.

3.3.2 Derogation procedure The procedure for derogations under Article 48 resembles in some points the procedure for exemptions for major new infrastructures under Article 22 of the second gas Directive, but did not follow the modifications towards a more streamlined procedure under Article 36 of the third gas Directive. It foresees only a limited involvement of the NRA and gives the Member States great margin of implementation on procedural aspects.

11.119

Member States have the choice if the application fot derogation has to be submitted ex-ante, prior to access refusal by the incumbent, ex-post after refusal of access has taken place, or if timing of the application may be chosen by the natural gas undertaking refusing access. Where access may be refused prior to an application to the national authorities, the undertaking has to submit such an application without delay. While no deadline is given, any refusal of access is such a drastic measure that (already in view of complaints to the regulator which are to be expected from the company which was refused access, and potential damage claims in case of unjustified refusal of access), the gas undertaking must submit its reasoned application within few days after the refusal.

11.120

The Member State or the designated competent authority must then take a decision on the request to authorise the derogation. No time period is specified for this decision. Nonetheless, when it concerns a decision already implemented by a company, one would expect this decision to be taken quickly. Even if the conditions for refusal of access are met and alternative solutions are not reasonably available, the Member State only “may” decide to approve the refusal of access – there is thus no entitlement of the incumbent to be saved from its financial woes.

11.121

If the national authorities approve the access refusal, they have to notify this to the Commission. In the contrary scenario, a national rejection of an application for access refusal becomes final without any role for the Commission. The Com-

11.122

595

Chapter 11 Derogations and exemptions Jan Papsch

mission has eight weeks to adopt a decision requesting the national authority to amend or withdraw the decision to grant a derogation. Taking into account the need for translation both of the notification and the final decision, the deadline of eight weeks is extremely tight. Nevertheless, no possibility for prolongation or for requesting additional information is foreseen. It could however be argued that a notification which does not include “with all the relevant information with respect to the derogation” is incomplete and therefore does not start the deadline for the Commission to adopt a decision.816 In the alternative, the Commission will have to request withdrawal of any decision for which no sufficient information has been provided.

11.123

If the competent national authority does not comply with a Commission request for withdrawal or amendment of the approval decision, the Commission has to adopt a final decision under the advisory procedure of the gas committee. While not expressly stated, this decision is then binding upon both the Member State and the gas undertaking.

3.3.3 Substantive issues 11.124

Article 48 (3) provides detailed criteria for the assessment of take-or-pay based derogations. The undertaking is not to be seen as in serious difficulties if it can still sell all purchased gas while meeting the minimum offtake guarantees, if alternative resale options for excess gas exist, or if the problems can be resolved by renegotiation of the take-or-pay contract. The undertaking thus has to show that renegotiation and resale of the gas have failed, and that it was willing to make concessions in these negotiations (without seriously endangering the financial viability of the undertaking).

11.125

The Commission has in its assessment to take into account a large number of criteria, including especially the objective of achieving a well-functioning market, the concrete market situation and contractual conditions, the seriousness of the financial problems caused by the take-or-pay commitments and in how far these were foreseeable at the time of signing the contract. Taking into account the seriousness of sudden refusal of third party access and the severe impact on market functioning, a simple sale of gas at a loss would never appear to be sufficient basis for such a derogation. In order to justify major derogations, the bare economic survival of the undertaking would like need to be at severe risk. Refusing access on the basis of such an application would thus have to be seen as an 816 While a similar argumentation would be possible for exemption Decisions, this has not been applied by the Commission in its’ decision-making practice in this area so far, different e.g. to merger control.

596

Chapter 11 Derogations and exemptions Jan Papsch

alarming signal by the market and the incumbent’s creditors, which makes any such application further unlikely. As regards contracts signed before 4 August 2003 (entry into force of the second gas Directive), the last paragraph of Article 48 (3) states that the decision should not lead to a situation in which it is “impossible to find economically viable alternative outlets”. While this indicates a less strict line on these older contracts, the impact thereof should still be limited. “Economic viability” does not exclude loss-making resale of gas. If gas can be sold on a regional hub at a price which does not endanger the ability of the undertaking to get access to finance and continue its activity, this should not be seen as sufficient to request a derogation. While a more lenient interpretation appears certainly possible817 this would provide the incumbent with a “no-loss” guarantuee for its long-term contracts which it could never have had when these contracts were concluded in the first place (due to e.g. changing refinancing conditions, demand estimates, tax situations and other normal business risks).

11.126

3.4 New Infrastructure Article 36 of the gas Directive and Article 17 of the electricity Regulation allow for exemptions from key regulatory provisons on third party access to interconnectors, storage and LNG terminals, on tariff regulation, and (since the third package) on unbundling. Furthermore, the electicity Regulation allows for derogation from the obligations under its Article 16 (6) which requires allocation of congestion rents to network investments.

11.127

Thus, depending on the extent of the exemption granted, the assets may de facto be managed in the way the operator wishes. It may, if the granted exemption so allows, reserve all capacity for itself, discriminatorily assign it to a third party, charge very high tariffs, and use the congestion income for any purpose it desires. This possibility for extensive exemptions from the regulatory framework exists to enable major infrastructure investments which are seen as necessary.

11.128

It is generally recognized that in addition to the “software” of a coherent regulatory framework,818 the development of a well-functioning internal market requires the construction of new and the improvement of existing infrastructure, forming the “hardware” of a well-interconnected European energy system. Significant infrastructure investments have already been made, particularly where

11.129

817 3rd edition paragraph 11.63. 818 For further information, see chapter 12 on the establishment of network codes & guidelines.

597

Chapter 11 Derogations and exemptions Jan Papsch

a stable and reliable regulatory framework was in place.819 Progress in integration of the internal energy market requires that Member States stop relying on self-sufficient energy supply under all circumstances, which requires structural changes in their energy networks.

11.130

The need for infrastructure investments exists both for gas and electricity networks, but with different focus. For natural gas, infrastructure requires adaption to a market with gas flows from various sources, including the need for LNG terminals and reverse-flows, and the inclusion of currently isolated areas in the European grid, but on the basis of an existing system of long-disctance gas pipelines. For electricity, interconnection capacity is often still very limited as supplies were generally planned on a national or regional level, and even many borders which at first glance appear geographically and politically less problematic (e.g between Belgium and Germany) completely lack interconnectors.

11.131

Whereas in principle the regulated system should foresee sufficient incentives for the construction of new major infrastructure (and indeed significant investments are realized on this basis), in some cases infrastructure is not realized although the need for these investments to take place is clearly recognized. Typically, the return on investment foreseen for new infrastructure under the regulated system does not differ from the regulated income of existing infrastructure, and is based on the low-risk profile of long-term investments in regulated infrastructure.

11.132

However, investments in major new infrastructure projects can in certain cases be particularly risky and require tailor-made adaptions of the regulatory framework.820 Some projects (such as e.g. some LNG facilities or major import pipelines or subsea DC cables) may indeed be so risky that the national regulators would be unwilling or unable to reflect these risks in the general framework for regulated tariffs. There may thus be a certain trade-off between the development of downstream competition and the creation of incentives (at least for vertically integrated undertakings) to invest in new infrastructure.821 The Staff Working Document on exemptions822 thus underlines that exemptions serve the purpose 819 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions, Progress towards completing the Internal Energy Market, COM(2014) 634 final of 13 October 2014, chapter 3.1. 820 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions, Progress towards completing the Internal Energy Market, COM(2014) 634 final of 13 October 2014, chapter 3.1.2. 821 Monica Waloszyk, Law and Policy of the European Gas Market, Edward Elgar 2014, p. 196. 822 Commission staff working document on Article 22 of Directive 2003/55/EC concerning common rules for the internal market in natural gas and Article 7 of Regulation (EC) No 1228/2003 on conditions for access

598

Chapter 11 Derogations and exemptions Jan Papsch

of striking a balance between promotion of infrastructure investments and ensuring competition through fair third-party access. Where the general risk of a project is particularly high, the additional risk of changes to the regulatory framework by national authorities may prevent the project from being realized. This risk can in part be mitigated by applying a special regulatory framework for a finite period of time, preventing changes to this framework which would endanger the purpose of the exemption decision. While exemption decisions do not entirely prevent changes to applicable legislation, they may thus lower the risk of negative policy impacts such as adaptations of network tariffs. The Commission expressly excludes granting an exemption for the purpose of preventing risks from future changes of the regulatory framework.823

11.133

The derogations in the gas Directive and electiricity Regulation are de facto identical. It can be argued that the provision for electricity is contained in the Regulation rather than the Directive because it allows to expressly derogate from provisions contained in the Regulation (and the Directive), whereas the provision on gas only allows for exemption from obligations under the Directive. As Article 30 (b) of the gas Regulation extends exemptions under the gas Directive to cover almost all of the gas Regulation, this differentiation remains however merely formal and has no obvious practical impact.

11.134

Article 63 of the recast electricity Regulation maintains the existing exemption provision with very limited changes. These changes mostly reflect the existing decision making practice of the Commission clarify certain procedural elements.

11.135

3.4.1 Scope and substantive issues relevant to an exemption It would clearly be contrary to the functioning of the internal market if significant parts of the European gas or electricity infrastructure were not subject to the normal requirements of non discriminatory third party access, tariff regulation and unbundling. Thus, any exemption has to be limited to the extent that a need has been demonstrated inorder to eneable the investment and where it can be demonstrated that it would not be likely to significantly frustrate the objective of creating an internal market. to the network for cross-border exchanges in Electricity – New Infrastructure Exemptions – SEC(2009)642 final of 6 May 2009, paragraph 11. Staff working documents are not legally binding. As the substantive assessment remained identical under the third package, the Working Document nevertheless remains a helpful, if sometimes outdated, source of information. 823 Staff Working Document on Article 22 of Directive 2003/55/EC, paragraph 17.

599

11.136

Chapter 11 Derogations and exemptions Jan Papsch

11.137

Article 36 (1) and (2) of the gas Directive provide: Article 36 New infrastructure “(1) Major new gas infrastructure, i.e. interconnectors, LNG and storage facilities, may, upon request, be exempted, for a defined period of time, from the provisions of Articles 9, 32, 33 and 34 and Article 41(6), (8) and (10) under the following conditions: (a) the investment must enhance competition in gas supply and enhance security of supply; (b) the level of risk attached to the investment must be such that the investment would not take place unless an exemption was granted; (c) the infrastructure must be owned by a natural or legal person which is separate at least in terms of its legal form from the system operators in whose systems that infrastructurewill be built; (d) charges must be levied on users of that infrastructure; and (e) the exemption must not be detrimental to competition or the effective functioning of the internal market in natural gas, or the efficient functioning of the regulated system to which the infrastructure is connected. (2) Paragraph 1 shall also apply to significant increases of capacity in existing infrastructure and to modifications of such infrastructure which enable the development of new sources of gas supply.”

11.138

Article 17 (1) to (3) of the electity Regulation (maintained in Article 64 of the recast Electricity Regulation) provide:

600

Chapter 11 Derogations and exemptions Jan Papsch

Article 17 New interconnectors “(1) New direct current interconnectors may, upon request, be exempted, for a limited period of time, from the provisions of Article 16(6) of this Regulation and Articles 9, 32 and Article 37(6) and (10) of Directive 2009/72/EC under the following conditions: (a) the investment must enhance competition in electricity supply; (b) the level of risk attached to the investment is such that the investment would not take place unless an exemption is granted; (c) the interconnector must be owned by a natural or legal person which is separate at least in terms of its legal form from the system operators in whose systems that interconnector will be built; (d) charges are levied on users of that interconnector; (e) since the partial market opening referred to in Article 19 of Directive 96/92/ EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity, no part of the capital or operating costs of the interconnector has been recovered from any component of charges made for the use of transmission or distribution systems linked by the interconnector; and (f ) the exemption must not be to the detriment of competition or the effective functioning of the internal market in electricity, or the efficient functioning of the regulated system to which the interconnector is linked. (2) Paragraph 1 shall also apply, in exceptional cases, to alternating current interconnectors provided that the costs and risks of the investment in question are particularly high when compared with the costs and risks normally incurred when connecting two neighbouring national transmission systems by an alternating current interconnector. (3) Paragraph 1 shall also apply to significant increases of capacity in existing interconnectors.”

601

Chapter 11 Derogations and exemptions Jan Papsch

3.4.1.1 Eligible infrastructure 11.139

For electricity, the potentially eligible infrastructure is very limited. Article 17 (1) of the Regulation only allows new direct current interconnectors to benefit from an exemption. While paragraph 2 also extends the possibility for exemptions to alternating current interconnectors, this is limited to exceptional cases in which the costs and risks are higher than generally for alternating current interconnectors. The Commission has approved two exemptions for AC interconnectors, both concerning connections at the particularly congested borders in Northern Italy.

11.140

For natural gas, exemptions can be approved for “major new gas infrastructure”, which is further defined as “i.e. interconnectors, LNG and storage facilities”. Other language versions824 and the decision-making practice of national authorities825 confirm that this list is exhaustive. Pipelines which are not interconnectors are thus not eligible. While the Staff Working Paper826 gives the impression that this criteria has to be verified separately, both the wording of the provision and the decision-making practice show that every LNG terminal and storage facility is automatically considered as “major”. The broader eligibility compared to electricity may be one of the reasons that most exemption decisions concern gas infrastructure.

11.141

Both provisions also extend eligibility to significant increases of capacity in existing infrastructures – this is logical, as the financial considerations for an investment in capacity expansion are in most cases similar to those for entirely new capacity. The provisions do not further define what is to be understood as “significant”. In the case of the Grain LNG terminal, the Commission has considered the expansion of the terminal capacity from 20 bcm to 28.4 bcm/year as significant.827 As the market impact is of paramount importance for the assessment of exemption decisions, the significance of capacity increases will have to be assessed both in relation to the initial capacity of the infrastructure in question and the total interconnection or terminal capacity of the relevant market, thus no definite threshold can be defined.

824 French: à savoir; German: d.h.; Spanish: es decir ; Italian: vale a dire. 825 The German Bundesnetzagentur has refused an exemption for NEL as this purely internal pipeline did not qualify as an interconnector. 826 Staff Working Document on Article 22 of Directive 2003/55/EC, paragraph 23. 827 Commission Decision on the exemption of LNG Terminal on Isle of Grain, the United Kingdom, from the internal market rules on third party access and tariffs provisions according to Article 36 of Directive 2009/73/EC, C(2013) 3443 final of 4 June 2013, paragraph 17.

602

Chapter 11 Derogations and exemptions Jan Papsch

Different from electricity, not all significant capacity increases are eligible for an exemption under the gas Directive. Instead, this only applies to such increases of existing capacities which enable new sources of gas supply. The gas Directive does not provide a definition of the term “source”. This has to be interpreted in view of the double purpose of exemption provisions ensuring optimal solutions for a functioning market and secure supplies. Thus, new sources can be seen as additional options for supply reducing dependence of the market in question. Depending on the specifities of the market, the term “source” may thus be seen as referring both to a place of origin (politically, but also different fields inside a state) and to upstream supply undertakings. In the Grain LNG decision,828 the Commission considered that an increase in the number of capacity holders at UK LNG terminals enables new sources of gas supply.

11.142

Article 2 (2) (g) of the electricity Regulation and Article 2 (33) of the gas Directive define “new infrastructure” respectively “new interconnectors” as infrastructure which has not been completed by 4 August 2003, date of entry into force of the second package. While this means that existing infrastructure built after this date may formally qualify as “new” infrastructure, it is generally not eligible for an exemption as it is very difficult to imagine how infrastructure already in operation could meet the requirement that, due to the high risks involved, the investment would not take place without the exemption being granted.829

11.143

3.4.1.2 The investment must enhance competition in supply Both for electricity and for gas, a rather complex double analysis of the impact on competition is foreseen. Whereas the investment must enhance competition, the exemption must not be detrimental to competition. In practice, these two criteria are difficult to fully separate and the assessment can often overlap830 and where both points are distinguished one of the criteria often has no detailed substantive assessment. In some Commission decisions, both criteria are directly combined and assessed as one.831

828 C(2013) 3443 final of 4 June 2013, paragraphs 17 and 21-22. 829 This does not apply to the review of existing exemption decisions. 830 See e.g. the Exemption decision on the Austrian section of the Nabucco pipeline, CAB D(2008)142 of 8 February 2008, the assessment of the first competition criterion in pargraph 37 makes reference to consequences of the national exemption decision, whereas for the second criterion no analysis of effects on competition is made (see paragraphs 55-57 of the Decision). 831 E.g. Decision on the OPAL pipeline K (2009) 4694 of 12 June 2009, paragraph 40 ff.

603

11.144

Chapter 11 Derogations and exemptions Jan Papsch

11.145

This is not wrong, as both provisions have the same purpose, protecting effective competition and thus ensuring benefits to downstream consumers on the affected markets. While the competition assessment contains two angles, it is impossible to completely separate these from one another. Whereas the first angle regards the effects of the particular infrastructure being created, in the case of interconnectors thus the creation of additional capacities, the second angle of the competition analysis takes into account the negative effects of the exemption decision itself. However, if the first assessment did not at all take into account the exemption decision, the impact of the new infrastructure could not be assessed, as this largely depends on the regulatory provisions which will apply to this particular infrastructure. Therefore, even Decisions which provide separate substantive assessment on both criteria require taking into account the scope and conditions of the exemption already in the first step.832

11.146

Against this background, the second layer of competition assessment should not be seen as a completely separate check. Rather, the impact of the exemption should be fully taken into account already in the first step, whereas the second step is an integral part of the assessment of the impact of the exemption on the functioning of the internal market, e.g. by preventing the construction of competing infrastructure.833

11.147

The competition assessment is (together with the risk assessment) often at the heart of an exemption decision. If an investment contributes to effective competition and the exemption does not on balance hamper competition, it is very likely that the project will also not be detrimental to market functioning and security of supply.

11.148

The competition test for exemption decisions requires balancing positive and negative effects of the project. In principle, every exemption decision has negative effects on competition if compared to a situation with the infrastructure, but without the exemption. As the investment must enhance competition, it is up to the notifying national authority (and initially to the project promoter) to show that on balance the impact on competition in supply remains positive. Competition tests generally used in merger control (such as the small but significant and non-transitory increase in price-test (SSNIP) or increase of dominance tests) therefore cannot be directly applied, as they have the purpose of avoiding significant impediments to competition, not improvements to the status quo. 832 See e.g. C(2013) 6159 of 17 September 2013 on the exemption of the Slovakian-Hungarian natural gas interconnector from ownership unbundling rules. Paragraph 17 thereof argues that the investment is beneficial to competition because no TPA exemption is granted and booking limitations are foreseen. 833 See e.g. C(2014) 9904 final of 17 December 2014 on the exemption of Adria Link s.r.l. (Italy), Holding Slovenske Elektrarne d.o.o. (Slovenia) and E3 d.o.o. (Slovenia), paragraphs 91-101.

604

Chapter 11 Derogations and exemptions Jan Papsch

The investment itself is likely to entail positive effects on competition. It is important to note that the assessment does not directly focus on eventual competition amongst different infrastructure operators,834 but on the supply of gas or electricity. Providing additional interconnection capacities, new offloading capacities at LNG regasification terminals or new storage capacities increases the possibilities for market access and enables new market entrants to offer competing supplies. If undertakings with a dominant position on one of the market levels (upstream supply, downstream wholesale supply, distribution) can be expected to be the main beneficiairies of the new capacities (be it due to the allocation procedure or on factual grounds, e.g. because they control upstream gas pipelines) the investment itself may however have a negative impact on competition.835

11.149

To assess the impact on competition, a large variety of criteria can be relevant. This includes e.g. the identity of the project promoters, the likely main users of the infrastructure and the tariff system. To analyse the impact on competition, it is necessary to describe current competition in the relevant markets. Indexes such as the Herfindahl–Hirschman Index (HHI) on market concentration or the Pivotal Supplier Index (PSI) on market power can provide a helpful first indication on the expected impacts on competition of a new interconnector.836

11.150

3.4.1.3 The risk makes an exemption necessary An exemption always reduces the positive impact on market functioning of new infrastructure. Exempting major interconnectors from regulatory provisions may also slow down or even prevent the further integration of the internal market in the affected area. Therefore, an exemption may only be granted where it can be demonstrated that otherwise the investment would not take place.

11.151

Minor distribution infrastructure and internal transmission lines are directly excluded from the scope of the exemption. This indicates that risk profiles which are similar to these types of infrastructure should not be granted an exemption. On the other hand, some types of infrastructure have been seen as particularly

11.152

834 If competition exists between different infrastructure operators, this impact may be taken into account in the second step, analysing the impact of the exemption. Looking only at the investment, it is also on this level likely to increase competition, if any. 835 See the Staff Working Document on Article 22 of Directive 2003/55/EC paragraphs 32 ff. The OPAL and NABUCCO decisions thus include capacity caps to prevent further strengthening of existing dominant positions. 836 See e.g. C(2014) 9904 final of 17 December 2014 on the exemption of Adria Link s.r.l. (Italy), Holding Slovenske Elektrarne d.o.o. (Slovenia) and E3 d.o.o. (Slovenia), paragraphs 57-60.

605

Chapter 11 Derogations and exemptions Jan Papsch

risky. Major import pipelines and LNG terminals have in large part been able to request at least partial exemptions. Furthermore, it has to be taken into account if an infrastructure could expect financing under the regulated system or if, as it is not foreseen in the national plans, it could not expect such compensation.837 This is particularly the case if a planned infrastructure is too big to be supported by the existing national regulated system.838

11.153

In its Staff Working Document, the Commission recognizes two risks for new infrastructure: non-use of the infrastructure and the change in costs and/or revenues.839 Furthermore, construction and operation risks have to be taken into account.

11.154

Risks are higher where the project promoter has no possibility to influence their realization. This is e.g. the case where use of the infrastructure depends on other investments by other operators which have not yet taken place.840 To the contrary, if vertically integrated undertakings construct new infrastructure, they have a certain reassurance that their group companies will use this infrastructure. This lowers risks and makes an exemption less likely to be required.841 If vertically integrated undertakings receive an exemption from the unbundling provisions, this may be an acceptable way of mitigating the risks of the exempted investment and the potentially harmful effects of vertical integration may therefore be accepted where due to its riskiness, the investment would otherwise not be made. Further exemptions on third party access and tariff regulation are then however unlikely to be justified.

11.155

To predict market interest in the infrastructure and determine the level of risk involved, Article 36 paragraph 6 of the gas Directive and Article 17 (4) of the electricity Regulation provide that a market test has to be conducted and its results have to be taken into account for the exemption decision.842

11.156

This criterion should not be misunderstood to mean that granting an exemption always lowers the risks of a project; to the contrary, if a project is realized under the regulated system, the recognition of costs by the regulator is likely to 837 838 839 840

TAP exemption decision, C(2013) 2949 final, paragraph 163. TAP exemption decision, C(2013) 2949 final, paragraph 165. Staff Working Document on Article 22 of Directive 2003/55/EC, paragraph 41. (2014) 9904 final of 17 December 2014 on the exemption of Adria Link s.r.l. (Italy) , Holding Slovenske Elektrarne d.o.o.(Slovenia) and E3 d.o.o. (Slovenia), paragraph 75. 841 Staff Working Document on Article 22 of Directive 2003/55/EC, paragraph 44. 842 While not expressly mentioned in the second Package, market tests were already part of the Commission decision-making practice before, see Staff Working Document on Article 22 of Directive 2003/55/EC, box 3.

606

Chapter 11 Derogations and exemptions Jan Papsch

reduce the inherent risks in case of non-use of the infrastructure. This is why project promoters may have a financial interest to abandon the exemption regime and integrate the regulated system.843 Instead, the benefit of an exemption often is that the project promoter may, as compensation for having accepted to bear the risk, generate a higher return on investment for the exemption period than would have been possible under the regulated system. On the other hand,especially if the exemption allows the project promoter to rely to a larger extent than generally possible on long term contracts, this may indeed reduce the project risk. The risk criterion was the basis for the only negative decision of the Commission in an exemption procedure so far (notwithstanding the possibility for national authorities to withdraw exemption requests prior to a Commission decision). In the Damborice decisions, the Commission has argued that the Czech legislation on access to gas storage allows the operator to apply the same financing model relying on a certain share of long-term contracts as foreseen under the exemption decision. The exemption was thus not necessary for the investment to be realized.844

11.157

3.4.1.4 Legal unbundling In order to prevent cross-subsidiazation of regulated and exempted assets, the exempted infrastructure must be owned and operated by a person other than the system operators in whose systems the infrastructure is to be built. This requirement so far poses no difficulties in practical application.

11.158

3.4.1.5 Access charges Access to the infrastructure must be subject to charges being levied. The provisions say nothing on the level of these charges, so that they are generally unproblematic. They may however prevent full integration of exempted infrastructure into entry-exit systems.

843 Commission C (2015) 72 of 9 January 2015 on the waiver of the exemption from third party access and tariff provisions granted for an LNG terminal to OLT Offshore LNG Toscana S.p.A relates to such a case for an LNG terminal which had not been used for a relevant period since start of operations. 844 Decision C (2011)4509 of 27 June 2011 and C(2013) 7221 of 4 November 2013 on the exemption of an Underground Gas Storage Facility in DamboYice, Czech Republic. The decision had been annulled on procedural grounds by the General Court and was replaced for the course of the appeal procedure.

607

11.159

Chapter 11 Derogations and exemptions Jan Papsch

11.160

3.4.1.6 The exemption must not be detrimental to competition, market functioning, and the functioning of the regulated system This criteria allows for a very broad assessment of the impact of the exemption decision on all aspects of the energy system. That includes repercussions of the exemption and the underlying project on other infrastructure, both as regards the operation of existing infrastructure or foreseeable future investments.

11.161

Financially, it has to be avoided that the exemption possibility results in “cherry picking” of necessary investments. If exemptions are granted for the most lucrative investments, there is a risk that only the more risky investments remain, which will then have to be borne on the basis of socialized costs by the regulated system.

11.162

Furthermore, technically, it has to be avoided that lack of transparency on the use of exempted infrastructure or overuse of certain network elements have a negative impact on the functioning of the rest of the regulated system.

11.163

An exemption may in this respect also be motivated positively, arguing that the financial separation of this network element from the rest of the network shields the general grid from a particularly difficult investment.845

3.4.1.7 The investment must enhance security supply (gas only) 11.164

The gas Directive does not provide a definition of the term “security of supply”. This can generally be understood as reducing the risk that supply disruptions occur. That includes both an increase in supply routes from existing sources (reducing the risk of disruptions due to problems on a route) and enabling the use of new supply sources. The latter provides generally a bigger contribution to security of supply, as it not only reduces the route risk, but also the risk related to being overly dependent on a limited number of supply sources. Flexible sources of supply (such as LNG terminals or well-connected storages) provide in many cases a bigger contribution to security of supply than unidirectional import pipelines.846

11.165

Security of supply is generally improved by the creation of additional gas infrastructure. However, as infrastructure must provide a positive contribution to security of supply to benefit from an exemption, infrastructure which neither enables new sources nor provides new routes or storage possibilities and also 845 See ElecLink C(2014) 5475 final paragraph 128-129. 846 Staff Working Document on Article 22 of Directive 2003/55/EC, paragraph 26.

608

Chapter 11 Derogations and exemptions Jan Papsch

does not improve usability of existing infrastructure in times of emergency (e.g. by freeing up other infrastructure that does provide important routes) is not eligible for an exemption.

3.4.1.8 No regulated income (electricity only) Electricity interconnectors may not be granted an exemption if, since the partial market opening, they have recovered part of the costs from charges to transmission or distribution systems linked by the interconnector. Whereas the Commission Staff Working Document explains that this effectively excludes existing interconnectors from being granted an exemption, this is not convincing. Existing interconnectors are already excluded from being granted an exemption on the basis of the risk criterion.

11.166

Apart from excluding existing TSOs or DSOs to add surcharges for the financing of to-be-exempted future interconnectors on users of existing regulated infrastructures, this additional provision seems to have limited impact. However, it practically means that projects combining new and existing infrastructure have more difficulties arguing for an exemption under the Electricity Regulation than under the Gas Directive.

11.167

3.4.2 Procedure The exemption procedure is described in great detail in Article 36 (3) to (9) of the gas Directive and Article 17 (4) to (8) of the electricity Regulation. Whereas Articles 36 (10) and 17 (9) respectively foresee the possibility for the Commission to adopt procedural Guidelines, no such guidelines have been adopted by the Commission to date. The empowerment for guidelines is maintained under the recast electricity Regulation, now as a delegated act. In view of certain more general questions, such as the possibility to deviate from requirements under Article 16 (particularly the minimum available cross-border capacity) or the treatment of offshore hybrid assets, it could be pertinent for the Commission to issue guidelines once first experience with the new framework has been gained.

11.168

3.4.2.1 Early contacts Pursuant to Article 17 (7) of the electricity Regulation and Article 36 (8) of the gas Directive provide that the competent national authority shall notify any exemption request without delay to the Commission. For electricity, the request shall also be transmitted to ACER. 609

11.169

Chapter 11 Derogations and exemptions Jan Papsch

11.170

In practice, project promoters and national regulators enter into contact with the Commission at an early stage of the national procedure, in order to preliminarily discuss the case. While these discussions may not result in any binding agreement, they can give a good indication to the project promoters of the possibilities for success for their application, and allow the authorities to get an early impression of the issues under discussion, as well as prepare the ground for working under the tight deadlines of the formal procedure. These contacts are also maintained throughout the procedure. If necessary, state of play meetings can also be organized during the Commission assessment.

3.4.2.2 Role of ACER 11.171

The electricity regulation and gas Directive foresee a somewhat different role for ACER in the procedure. In practice, the national authorities are reluctant to involve an external agency, meaning that those provisions have generally not been used for the time being.

11.172

ACER may, within two months of receipt of a notification by the national authority, submit an advisory opinion to the national authorities. Where (i) the national authorities have not been able to reach an agreement on the exemption after a period of 6 months or (ii) upon a joint request of these authorities, ACER shall adopt the exemption decision pursuant to Article 17 (5) electricity regulation or Article 36 (4-5) gas Directive.

3.4.2.3 Adoption and notification of the national decision 11.173

In principle, the national regulatory authority is competent for the national exemption decision. However, Member States may provide that the national regulator provides only an opinion, for formal decision by another Member State. This has been chosen by Italy, where the Ministry remains competent to adopt the exemption decision.

11.174

No deadline is foreseen for the adoption of the national exemption decision. In practice, this will always take several months and sometimes more than a year, especially if initial requests are not substantiated enough for the national authority to take a decision. An exemption “may” be granted if the conditions are fulfilled. There is thus in principle no obligation of the national authority to grant any exemption, even if objectively it could be argued that the project in question would fulfil the requirements.847 847 This of course does not exclude the right of the project promoters to appeal negative decisions of the Com-

610

Chapter 11 Derogations and exemptions Jan Papsch

Where the exemption relates to an interconnector, the national authority shall consult the decision with the other authorities concerned. In practice, the national authorities in most cases adopt a joint opinion which is then annexed to the national decisions.848

11.175

Whereas the Regulation and the Directive refer to the national act as a Decision, the Commission has in the OPAL procedure not directly rejected the notification of a settlement agreement under german administrative law. Under German law, settlement ageements have a legally binding effect similar to decisions. It appears thus reasonable to accept this, as the purpose of the exemption procedure requires only a legally binding formal act, not necessarily a decision. Similarily, decrees (e.g. under Italian law) are regularly accepted by the Commission.

11.176

The national decision is to be notified without delay to the Commission, together with all the relevant information necessary. The information shall in particular contain the detailed reasoning for granting or refusing the exemption, including financial information, the underlying analysis on effects for competition and market functioning, reasons for the duration and scope of the exemption, the results of consultation with other authorities and (for gas) information on the contribution of the infrastructure to the diversification of gas supply.

11.177

3.4.2.4 Commission decision Within a period of two months from the day following receipt of a national decision, the Commission may take a decision requesting the notifying bodies to amend or withdraw the decision to grant an exemption. It does not result expressly from the provisions if this deadline is also triggered by incomplete notifications. Article 17 (8) of the electricity Regulation and Article 36 (9) of the gas Directive provides that where the Commission requests further information, the prolonged deadline shall begin only following receipt of the complete information. On this basis, and taking into account that the Commission cannot be forced to decide on the basis of incomplete information, there are good grounds to argue that incomplete notifications do not trigger the initial Commission deadline. The recast electricity Regulation replaces the two month deadline by a deadline of 50 working days, similar to merger control practice. This slightly mission, see case T-465/11 Globula a.s. v European Commission. Furthermore, national authorities may have a limited margin of appreciation in whether or not they grant an exemption under general administrative principles of national and EU law. 848 See e.g. the joint opinions on TAP or the Slovenian-Italian Interconnectors.

611

11.178

Chapter 11 Derogations and exemptions Jan Papsch

prolongs the deadline, giving more time for assessment in complex cases and reducing the need for prolongations. More importantly, it stops deadlines during holiday periods, notably between Christmas and New Year and around Easter.849

11.179

The Commission may request amendment or withdrawal of the national decision. There is no express limitation of the scope for the Commission decision. The Commission can therefore ask the national authorities to fully withdraw the exemption,850 to attach additional conditions,851 to limit the scope of the exemption852 or even ask the national authority to include additional exemptions.853

11.180

The Commission deadline may be prolonged on two grounds. First, the Commission may request further information from the notifying authorities. The Commission generally sets a deadline for the provision of this information. If no information is provided by this date, and the national authorities did not expressly declare that they regard the information as complete, the notification is to be seen as withdrawn. If further information is provided, the deadline is prolonged by two months or 50 working days respectively, starting on the day the complete information as requested is provided. The provision does not set any limitation as to how often such a prolongation is possible. In the Gazelle I854 and TAP855 cases, the Commission has requested additional information more than once.

11.181

The second possibility for prolongation of the deadline is the agreement of the notifying authority and the Commission. Neither the gas Directive nor the electricity Regulation foresee a limitation to the grounds such a prolongation may be based on, and the possibility for prolongation is not subject to predetermined periods or maximum deadlines. This is logical, as the national authority itself is (under EU law) not subject to any deadline either for the adoption of the 849 Commission holidays are published annualy in the Official Journal, see e.g. Commission Decision C(2017) 5727 of 22 August 2017 on public holidays for 2019 for the institutions of the European Union, OJ C 279, 23.8.2017, p. 3 4. 850 Decision C (2011)4509 of 27 June 2011 and C(2013) 7221 of 4 November 2013 on the exemption of an Underground Gas Storage Facility in DamboYice, Czech Republic. 851 This was done in a large number of cases and may be seen as the ‘standard result’ of a procedure. 852 See e.g. K (2010) 7574 of 26 October 2010 on the Arnoldstein – Tarvisio interconnection, in which the Commission requested not to grant an exemption from the provisions on third party access. 853 (2014) 9904 final of 17 December 2014 on the exemption of Adria Link s.r.l. (Italy), Holding Slovenske Elektrarne d.o.o.(Slovenia) and E3 d.o.o. (Slovenia) – In this decision, the Commission asked the Italian authorities to include an exemption from the unbundling provisions, as these were clearly not foreseen to be respected by the project promoters but no exemption was foreseen in the operative part. 854 C (2011) 3424 of 20 May 2011 on the exemption of the “Gazelle” interconnector, paragraph 5. 855 C (2013) 2949 of 16 May 2013 on the exemption of the Trans Adriatic Pipeline, paragraph 8.

612

Chapter 11 Derogations and exemptions Jan Papsch

initial exemption decision. The purpose of the deadline is thus not to protect the interests of the project promoters (whose agreement is not necessary for prolongation) but exclusively of the notifying authority. It is thus consequent that the number of prolongations is not limited. As the exemption may only be granted as far as it is necessary and may not have a negative impact on effective competition or market functioning, exemptions are almost always limited in scope and subject to conditions. Exemptions under the third package expressly have to be limited in time.

11.182

If the Commission does not require any change to the exemption this does not strictly speaking require any action. However the Commission would, and indeed has in cases already dealt with, provided written confirmation of the fact that no action would be taken.856

11.183

3.4.2.5 Implementation The Commission decision is binding on the notifying authority, which disposes of one month to amend or withdraw the notified decision as required. The final decision then has to be notified again to the Commission. This deadline has not been changed to working days because application of the legally defined Commission working days to national authorities would have been counterintuitive. Furthermore, no substantive decisions need to be taken by national authorities at this stage, as the Commission decision is legally binding.

11.184

Where it is not correctly implemented, the Commission can enforce its decision via infringement procedures against the Member State concerned. Without a final Commission decision authorizing the exemption, the project promoters cannot have legititmate trust in the national exemption decision. Thus, in order to end the infringement, the national authorities would have to withdraw or amend any exemption decision which deviates from the Commission decision.

11.185

The recast electricity Regulation now also expressly provides that where the undertakings concerned act contrary to their commitments or where the decision was based on incomplete, incorrect or misleading information which was provided by the parties, the Commission may upon request or on its own initiative reopen the exemption proceedings. The recast electricity Regulation also

11.186

856 Commission C (2015) 72 of 9 January 2015 on the waiver of the exemption from third party access and tariff provisions granted for an LNG terminal to OLT Offshore LNG Toscana S.p.A. – as the Commission withdrew also the approval granted to the former exemption, a decision was required.

613

Chapter 11 Derogations and exemptions Jan Papsch

provides for a third possibility of reopening a procedure where there has been a material change in any of the facts on which the decision was based. As this could entail constant uncertainty regarding the maintenance of an exemption decision, this possibility for reopening the procedure is however conditioned upon “taking due account of the legitimate expectations of the parties and of the economic balance achieved in the original exemption decision”. This clause would thus e.g. allow to amend a decision in order to improve integration in improved cross-border capacity calculation processes, but only where this does not produce negative effects for the business case of the undertakings involved.

11.187

Withdrawal of a final national exemption decision also requires approval by the Commission, which will for reasons of legal certainty also withdraw the Commission agreement.857 In general, bringing a formerly exempted infrastructure fully and definitely under the regulated system is beneficial for market functioning and competition. Thus, the Commission will only proceed to a limited assessment, in particular in order to verify if the combination of the exemption and the withdrawal thereof has an abusive effect. This may e.g. be problematic if construction of an infrastructure would not have been recognized as efficient if it had been constructed under the regulated system in the first place.

11.188

Amendments of exemption decisions must be notified to the Commission and require the Commission’s approval.858 The Commission was assessing changes notified by the German regulator to the OPAL exemption decision.859 As the notified settlement agreement lapsed, the procedure however ended without a decision being adopted. For Nabucco, the Commission has assessed a prolongation of the initial Decision (issued under the Second Package) pursuant to the requirements of the third Gas Directive.860 The requirement to notify amendments of existing exemption decisions is now expressly set out in Article 63 (9) of the recast electricity Regulation. In view of the LNG Toscana decisionmaking practice this should also be interpreted as including complete withdrawals of projects which had received an exemption which had been approved by the Commission.

857 Commission C (2015) 72 of 9 January 2015 on the waiver of the exemption from third party access and tariff provisions granted for an LNG terminal to OLT Offshore LNG Toscana S.p.A. 858 Staff Working Document on Article 22 of Directive 2003/55/EC, paragraph 65. 859 See the notified changes under http://www.bundesnetzagentur.de/DE/Service-Funktionen/Beschlusskammern/1BK-Geschaeftszeichen-Datenbank/BK7-GZ/2008/2008_001bis100/ BK7-08-009_BKV/ Ver%C3%B6ffentlichung_Aktuelles_BF.pdf 860 https://ec.europa.eu/energy/sites/ener/files/documents/2013_nabucco_decision_austria_en.pdf, see paragraphs 6-9 .

614

Chapter 11 Derogations and exemptions Jan Papsch

The Commission approval of an exemption decision loses its effect two years from adoption861 in the event that construction of the infrastructure has not yet started, and five years from adoption in the event that the infrastructure has not yet become operational. This provision has been introduced to prevent exemption hoarding, preventing the construction of competing infrastructure, and was already applied in certain exemption procedures prior to the entry into force of the Third Pacakge.862 This deadline may be prolonged if the Commission decides that any delay is due to major obstacles beyond the control of the person to whom the exemption has been granted. This has been done for the Nabucco pipeline863 and the TAP pipeline.864

11.189

The prolongation rules now set out expressly that the Commission assessment of a prolongation needs to be based on a reasoned request of the notifying body. This was already existing Commission practice but was sometimes unclear to national authorities. Thus, as for initial exemption decisions, the national authority has to assess itself whether the prolongation requirements are met and only if it deems this to be the case, send a reasoned request to the Commission. The wording “reasoned request” however leaves open whether the request needs to be a formal national decision or could also be e.g. a letter containing the required assessment, as had in some cases been accepted by the Commission.

11.190

Many exemption decisions have been adopted already under the Second Package. As provided for in the recitals of the gas Directive and electricity Directive, these Decisions continue to apply for the rest of their validity period.865 The recitals however remain silent as to the effect of existing exemptions on new legal requirements under the Third Package. In particular, the Second Package had less demanding unbundling requirements and in consequence did not foresee any possibility to grant exemptions from unbundling. It could thus be argued that the new unbundling requirements should fully apply to infrastructure sub-

11.191

861 While the English and French wording of the Directive are not clear, both the German wording and the decision-making practice show that this deadline is to be calculated from the date of adoption of the Commission decision, not the final national decision. 862 LNG Eemshaven, C (2009) 4006, paragraph 16. 863 C(2013) 2947 final of 16 May 2013 on a prolongation of the effects of the exemption decision of NABUCCO Gas Pipeline International GmbH. 864 C(2015) 1852 final of 17 March 2015 prolonging the exemption of the Trans Adriatic Pipeline from certain requirements on third party access, tariff regulation and ownership unbundling laid down in Articles 9, 32, 41(6), (8) and (10) of Directive 2009/73/EC. 865 See the last sentence of Recital 35 of the Gas Directive (and Recital 23 of the Electricity Regulation): “Ex‑ emptions granted under Directive 2003/55/EC continue to apply until the scheduled expiry date as decided in the granted exemption decision”.

615

Chapter 11 Derogations and exemptions Jan Papsch

ject to a second package exemption decision.866 However, this may run counter to the purpose of exemption decisions to guarantee a stable legal framework and thus risk undermining the trust of investors in the exemption regime.

11.192

Thus, the Commission has applied a balanced approach. In the certification opinion for the Nabucco pipeline,867 the Commission has stated: “The Commission notes that this does not mean that exempted projects under Article 22 of Directive 2003/55/EC are not to be subject to any unbundling rules at all. Certain unbundling rules still have to be complied with, in particular the rules on legal and functional unbundling, as derived from Directive 2003/55/EC and any other relevant rules, as specified in the applicable exemption decisions. Furthermore the Commission considers that, where infrastructure has not received a full exemption under Article 22 of Directive 2003/55/EC, the unbundling rules of the Directive 2009/73/EC are in principle to be complied with as regards the non-exempted part of the capacity, unless this is not possible without undermining the exemption obtained under Article 22 of Directive 2003/55/EC. Whether this is the case is to be subject to a case-by-case analysis, which needs, in particular, to focus on whether it is ensured that the non-exempted capacity is marketed independently from any production or supply interests of the shareholders of the pipeline.

11.193

This means that where an infrastructure has received a “full” exemption, it has to comply with those unbundling rules which already had to be respected under the Second Package, as there was no possibility to exempt from those provisions. In practice, as creating a separate legal entity is already a requirement under the exemption provisions, this should not create any problems. Furthermore, exemption decisions may foresee particular unbundling requirements (e.g. in case of the Nabucco pipeline) which have to be complied with.

11.194

Where infrastructure has received only a “partial” exemption, the Commission requires a case-by-case assessment. As no full exemption has been granted, the non-exempted part of the infrastructure would in principle require full application of the unbundling regime. In the cases where this would undermine the exemption, the Commission however accepts a more limited application, applying a specific unbundling framework. This specific framework aims for unbundling as close to the normal framework as possible, taking full account of 866 So still EU Energy Law Third edition, paragraph 11.138. 867 Opinion C(2012)9575, 045-2012-AT of 11 December 2012, https://ec.europa.eu/energy/sites/ener/files/ documents/2012_045_at_en.pdf.

616

Chapter 11 Derogations and exemptions Jan Papsch

necessary limitations following from the existing exemption decision. In many cases, this will mean that ownership undbundling is not required (as the project promoters are vertically integrated and requiring ownership unbundling would thus undermine the exemption) but that unbundling based on the ITO or ISO models allows them to continue benefitting from the exemption and can thus be applied. This was also imposed as a condition in exemption decisions under the third package to compensate for exemptions from ownership unbundling.868 The distinction between “full” and “partial” exemption is linked to the third party access provisions. Where pursuant to the exemption decision part of the capacity is subject to regulated access, unbundling is required to ensure that this access is non-discriminatory.869

11.195

While the substantive unbundling provisions applicable to infrastructure exempted under the Second Package are thus rather clear, the Commission has so far not pronounced itself on whether there is an obligation to certify these infrastructures in the absence of express conditions in the exemption decision. Whereas opinions have been adopted for some infrastructures, not all exempted infrastructures have been certified so far.

11.196

3.4.3 Exemptions dealt with by the Commission By December 2018, a total of 40 exemption decisions have been adopted and published on the Commission website.870 Of these 40 decisions, 7 decisions and two prolongations are for electricity interconnectors, 2 of which use alternating current. The remaining decisions all concern gas infrastructure: 16 for gas pipelines (albeit only for 8 different projects, the rest being prolongations or decisions on sections of a project), 14 for LNG terminals (12 projects), and two negative decisions on a single underground gas storage in Damborice.871

868 Decision on the Gazelle pipeline, C(2011) 8777, paragraph 55 following, https://ec.europa.eu/energy/ sites/ener/files/documents/2011_gazelle_unbundling_decision_en.pdf. 869 Commission opinion C(2015) 1547 final of 5 March 2015 on the certification of Eneco Valcanale S.r.l. 870 https://ec.europa.eu/energy/sites/ener/files/documents/exemption_decisions2018.pdf 871 The second decision has become inapplicable since the first decision was confirmed by the General Court after a first annulment had been overturned in appeal, see cases T-465/11, C-596/13 P and T-465/11 RENV - Moravia Gas Storage v Commission.

617

11.197

Chapter 11 Derogations and exemptions Jan Papsch

3.4.3.1 Electricity 11.198

Electricity infrastructure especially in continental Europe is part of a meshed grid. This requires close interaction between the involved TSOs. Especially for AC infrastructure, it is thus doubtful if a separate TSO for just one interconnector would be meaningful. Long term contracts may also play a more limited role in the financing of electricity infrastructure,872 making full third party access less of an issue in project development. These may be the reasons why only a very limited number of national authorities have taken any decisions to exempt electricity infrastructure, which were then subsequently notified to the Commission. Of the 6 decisions, 4 contain sub-sea HVDC interconnectors mostly linked to the United Kingdom, whereas two decisions relate to AC interconnectors to northern Italy. It is possible that the new stricter rules on available cross-border capacity will result in an increased use of the exemption provisions under the recast electricity Regulation.

3.4.3.1.1 Estlink 11.199

Estlink 1 is an undersea HVDC cable between Estonia and Finland. The Decision has been adopted on 27 April 2005 under the second Electricity Regulation.873 The Commission has not requested amendment or withdrawal of the national decision, but limited itself to comments.

11.200

In the case of Estlink, a relatively short exemption period was requested by the project developers, until 2013 at the latest. At this point it had been agreed that the cable would be absorbed into the regulatory asset based of the two transmission system operators, Finngrid and OÜ Põhivõrk. This was also coherent with the expectation described in the Estonian decision that if no exemption were to be granted, the project would be realized by the TSOs, but only at a later stage. Thus, the Commission accepted that to realize the project at the current time, the exemption was required.

872 This does not always seem to be the case though: The ElecLink project planned to market 80 % of the capacities as long term contracts, see C(2014) 5475 final par. 21. See also paragraph 104 fo the same decision: While long term contracts do not necessarily require the granting of an exemption – they may in principle also be concluded for regulated infrastructure contracts of the duration envisaged here are so clearly outside normal regulatory practice in electricity, and the developing European rules on capacity allocation and congestion management, that in effe ct an exemption is required to provide regulatory certainty. 873 D(2005)108708, https://ec.europa.eu/energy/sites/ener/files/documents/2005_estlink_decision_en.pdf.

618

Chapter 11 Derogations and exemptions Jan Papsch

The Estlink exemption accepted that exclusive capacity rights were awarded to the existing incumbents. While this allowed the construction of necessary infrastructure, it could have been a hindrance in market integration during the (short) exemption period. This became problematic when Estland decided to liberalize its electricity market earlier than planned. Upon request by the national regulators, the capacity owners however agreed to open access to capacities on Estlink also to third parties. In 2010, Estlink was included in the Nordic market coupling, requiring implicit allocation of the capacities.874 The exemption has run out and the infrastructure was sold to the Finnish and Estonian TSO in December 2013. Estlink 2, with significantly higher capacities than Estlink 1, was constructed directly by the TSOs. It started operation as a regulated infrastructure in 2014.

3.4.3.1.2 BritNed BritNed is an undersea HVDC cable between the United Kingdom and the Netherlands. The Decision has been adopted on 18 October 2007 under the second Electricity Regulation.875 The cable is operated by the two national TSOs which have created a joint venture. Capacity is pursuant to the exemption decisions to be made available in explicit or implicit auctions with a maximum duration of one year. The interconnector began operation in 2011.

11.201

The exemption from Article 6(6) or Regulation (EC) No 1228/2003 and third party access regulation is granted for 25 years. The Commission has requested the national authorities to include a review obligation, which reassesses after 10 years of operation whether the expected rate of return on investment has been exceeded. If the return exceeds the expected rate by more than one percentage point, BritNed has to either accept a cap on the rate of return or invest in additional interconnection capacity.

11.202

874 This experience may be another reason why the Commission is – compared to gas pipelines and in particular LNG terminals – relatively hesitant to accept exemptions from third party access provisions on electricity interconnectors. Where this was accepted (BritNed), the imposed condition to grant access via explicit and implicit auctions reflected the regulated access provisions at other interconnectors, as expressly stated in the decision. The East-West-Interconnectors decision allows for the allocation of long term products via an open season, instead of regulated access. As these interconnectors have not been built so far, the practical impact of this approach on market functioning cannot be established. In ElecLink, the national decisions already required the participation in market coupling and the transfer of remaining capacities for balancing purposes as well as the application of open seasons. 875 https://ec.europa.eu/energy/sites/ener/files/documents/2007_britned_decision_en.pdf, CAB D(2007)/ 1258.

619

Chapter 11 Derogations and exemptions Jan Papsch

3.4.3.1.3 East-West-Interconnectors 11.203

The East-West-Interconnectors are two planned sub-sea HVDC cables between the Wales and Ireland, of 350 MW capacity each. The Decision has been adopted on 19 December 2008 under the second Electricity Regulation.876 An exemption is granted from Articles 20 and 203 (2-4) of Directive 2003/54/EC and Article 6 (6) of Regulation No 1228/2003/EC.

11.204

In view of the highly concentrated market in Ireland, the Commission underlined the particular importance that capacity is not allocated only to dominant parties. It accepted the commitment of the project promoters to use an opean season process for the allocation of initial capacity, to limit the maximum capacity to be held by dominant parties in Ireland to 40 % and for all other parties to 70 %, and to apply secondary trading and use it or lose it principles to avoid capacity hoarding. These commitments were made binding by requesting the national authorities to amend the national decisions accordingly.

11.205

Already at the time of the exemption decision, EirGrid, the Irish TSO, had planned the construction of a regulated interconnector between Ireland and the UK. This was recognized by the Commission as an additional risk for the EastWest project, as the remaining demand was less sure to be sufficient. Contrary to the regulated project, and notwithstanding the granted exemption, the exempted project has not been realized for the time being. It is interesting to note in this respect that a limitation of the validity period for exemptions requiring start of construction within two years and start of operations within five years is required under the Third Package. No such limitation was included in the Second Package.

3.4.3.1.4 Arnoldstein/Tarvisio 11.206

The Arnoldstein-Tarvision interconnector is an AC connection with a capacity of 160 MW between Austria and Italy. The Decision has been adopted on 26 October 2010 under the second Electricity Regulation.877 An exemption is granted for a duration of 16 years from Article 6 (6) of Regulation No 1228/2003/EC on the use of congestions rents, whereas exemption from the third party access provisions is refused. Already the national decisions required the amortasition 876 https://ec.europa.eu/energy/sites/ener/files/documents/2008_east_west_cable_decision_uk_en.pdf, C(2008) 8851. 877 https://ec.europa.eu/energy/sites/ener/files/documents/2010_arnoldstein_travisio_decision_de.pdf, SG D(2010)16980.

620

Chapter 11 Derogations and exemptions Jan Papsch

of the project to be verified after 7 years, and thereafter on an annual basis, possibly resulting in a reduction of the exemption period. Furthermore, auctioning of the capacities was to be done by the national TSOs APG an TERNA. Finally, the network assets have to be sold to the national TSOs after the end of the exemption period. The operation of the interconnector thus roughly resembles the ISO regime. As the exemption relates to an AC interconnector, it could only be granted if the risks of the investment are particularly high when compared with the costs and risks normally incurred when connecting two neighbouring national transmission systems by an alternating current interconnector. This was accepted to be the case by the Commission. Grounds for this were the particular geographic situation at the Austrian-Italian border and the risk that due to congestion in other network elements not under the control of the project promoter, the full interconnection capacity may not be available.

11.207

The national exemption decision had granted an exemption also from third party access provisions for 50 % of the capacities. As the exemption from Article 6 (6) on the use of congestion rents was seen as sufficient to compensate the particular risks of the project, an exemption from regulated third party access was not seen as justified by the Commission. Thus, the national authorities were requested to refuse the exemption in this respect, and ensure non-discriminatory capacity allocation via auctions. This very limited scope of the exemption may also be part of the reason why an exemption for an AC interconnector was accepted.

11.208

3.4.3.1.5 ElecLink The ElecLink interconnector is an HVDC connection with a capacity of 1000 MW between France and the United Kingdom. The cable will be laid in the channel tunnel. The Decision has been adopted on 28 July 2014 under the third Electricity Regulation.878

11.209

The national exemption decisions granted an exemption from Article 16 (6) of the Electricity Regulation on the use of congestion rents for 25 years, subject to a profit sharing mechanism. An exemption from Article 9 of the Electricity Directive on ownership unbundling was given under conditions in so far as this concerned “typical” investments by the investment fund participating in the ElecLink project. To balance this, ElecLink was subject to the ITO provisions, with the exception of investment planning and obligations. For third party access, a

11.210

878 https://ec.europa.eu/energy/sites/ener/files/documents/2014_eleclink_decision_en.pdf, C(2014)5475.

621

Chapter 11 Derogations and exemptions Jan Papsch

20 year exemption was granted for 80 % of the capacities, subject to an open season process and with access conditions subject to NRA approval. ElecLink has to participate in market coupling and transfer remaining capacities after the intra-day allocation to the national TSOs for balancing purposes. Finally, the capacities were limited to 40 % per capacity holder in any direction, or to 20 % in case of of market shares exceeding 40 % in the target market.

11.211

The Commission has proceeded to a detailed analysis of the risks involved in the project and of the projected revenue streams. It has expressly underlined that market demand should have been tested prior to requesting an exemption. Interstingly, the Commission also noted that such a concern would not apply if short-term marketing of capacities was planned or only an exemption from Article 16 (6) of the electricity Regulation was requested.879

11.212

The Commission has requested amendments to the national decision as regards the unbundling exemption. Before being able to ask for certification as ITO, ElecLink must have applied for and been refused certification as ownership unbundled TSO. In this case, ISO has to be opened as an alternative to ITO.

11.213

In 2016, the Commission approved a request for prolongation of the construction and operation deadlines regarding the ElecLink project.880 In view of the contractual commitments between ElecLink and its EPC contractors, the construction programmes and timetables for the converter stations and high voltage cable systems provided, as well as additional information regarding the completion of financial close, the Commission found that construction of the project was sufficiently plausible notwithstanding the decision of the United Kingdom to leave the European Union. The Commission however underlined that some of the arguments taken in isolation would not have been enough to justify delays. This for example concerned usual challenges to permits. On the other hand, the Calais refugee situation requiring additional safety measures, and the uncertainty caused by the referendum on leaving the EU were exceptional and unforeseeable enough to justify prolongation by 12 months. The Commission also underlined that a delay of the start of construction does not automatically justify an equal delay of the start of operations, but found the construction schedules provided to be sufficiently detailed in order to also justify prolonging the second deadline.

879 C(2014)5475 footnote 27. 880 https://ec.europa.eu/energy/sites/ener/files/documents/2016_eleclink_decision_en.pdf.

622

Chapter 11 Derogations and exemptions Jan Papsch

3.4.3.1.6 Slovenian-Italian Interconnectors On 17 December 2014, the Commission adopted an exemption decision on two AC underground interconnectors between Slovenia and Italy.881 The requested exemption covered Article 16 (6) of the electricity Regulation on the use of congestion rents. Furthermore, the Slovenian decision also granted exemption from ownership unbundling. The exemption covers a period of 10 years for the Dekani-Zaule interconnector and 16 years for the Redipuglia-Vrtojba interconnector. After seven years of operation and (depending on the interconnector) every one or three years thereafter, the national authorities will carry out a joint financial analysis to determine if the exemption period can be shortened. The NRAs refused granting the requested exemptions from third party access and tariff regulation rules. The capacity allocation is to be done on the basis of technical operation contracts by the national TSOs, and the assets have to be transferred to these TSOs after the end of the exemption period.

11.214

The Commission accepted that these AC cables fulfilled the requirement that the risks of the investment are particularly high when compared with the costs and risks normally incurred when connecting two neighbouring national transmission systems. As the interconnection was to be built fully underground costs were significantly increased. Furthermore, the use of the infrastructure depended on prior network investments to be done by the national TSOs, the timing of which was not under control of the project company. An important reason for accepting these grounds may have been that full third party access and tariff regulation was, apart from the provision on the use of congestion rents, accepted by the project company.

11.215

The Commission decision requested the Italian authorities to clarify in their decision that, in so far as the infrastructure is not to be owned by the entity operating it, an exemption from the provisions on ownership unbundling is required. Essentially, Italy had (as Slovenia) chosen to request the project promoters to accept an ISO solution. Whereas this was accepted by the Commission, it was clarified that such a solution cannot be implemented for new infrastructures without granting an exemption from ownership unbundling (as had already been done by the Slovenian NRA).

11.216

881 https://ec.europa.eu/energy/sites/ener/files/documents/2015_si_it_interconnectors_decision_en.pdf.

623

Chapter 11 Derogations and exemptions Jan Papsch

11.217

In February 2017, the Commission accepted a requested prolongation of the deadline for start of construction of the interconnector.882 The Commission underlined that as the date for start of operation of the interconnector remained unchanged, the requested delay for the start of construction did not undermine the predictability of the duration and existence of the exemption. This is interesting, as the reason given for the delay was simply that the permits had not yet been obtained. Thus, applying the strict reasoning of the ElecLink prolongation, one could have argued that such “standard and predictable delays” were insufficient grounds for a prolongation.

3.4.3.1.7 Piemonte Savoia 11.218

The Piemonte Savoia interconnector is an HVDC connection consisting of two cables of 600 MW capacity each (total 1200 MW) between France and the Italy. The Decision has been adopted on 9 December 2016 under the third Electricity Regulation.883 The particularity of the request is that it only concerned one of the cables and related to the Italian section of this cable only. The other cable (owned by Terna, the Italian national transmission system operator) would be fully regulated, and the French section would be operated by RTE, the French national transmission system operator, in a fully regulated system. The Italian section of the second cable is owned by a project company due for sale to major electricity consumers, some of which have limited own electricity generation activities. The exemption was requested from unbundling and the use of congestion rents, for a period of 10 years.

11.219

Notably because third party access was fully maintained and none of the stakeholders of the interconnector has so far a significant presence in the electricity markets of both Italy and France, the Commission regarded the competition criterion as met. The internal rate of return was considered reasonable compared to other projects. The level of risk was regarded as sufficient to justify the relatively short exemption period of 10 years.

3.4.3.2 Gas pipelines 11.220

Whereas 16 exemption decisions have been adopted for gas pipelines, they only relate to 8 different pipeline projects. Some of these projects are highly complex and involve a high number of national authorities; delays in pipeline construction or gas field operation can also require subsequent decisions for prolongation of an exemptions validity. 882 https://ec.europa.eu/energy/sites/ener/files/documents/2017_si-it_interconnectors_decision_en.pdf. 883 https://ec.europa.eu/energy/sites/ener/files/documents/2016_piemonte-savoia_decision_en.pdf

624

Chapter 11 Derogations and exemptions Jan Papsch

3.4.3.2.1 BBL The BBL pipeline links the Netherlands and the United Kingdom, the two most active gas markets in the EU. The Decision has been adopted on 12 July 2005 under the second gas Directive.884 Operation of the pipeline started in December 2006.

11.221

The national authorities granted a 15-year exemption period although part of the underlying contracts were only for ten years. The Commission thus requested the exemption to be limited to the duration of the initial capacity contracts. Furthermore, regulated access to interruptible (virtual) reverse flow capacities from the UK to the Netherlands had to be made available by the pipeline operator. These requirements had already before been raised by the Commission in informal guidance letters.

11.222

3.4.3.2.2 Poseidon The Poseidon pipeline was planned to link Italy and Greece. The Commission decision has been adopted on 22 May 2007.885 The pipeline has not been constructed to date. The notified exemption covers third party access to 100% of the initial forward capacity, whereas reverse flow remains fully regulated.

11.223

Interestingly, the Commission expressly argued that for an exemption to be granted, the level of risk must be such that long term contracts are required for the investment to take place. While many projects asking for an exemption will want to rely on long term contracts, the Commission has not expressly seen this as primary requirement for an exemption in later decisions. The Commission asks the national authorities to assess if, should the gas be sourced from traditional suppliers to the Italian market instead of new sources of supply, a shorter period of exemption, without however expressly imposing any shortening of the exemption in case of such a switch of upstream source.

11.224

The Commission has requested the Italian authorities to amend their decision. Most importantly, taking up third party concerns that the capacities may not be sufficient to cover demand, the Poseidon Pipeline Company should within one year from the date of the exemption decision proceed with a market test under an open season procedure, with the objective to make available to third parties

11.225

884 https://ec.europa.eu/energy/sites/ener/files/documents/2005_bbl_decision_en.pdf, CAB D(2005) 674. 885 https://ec.europa.eu/energy/sites/ener/files/documents/2007_poseidon_decision_en.pdf, SG-GreffeD (2007) 203046.

625

Chapter 11 Derogations and exemptions Jan Papsch

further transportation capacity to meet the effective demand, at least 0.8 bcm/ year (10 % of the initially planned capacity).

11.226

Likely also in view of third party concerns that the project may block alternative interconnections from being realized, the Commission expressly asked the national authorities for a strict application of the provision that should the pipeline not be put in operation by 2012, the exemption should lose validity. Against this background, while there is no express time limit included in the Commission decision, the exemption should no longer be seen as valid.

3.4.3.2.3 Nabucco 11.227

The Nabucco pipeline intended to link Turkey to Austria. The main supply was supposed to come from the Sha Deniz gas fields in Azerbaijan. After the decision of the Sha Deniz consortium to prefer the Trans-Adriatic pipeline (“TAP”), the Nabucco project has not been realized. The decisions relating to this major project nevertheless remain an important step of the Commission practice.

11.228

The Nabucco project was subject to 5 initial decisions (two for Austria, one each for the Romanian, Hungarian and Bulgarian sections).886 Furthermore, for the Austrian section, a prolongation until 1 January 2019 of the deadline for the pipeline to be put into operation has been agreed by the Commission.887

11.229

The Nabucco case is a good example of the difficulties arising from the parallel competences of several regulators to apply the Article 22 exemption. Because the pipeline would have crossed four Member States, each of the Austrian, Hungarian, Romanian and Bulgarian regulators was competent to grant the derogation for its territory. The economic viability of such a project however requires a common regulatory framework to be applicable. The Nabucco case was therefore taken throughout the negotiation of the Third Package as an example justifying the need for a one-stop shop and for the ACER Agency to be granted a central role in granting derogations for new infrastructures crossing several Member States. The Commission has thereafter in cases involving several Member States (such as the TAP project) aimed for a streamlined approach with one common exemption decision at EU level, and joint opinions of national regulators as the basis for national notifications. 886 See AT – CAB D(2008) 142, AT – C (2008) 6254; RO – C (2009) 5135; BG – C (2009) 3037; HU – C (2009) 3034. 887 AT – C(2013) 2947.

626

Chapter 11 Derogations and exemptions Jan Papsch

The Nabucco case being examined under the rules of the Second Directive, it was up to the Commission to ensure consistency between the decisions of the four EC regulators concerned. The Nabucco company had applied for exemption in all four Member States concerned. The Austrian exemption request was however the first one to be instructed and notified to the Commission and served as a blueprint for the decisions of the other Member States. In all cases, the Commission requested a strengthening of the conditions imposed on the developers of the pipeline as regards third party access to ensure harmonisation of the different regulatory regimes and compliance with Article 22 of the Gas Directive.

11.230

The Nabucco pipeline exemption applies for 25 years, starting from the date when the first section of the Nabucco gas pipeline becomes operational. The exemption covers third party access to 50 % of the capacity under Article 18 of the second Gas Directive and tariff regulation under Article 25(2), (3) and (4) of the second Gas Directive. Up to half of the capacity may be allocated separately to Nabucco shareholders. The remaining capacities are to be allocated in an open season, with at least 10 % of these capacities allocated as short-term products.

11.231

Pursuant to the Commission decision, in the event of overbooking, capacity allocation shall take place in a transparent and non-discriminatory procedure, for example on a pro rata basis, which shall ensure that each bidder is allocated a minimum amount of capacity.

11.232

An undertaking holding a dominant position in one or more of the relevant upstream or downstream gas markets is not allowed to book more than 50% of the total capacity at the exit points in the relevant market. In practice, this means that an undertaking holding a dominant position in one of the Member States concerned cannot book more than 50% of the total capacity at the exit points in the Austrian section of the Nabucco pipeline. If there is not sufficient market interest to book the remaining exit capacity, and the capacity is underused, the dominant company may book more capacity but has to offer the gas volume exceeding the 50% capacity cap to the market. This condition was the main requirement imposed by the Commission on the national exemption decisions. It is justified by the requirement of the Directive that the new infrastructure has to enhance competition and the need to avoid the strengthening of a dominant position in the markets concerned.

11.233

627

Chapter 11 Derogations and exemptions Jan Papsch

11.234

Finally, changes in the shareholder structure of Nabucco have to be notified to the national regulatory authorities. In case they are seen to have an impact on competition, capacity caps may be imposed.

3.4.3.2.4 OPAL 11.235

The OPAL (Ostsee-Pipeline-Anbindungsleitung) pipeline links Greifswald, the German landing point of NordStream, to Brandov at the Czech-German border. Together with the non-exempted NEL pipeline, it is the onshore continuation of NordStream. The Commission decision on OPAL has been adopted on 12 June 2009 under the second Gas Directive.888 The Commission decision relates to two national decisions, each covering a different ownership part (pipe in pipe) of OPAL.

11.236

The national decisions exempt the full forward capacity from Greifswald to Brandov from third party access and tariff regulation for a duration of 22 years. Non exempted capacities are especially (virtual) reverse flow capacities, additional capacities in the northern part of the pipeline between Greifswald and Groß Köris (4.5 bcm/a), or interruptible capacities freely allocable capacities. To prevent capacity hoarding, firm day ahead use it or lose it has to be applied. The shareholder agreement has to contain provisions ensuring the independence of the TSO management.

11.237

The Commission has regarded the OPAL pipeline as an interconnector, and thus as eligible for an exemption. The small dedicated exit capacities for Germany (4.5 of 36.5 bcm/a) are thus seen as unproblematic. Similarly, the continuation of OPAL in the Czech Republic by the Gazelle does not exclude this qualification. Whereas the majority of the gas coming form OPAL will flow back into the south of Germany, the crossing of another Member State is sufficient for the pipeline to qualify as an interconnector. The risks for the OPAL pipeline which justify the need for an exemption are particularly based on the link to the NordStream pipeline (but unrelated to the NordStream 2 project under discussion). If due to its political, economical and technical risks the NordStream pipeline was not operational, at least the northern part of the OPAL pipeline would stay empty.

11.238

The Commission however established that it could not be excluded that the OPAL pipeline strengthens the market power of undertakings already maintaining a dominant position in the Czech Republic. With reference to the Nabucco 888 https://ec.europa.eu/energy/sites/ener/files/documents/2009_opal_decision_de.pdf, K(2009)4694.

628

Chapter 11 Derogations and exemptions Jan Papsch

decision, the Commission thus decided to introduce a capacity cap. Similarly to the approach chosen in Nabucco, the national authority was thus requested to limit the use of OPAL by undertakings with a dominant position in the Czech Republic to 50 % of the capacities. In order to avoid an underuse of the pipeline, additional capacities could be booked by dominant undertakings if they agreed to a gas release program. This additional obligation was primarily applicable to Gazprom and RWE Transgas. The size of the required gas release was thus determined in view of the current share of non-Gazprom gas on the Czech market (22 % in 2007). To increase this share in case of an otherwise full booking of the pipeline by Gazprom, the volume of the gas release program was established at 3 bcm/a. Similarly, the OPAL TSO had to agree to a capacity release program of 3 bcm/a. However, a gas release program was never implemented. The pipeline was thus effectively subject to a capacity cap at 50 % (although Gazprom would arguably have had several means to flow higher volumes at its disposal, e.g. by moving delivery points to Greifswald), also resulting in an underuse of the NordStream pipeline due to a lack of onshore capacities. Against this background, the German regulator had agreed in a settlement agreement on a modification of the exemption decision, basically replacing the capacity cap by regulated access to 50 % of the capacities, subject to additional conditions. This settlement agreement was then notified in November 2013 as a modifying national decision under Article 36 of the Gas Directive. The restriction on flows for dominant undertakings was also challenged by the Russian Federation at the World Trade Organization, where the panel found it to result in a quantitative restriction to imports. The panel report889 is under appeal from both parties.

11.239

The exemption review procedure had been prolonged by the Commission in agreement with the national regulator pursuant to Article 36 (9) of the Directive. As Gazprom had not agreed to prolongation of a deadline under the Settlement Agreement signed with the national regulator, the substantive changes to the OPAL exemption which had been notified to the Commission have become void. The OPAL review procedure was thus terminated and no decision had been adopted. The 2009 exemption decision remained fully applicable.

11.240

889 DS476: European Union and its Member States – Certain Measures Relating to the Energy Sector, ­https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds476_e.htm.

629

Chapter 11 Derogations and exemptions Jan Papsch

11.241

11.242

However, a new settlement agreement (almost identical to the former agreement) was notified to the Commission in May 2016. The Commission890 analysed this agreement and found that, together with additional conditions, the amendments to the exemption decision could be accepted. The revised framework allows all undertakings to book unlimited capacity on the OPAL pipeline. To ensure sufficient access for competitors, at least matching the impact of a potential gas release program which would now be replaced, the Commission requested in particular the following conditions: –

Firm, freely allocable capacity (“FZK”) of 3.2 million kWh/h from the German system to the exit point Brandov needs to be made available. This capacity needs to be increased to at least 6.4 million kWh/h in case of high demand, and shall be increased further – provided a further increase in FZK capacities is technically feasible, the changes to the competitive situation are such as to justify an increase, and the benefits of an increase outweigh the costs thereof.

–

Dominant undertakings may only bid the starting price for the FZK capacity. Thus, if non-dominant undertakings which to buy such capacity, they cannot be outbid. Already the national settlement agreement had set out that FZK capacity shall be allocated on the basis of short- or medium term capacity products.

–

The OPAL transmission system operator shall be obliged to ensure, in cooperation with the Czech transmission system operator Net4Gas, to ensure sufficient entry capacity on the Czech side, matching the OPAL exit capacity.

–

OGT needs to be certified as complying at least with the second package unbundling rules.

The revised OPAL decision is under appeal. Whereas appeals by private operators have been found inadmissible by the General Court,891 the appeal by the Republic of Poland892 was successful. On 10 Septembre 2019, the General Court annulled the revised OPAL decision on the Ground that the Commission did not properly analyse the principle of energy solidarity. The Commission did not 890 Decision C(2016) 6950 final of 28 October 2016, https://ec.europa.eu/energy/sites/ener/files/documents/2016_opal_revision_decision_en.pdf. 891 T-849/16 PGNiG Supply & Trading GmbH v Commission, T-196/17 Naftogaz of Ukraine v Commis‑ sion, T-130/17 Polskie Górnictwo Naftowe i Gazownictwo v Commission, all under appeal. 892 T-883/16, Poland v Commission.

630

Chapter 11 Derogations and exemptions Jan Papsch

separately analyse this principle as this was not expressly required under Article 36 of the Gas Directive. However, the General Court found that this requirement comes directly from Article 194 TFEU and needs to be respected in all decisisions by EU and Member State institutions. Notably, Recital 73 of the General Court decision sets out that this “policy requires the European Union and the Member States to endeavour, in the exercise of their powers in the field of energy policy, to avoid adopting measures liable to affect the interests of the European Union and the other Member States, as regards security of supply, its economic and political viability, the diversification of supply or of sources of supply, and to do so in order to take account of their interdependence and de facto solidarity.” The Commission has decided not to appeal this decision of the General Court and thus to require assessment of the principle of energy solidarity in future exemption decisions. However, Germany has decided to appeal the General Court decision (Procedure C-848/19P pending at the Court of Justice). For the time being, the 2009 exemption decision is again fully applicable.

11.243

3.4.3.2.5 Gazelle The Gazelle pipeline links the Brandov border station, the end point of OPAL, to Waidhaus at the German-Czech border. The pipeline therefore ensures supply of southern Germany (and via MEGAL also France) with gas coming from NordStream. The Commission decision has been adopted under the third Gas Directive on 20 May 2011.893 A separate decision on an exemption from ownership unbundling was issued on 1 December 2011.894

11.244

The notified decision exempts a maximum of 30 bcm/a of forward-flow capacity from regulated third party access (Article 32,33 and 34 of the gas Directive) and from the regulation of tariffs (Article 41 (6), (8) and (10) of the gas Directive) for a period of 23 years. By way of a separate decision, the pipeline is also exempted from the requirement of ownership unbundling (Article 9 of the gas Directive).

11.245

The Commission has accepted the Gazelle pipeline as eligible. It qualifies as an interconnector, as it crosses the border to Germany. Taken together with the OPAL decision, the Commission has thus in essence accepted that a set of pipe-

11.246

893 https://ec.europa.eu/energy/sites/ener/files/documents/2011_gazelle_decision_en.pdf, C (2011) 3424. 894 https://ec.europa.eu/energy/sites/ener/files/documents/2011_gazelle_unbundling_decision_en.pdf. C(2011) 8777

631

Chapter 11 Derogations and exemptions Jan Papsch

lines895 aimed at starting and ending in the same Member State, but crossing a different Member State with some access possibilities, constitute an interconnector. Furthermore, the use of limited existing stretches of infrastructure (in the case of Gazelle: 20 of 160 km) does not prevent an infrastructure to be qualified as “new” under Article 36 of the gas Directive.

11.247

As regards the effects of Gazelle on competition, the Commission accepted the argument that without the construction of Gazelle, the additional gas coming from OPAL would create congestion in the Czech system. Whereas competitors would thus not gain access to Gazelle, they could benefit from the commissioning of Gazelle to use free capacities on already existing pipelines. Furthermore, Gazelle had no negative impact on competition in the Czech Republic, as it did not allow for regular access to the Czech market.

11.248

In order to ensure a contribution of the Gazelle pipeline to security of supply, the Commission has requested the Czech authorities to to establish sufficient bi-directional capacities on Gazelle. Furthermore, the border point of Brandov should be treated as one common entry/exit point with the existing exit/entry point of Hora Svate Kateřiny for the purpose of trading gas from and to Germany. The Commission has also limited the duration to the duration of the OPAL exemption, thus 22 years or until 1 January 2035. Finally, in addition to the use it or lose it principles foreseen in the national decision, the Commission requested the possibility to sell capacity rights on a secondary market. In the decision on exemption of Gazelle from ownership unbundling, the Commission imposed the condition that ERU is to be certified as ITO or ISO in order to ensure non-discriminatory access to non-exempted capacities.

3.4.3.2.6 TAP 11.249

The Trans-Adriatic Pipeline (TAP) is planned to link the greek-Turkish boder via Albania and the Adriatic sea to Italy. The approximately 800 km long pipeline is planned as part of the southern gas corridor, initially to bring Azeri gas from the second phase of the Sha Deniz field (SD II) into the EU. It was thus competing with Nabucco for the supplies from SD II. The exemption decision was adopted on 16 May 2013.896 With more than 60 pages, it is by far the longest and most detailed exemption decision to date (the Nabucco decisions had e.g. 9 to 21 pages). 895 In fact, the Gazelle pipeline even has no own compressor station, relying on the high pressure coming from the OPAL pipeline, see Gazelle decision footnote 17. 896 https://ec.europa.eu/energy/sites/ener/files/documents/2013_tap_decision_en.pdf, C(2013) 2949 final.

632

Chapter 11 Derogations and exemptions Jan Papsch

Procedurally, the decision has drawn important lessons from Nabucco. The national authorities of Greece, Italy and even the Energy Community member Albania agreed to a joint opinion, which was the basis for the national decisions notified to the Commission. To align the date for the Commission decision and issue one joint decision for both EU Member States, the Greek authoritiy agreed to a prolongation of the Commission’s deadline. The Secretariat of the Energy Community also exchanged draft Decisions with the Commission, to align content and timing. This approach was also followed in other less complex exemption cases thereafter.

11.250

The national exemptions were granted for a duration of 25 years from start of operations. They covered third party access for 10 bcm/a forward flow (equivalent to the initial capacity of SD II gas), tariff regulation for initial and expansion capacity (in total 20 bcm/a) and exemption from ownership unbundling for the entire project. The request for exemption of reverse flow products from tariff regulation was rejected. The very detailed conditions especially entailed:

11.251

–

The exemption from third party access was limited to gas from SD II and to allocations to the initial shareholders, deviations from this requiring NRA approval.

–

Up to 20 bcm/a, TAP AG is obliged to build expansion capacity in case of market interest, thereafter this has to be assessed for economic and technical feasibility.

–

5% of the capacities have to be offered short-term.

–

TAP has to be certified in a specific unbundling model roughly based on the ITO provisions.

–

A general exemption from the Gas Regulation was rejected. However, TAP may deviate from the Rgeulation in so far as this is approved in the TAP network code by the national authorities.

–

TAP has to construct connections to the general Greek and Albanian transmission systems on request.

–

Capacity caps for undertakings holding a market share of more than 40 % in any given market are implemented.

633

Chapter 11 Derogations and exemptions Jan Papsch

11.252

11.253

–

Changes in the TAP shareholder structure have to be notified to the national authorities, which then have to assess if the exemption still remains applicable.

–

Reverse flow is not exempted from tariff regulation, and tariffs may not be higher than 5 % of the forward flow tariff.

As the TAP pipeline largely relied on the SD II field production, the market test was only partly concluded by the time of adoption of the exemption decision. While a non-binding expression of interest had taken place, the binding booking phase was postponed until after the decision by SD II. It had to take place within three months from the final investment decision. The Commission accepted this approach, noting however that guidelines could require a more strict application of Article 36 (6) at a later stage. The Commission underlined that pursuant to Regulation 994/2010, all interconnections should be physically bi-directional at any time. This would be fulfilled by TAP, which planned with physical reverse flow capacities of 5-6 bcm, significantly enhancing greek security of supply.897

11.254

The Commission also accepted to grant an exemption already in 2013, although first deliveries of gas were only foreseen for 2019. The delay in supplies became known only after the start of the procedure. The Commission thus immediately included in the exemption decision an assessment under Article 36 (9) fifth subparagraph that the delay is due to obstacles beyond the control of the person to whom the exemption has been granted. As the SD II field was thereafter announced to start operations only in 2020, the Commission agreed to a further prolongation of the date for the start of operations unitl 31 December 2020. A prolongation of the start of constructions beyond the initial date (May 2016) was however refused as no grounds for this had been submitted.898

11.255

In its decision, the Commission clarified the application of the capacity caps and set strict timelines for the construction of the expansion capacity. The obligation to offer short term products was increased to 10 % of the expansion capacity. The Commission imposed a minimum of 5 bcm/a of reverse flows for commercial and (as physical reverse flows) for emergency operations. TAP AG shall be certified on the basis of the ITO provisions, with the exeption of the invest897 C(2013) 2949 final, paragraph 71. 898 C(2015) 1852 final of 17 March 2015, https://ec.europa.eu/energy/sites/ener/files/documents/2015_ tap_prolongation_decision_en.pdf.

634

Chapter 11 Derogations and exemptions Jan Papsch

ment obligations. As regards Article 30 of the Gas Regulation, the Commission clarifies that this only applies to fully exempted infrastructures. The burden of proof to refuse the construction of additional entry capacities is shifted on TAP AG. Capacity caps are also to undertakings in a dominant position on other markets than the relevant wholesale market. Finally, the national decisions shall allow for withdrawal of the exemption in case of serious violations of the conditions imposed. The Commission thus further developed the line of reasoning of the Nabucco and OPAL decisions, especially making progress on the procedure for multi-country exemptions, other procedural safeguards, and the importance of reverse flows.

11.256

3.4.3.2.7 SK-HU Interconnector The Slovak-Hungarian gas interconnector is a bi-directional pipeline which started operations in January 2015. The exemption decision was adopted on 17 September 2013. The exemption only relates to the unbundling rules. Whereas the project had initially planend by both TSOs, the Hungarian TSO withdrew from the project following insuccessful open seasons. The new Hungarian partner MGT being jointly controlled by the major Hungarian energy company MVM, the project required an exemption from ownership unbundling rules.

11.257

The Hungarian decision exempted the project for a duration of 25 years from ownership unbundling provisions, with earlier termination possible if the investment has amortized before. No single company is allowed to book more than 25 % of the import capacities, with possibility for the national regulator to allow deviations in case of underutilisation. Finally, double representation in the boards of MGT and MVM has to be excluded and the voting rules inside MGT have to be changed so that approval of the other controlling shareholder is required. Interestingly, the obligations to replace ownership unbundling are thus not in majority put on the project company, but on the vertically integrated undertaking participating in the project.

11.258

The Commission had doubts as regards the booking limitation which applied to all undertakings, and requested its replacement by a cap in line with the Nabucco/OPAL/TAP practice which applies only to dominant undertakings. Any exemption from this cap should consider the possibility of imposing a gas release program. Instead of limiting board representation, the Commission imposes the capacity on the Hungarian section of the interconnector to be allocated by a certified TSO.

11.259

635

Chapter 11 Derogations and exemptions Jan Papsch

3.4.3.3 Interconnector Greece-Bulgaria (IGB) 11.260

The interconnector Greece-Bulgaria (IGB) aims at connecting the TAP system and the general Greek transmission system to the Bulgarian transmission system. This would thus allow supplies to Bulgaria from the south, which otherwise would be possible only via reverse flow.

11.261

On 25 July 2018, the Commission approved the requested exemptions, subject to conditions. One of the main challenges of the project is ensuring the required pressure on the pipeline, as in the first stage, no new compressor station is planned. The Commission decision thus clarifies that it is up to the pipeline operators to ensure the capacity is effectively availablem, possibly based on agreements with neighboring transmission system operators. The national decisions already contained a number of conditions, including 40 % capacity caps on undertakings having a more than 40 % market share and additional market testing obligations for eventual capacity increases. In view of the detailed and important conditions contained in the national decisions, the Commission thus only requested ensuring that interruptible reverse flows are offered at least in equal volume as physical forward flows, and that reductions in load factor shall not result in more than 50 % of total capacity being exempt from third party access requirements. Different from the OPAL decision, no regular reporting is required but instead reporting to the Commission on its request is deemed sufficient.

3.4.3.4 LNG terminals 11.262

The Commission has adopted in total 14 decisions on exemptions for terminals for the regasification of liquid natural gas (including one acceptance of withdrawal of an exisiting exemption). These cases are generally of lower complexity than exemptions for pipelines or transmission infrastructure, and one may get the impression that the Commission has been willing to accept exemptions rather easily. This may be due to the important role of LNG terminals for security of supply, and the significant uncertainties which exist as regards the future use of these terminals, making financing in the regulated system sometimes difficult. Furthermore, the entry barriers for the construction of LNG terminals are – compared to major import pipelines – relatively low, allowing competing terminals to co-exist in some cases. Not all LNG terminals benefiting from an exemption have been realized.

636

Chapter 11 Derogations and exemptions Jan Papsch

Until 2009, all exemptions have been accepted without requesting any modification of the national exemption decision: –

Grain (United Kingdom), 10 February 2005;899

–

South Hook (United Kingdom), 10 February 2005;900

–

Rovigo (Italy), 10 February 2005;901

–

Dragon (United Kingdom), 29 March 2005;902

–

Brindisi (Italy), 13 September 2005;903

–

Gate Terminal (Netherlands), 26 March 2007;904

–

Liongas (Netherlands), 18 October 2007;905

As regards these decisions, one issue is of more general interest: In the Grain case, the national authority noted in relation to the risk associated with the project that “without the expectation of an exemption the income assurances required to make the project viable would not have been sufficient when taking into account the significant risks associated with the project and NGT’s view of the risk-reward balance.” This argument, whereby the “expectation of an exemption” was cited, was necessary since some work on the terminal had started before the formal process of awarding the exemption had been undertaken. This situation emerged because the project was started before the gas Directive had been formally transposed in the United Kingdom. However at the same time the UK government was eager for the terminal to be available as soon as possible, given the deterio899 https://ec.europa.eu/energy/sites/ener/files/documents/2005_grain_decision_en.pdf, TREN  D(2004) 24067. 900 https://ec.europa.eu/energy/sites/ener/files/documents/2005_south_hook_decision_en.pdf, TREN D(2005) 101791. 901 https://ec.europa.eu/energy/sites/ener/files/documents/2005_rovigo_decision_it.pdf, TREN D(2005) 101791. 902 https://ec.europa.eu/energy/sites/ener/files/documents/2005_dragon_decision_en.pdf, TREN D(2005) 105942 – the Commission however submitted comments to the national decision, voicing some concern as regards the role of Centrica as a long-term contractor of capacities. 903 https://ec.europa.eu/energy/sites/ener/files/documents/2005_brindisi_decision_it.pdf, TREN D(2005) 119076. 904 https://ec.europa.eu/energy/sites/ener/files/documents/2007_gate_terminal_decision_en.pdf, TREN D(2007) 306919 – the Commission however provides limited comments. 905 https://ec.europa.eu/energy/sites/ener/files/documents/2007_liongas_decision_en.pdf, TREN D(2007) 324685.

637

11.263

11.264

Chapter 11 Derogations and exemptions Jan Papsch

rating supply-demand position. Some assurance was therefore provided to the project developers concerning the possibility of the exemption before the work was started. While the Commission did not expressly agree to this line of reasonin, it did not require any changes to the national decision. A similar situation appeared for the Brindisi terminal, where Italian law had foreseen an automatic exemption for LNG terminals. While this provision was excluded from Italian law at a later stage, the project promoters had taken account of the exemption for their investment decision. Thus, as regards the risk assessment, it appears possible to take account of legitimate expectations to receive an exemption if works on an infrastructure are started prior to an exemption being awarded.

11.265

As of 2009, also exemption decisions for LNG terminals started to contain more detailed assessment and request modifications, in particular on validity limitations and capacity caps. Furthermore, exemption periods were generally limited to 20 years.

11.266

For the Eemshaven terminal,906 the Commission requested the exemption decision to become invalid if the terminal was not operational by 2014, the capacity allocated to a party with a dominant position to be limited to 50 %, and allocation of capacities to follow a less discriminatory system than “first come, first served”.

11.267

Regarding the Livorno terminal,907 only the limitation in time was requested.

11.268

For the French Dunkerque LNG,908 the national decision had already foreseen capacity caps on EDF and GDF-Suez and the mandatory implementation of a market test. The Commission established that in allocating the capacities, it can be justified to give priority to companies willing to invest in the LNG terminal. To the contrary, the two other criteria (readiness to sell LNG to EDF and volume of the total booking request) were not seen as justifiable. Furthermore, the French authorities had imposed that should the terminal use more than 10 % of its capacities for reexport, a new exemption request had to be submitted. As the exportation capacities were only foreseen for the European market, the Commission found this condition to be unjustified and limiting the free movement of goods. Finally, also this decision was limited in time for the start of operations. 906 https://ec.europa.eu/energy/sites/ener/files/documents/2009_eemshaven_decision_en.pdf, C (2009) 4006 of 15 May 2009. 907 https://ec.europa.eu/energy/sites/ener/files/documents/2009_livorno_decision_en.pdf, C (2009) 10172 of 11 December 2009. 908 https://ec.europa.eu/energy/sites/ener/files/documents/2010_dunkerque_decision_fr.pdf, C (2010) 381 of 20 January 2010.

638

Chapter 11 Derogations and exemptions Jan Papsch

For the Irish Shannon terminal,909 the Commission requested the organization of a formal market test, limited the capacity to be allocated on the basis of long term contracts to undertakings with a market share of more than 50 % in Ireland to 50 % of total capacities, and added a limitation in time for the start of operations.

11.269

The Italian Porto Empedocle terminal exemption910 was adopted under the third gas Directive, whereas the national procedure was still subject to the second gas Directive. The Commission has agreed to a 25 year exemption period only in view of a time limitation to the land use permit of 30 years. In case this permit was prolonged beyond 30 years, the exemption should be reduced to 20 years.911 The Commission also introduced a capacity cap, limiting long term contracts by undertakings with a market share of more than 40 % to 5 % of the total terminal capacity.

11.270

The already exempted Grain LNG terminal was subject to a separate exemption for an expansion project. The Commission accepted the increase in capacity from 20 bcm/a to 28.4 bcm/a as a significant increase in the meaning of Article 36 (2) of the gas Directive. The expansion of the terminal was seen as beneficial for competition and security of supply as it increased the number of primary LNG capacity holders in the UK from 11 to 13 and diversified the supply routes. No changes were requested.

11.271

Finally, the Livorno terminal was also subject to a second decision.912 This floating terminal had since the start of operations not been used. Under the regulated system, part of the costs of unused terminals are socialized under some conditions, which however does not apply to exempted infrastructures. The project company thus applied for a waiver of the exemption. This was accepted by the Italian authorities, which considered the terminal an infrastructure “that is essential and indispensable for ensuring appropriate security, value for money and competition in energy supplies”, thus entitled to partial socialization of costs.

11.272

909 https://ec.europa.eu/energy/sites/ener/files/documents/2010_shannon_decision_en.pdf, C (2010) 5300 of 26 July 2010. 910 https://ec.europa.eu/energy/sites/ener/files/documents/2012_porto_empedocle_decision_en.pdf, C(2012) 3123 of 7 May 2012. 911 This appears problematic to ensure if the prolongation occurs at the end of the period. 912 https://ec.europa.eu/energy/sites/ener/files/documents/2015_lng_toscana_en.pdf, C(2015) 72 of 6 January 2015.

639

Chapter 11 Derogations and exemptions Jan Papsch

11.273

As the binding acceptance of the waiver request resulted in changes to the initial exemption decision (effectively withdrawing it), the Italian authorities notified the acceptance to the Commission under Article 36 of the gas Directive. The Commission assessed the acceptance of the waiver request, requesting express confirmation that it resulted in full withdrawal of the exemption. After this confirmation, the Commission did not apply the entire set of criteria under Article 36, as they are not adapted to verification of full withdrawals, effectively bringing the infrastructure back into the regulated system. The Commission underlined that fully integrating a previously exempted infrastructure into the regulated system by withdrawing the exemption, in its entire scope and irrevocably, is in principle beneficial for the effective functioning of the internal gas market.

11.274

The Commission thus limited the legal test to avoiding abusive cases. In particular, the waiver of an exemption may not have as a consequence a shift of an excessive burden created by previously exempted infrastructure to the regulated system. One could e.g. imagine this to be the case if an infrastructure would not have received any recognition by the NRA if it had directly been built under the regulated system (e.g. because it is clearly not needed) but could benefit from cost socialization by circumventing such verifications via the exemption regime, becoming an existing infrastructure. However, as the national decision expressly asked the NRA to “ verify the relevance of the costs incurred to construct the terminal and their eligibility, including with reference to similar infrastructure projects”, the Commission did not find indications for such an abuse. It thus agreed to the waiver request and, for reasons of legal certainty, also withdrew the Commission’s original exemption decision.

3.4.3.5 Gas storage 11.275

The only decision on an exemption for an underground gas storage (UGS) facility was also the only negative decision issued by the Commission in an exemption procedure for the time being. Whereas the Czech NRA had initially recommended not to grant an exemption, the at that time competent authority, the Ministry of Industry and Trade, had decided to request it. Procedurally, the case is relatively complex.

11.276

The Commission refused the request for exemption from the regulatory provisions on gas storage, as it had not been shown that the exemption was required for the investment to take place. The Commission argued that the (relatively light) rules on negotiated access to gas storages under Czech national law allowed the project promoters to to sell up to 90% of new capacity to one single 640

Chapter 11 Derogations and exemptions Jan Papsch

bidder and up to 15 storage years under certain minimum procedural requirements. It then found that it had not been demonstrated how under such light requirements an exemption was required. Against this background, the national authorities were asked to withdraw their exemption decision.913 This decision was appealed by the project company. On 6 September 2013, the General Court delivered its judgment in case T-465/11. The General Court annulled the Commission decision, stating that the Commission should have applied the substantive and procedural rules of Directive 2003/55/EC and not those of Directive 2009/73/EC when assessing the notified decision. The General Court found that as the national decision had been adopted under Directive 2003/55/EC, and the decision was notified to the Commission shortly prior to the end of the transposition deadline of Directive 2009/73/EC. The judgment has been appealed by the Commission (C-596/13).914 Whereas other procedures have been continued under the Third Package which had been notified prior to March 2011, these decisions have since become final and binding as the deadline for an appeal has lapsed.

11.277

In view of the judgment of 6 September 2013 under appeal, the Commission requested the Czech authorities on 4 November 2013 under the provisions of the second package to withdraw the national exemption Decision. The Czech Republic introduced an action for annulment with regard to the Commission’s request (Case T-27/14). On 10 November 2014, this action was rejected by the General Court as inadmissible.

11.278

On 26 March 2015 (C-596/13 P), the European Court of Justice overturned the decision of the General Court, confirming that the Commission correctly chose Directive 2009/73/EC and referred the case back for decision on the other grounds of appeal. The applicant then agreed to discontinue proceedings at the General Court (Case T-465/11 RENV). The initial exemption decision of the Commission is thus reinstated and final.

11.279



913 https://ec.europa.eu/energy/sites/ener/files/documents/2011_damborice_decision_en.pdf, Decision C (2011) 4509 of 27 June 2011. 914 On 11 December 2014, Advocate General Kokott issued her opinion in this procedure. She recommended the Court to give suit to the Commission appeal, as the Commission correctly chose to apply the Third Package as regards both the procedure and the substantive assessment, but to refer the case back to the General Court to assess the other two grounds for appeal.

641

Chapter 12 The establishment of common network rules William Webster

Chapter 12 The establishment of common network rules

1.

Introduction

This chapter explains cooperation between TSOs in more detail and summarises the evolution of the framework for common network rules up to the end of 2019. By this time, a full s��������������������������������������������������������������� uite of network codes for gas and electricity has been completed and furthermore the Electricity Regulation has itself been recast. Part of the reason for this was that some of the issues being dealt with in the network code process were rather fundamental, for example on priority dispatch for renewables or bidding zones. So, these were considered through the full co-decision process.

12.1

This Chapter therefore reviews the 2019 Electricity Regulation, recaps the main parts of the Gas Regulation and summarises the outcomes of the network code development process to date. It also deals with other tasks for the TSO cooperation structures, as well as providing the historical background of TSO cooperation, notably the Madrid and Florence regulatory Fora.

12.2

The third legislative package of 2009 already considerably strengthened the framework for co-operation between network operators and the development of EU wide rules for cross border transmission for gas and electricity. It also introduced numerous provisions aimed to put regional cooperation of TSOs on a new footing. It also introduced a formal procedure for the adoption of binding network codes for both electricity and gas.

12.3

This built on the achievements of the largely voluntary efforts of the Madrid and Florence Fora in establishing har��������������������������������������� monised or compatible technical and access conditions and the initial cross border Regulations for electricity and gas developed in the early 2000s.

12.4

643

Chapter 12 The establishment of common network rules William Webster

2.

The Florence and Madrid Fora and first cross border Regulations

12.5

Cooperation between transmission system operators at regional and Community level initially built on the informal mechanisms which had been developed over the years since the initial Directives liberalising the electricity and gas markets. From the late 1990s TSOs, governments, regulators and other market participants shared experience and cooperated through the Florence and Madrid Fora.

12.6

These events were established at the initiative of the European Commission after the adoption of the first electricity and gas Directives to discuss and develop further regulatory rules and procedures to help establish a truly cross-border internal energy market. These led to the development of the first Regulations governing transmission of electricity and gas across borders in 2003 and 2005 respectively.915 At the time, the energy markets that existed were focused very much at national level, and there were widely varying technical and commercial conditions for access to the grid (including tariff systems, congestion management and allocation procedures) depending on the specific rules of the Member State. In order to deal with these differences, which presented severe obstacles to cross-border trade, the Commission developed informal processes with the aim of gradually developing (harmonised) rules through consensus building and various pilot projects. The Fora, which are still running today, do not have legal recognition or formal powers. Decisions have been typically reached by consensus. Notwithstanding this, they proved to be successful mechanisms to develop new practices on, inter alia, cross‑border trade, congestion management, and transparency and tariff guidelines and principles.

12.7

12.8

12.9

However, compliance with these principles developed was also voluntary and sometimes remained at a low level. It was therefore decided to develop a process to make these principles binding. The first electricity Regulation therefore took the basic rules agreed in the context of the Florence Forum and turned them into legally enforceable ones.

915 Regulation 1228/2003 and Regulation 1775/2005 (now repealed).

644

Chapter 12 The establishment of common network rules William Webster

Regulation 1228/2003 also was the first to provide a mechanism – the adoption of binding Guidelines (as Commission Regulations) through the Comitology procedure existing at that time – for amending and updating the detailed rules needed to implement the principles agreed at Florence and contained in the Regulation. The Comitology procedure itself evolved following the Lisbon Treaty now and the new legal instruments are termed Delegated Acts and Implementing Acts discussed below.

12.10

The Madrid Forum likewise operated on the basis of consensus rather than any sort of legal power in developing rules for the further integration of the gas market. Initially, the Madrid Forum developed so-called Guidelines for Good Practice (GGP), the first of which was agreed in February 2002. It dealt with principles for access conditions to gas transmission networks and was initially drafted by GTE, the existing European association of gas transmission companies; in close cooperation with the regulators and the Commission (later GGPs also defined Guidelines for access to storage facilities and LNG terminals).

12.11

As for electricity, compliance with the GGPs was far from universal. The Commission therefore – as it had previously done for electricity - proposed the formalisation of the GGP through a Regulation. As for electricity, this made the principles set out in the GGP directly applicable and enforceable in the Member States. It also contained an Annex with more detailed binding “Guidelines” setting out further requirements for some of the issues addressed in the Regulation.

12.12

By 2005 therefore, both the electricity and gas Regulation therefore provided for a Comitology procedure for the adoption of amended or additional Guidelines. At the time, it was envisaged that the Comitology procedure would allow for the gradual development of detailed rules of ‘technical’ nature. Instead of having to go through the long and heavy legislative procedure of adopting a new Regulation or Directive, the Comitology procedure was meant to offer a quicker and more flexible route. At that time, it was envisaged that more detailed Guidelines in different areas would emerge through ongoing discussions between stakeholders in the Florence and Madrid Fora.

12.13

645

Chapter 12 The establishment of common network rules William Webster

3.

Revisions to the Regulations in 2009 and the introduction of the network code development process

12.14

Both the electricity and gas cross border regulations were revised as part of the Third Package adopted in 2009 and implemented from 2011.916 This introduced a totally new formal structure for the adoption of cross border rules using the new institutions; namely the ENTSOs and the Agency for European Energy Regulators (“the Agency”). As discussed in Chapter 7, the Agency was set up through Regulation 713/2009, subsequently revised in Regulation 2019/942.

12.15

However, although the decision making structure has been formalised since 2009, the Florence and Madrid Fora have continued. They now provide a means for informal discussion and to ensure that individual Member States continue to remain informed of the proposed rules as they are formulated. This assists with the final decisions, which are now taken by the Commission, advised by Member States, through the revised Implementing Acts process set out in the Lisbon Treaty. The Fora are also used to encourage early, voluntary implementation of the principles being discussed in order, for example, to allow appropriate systems to be developed and tested.

12.16

However, the 2009 Regulations provided for ACER and the ENTSOs to become the key institutions in the new framework as they were given key roles in the development of network codes by in a number of areas such as capacity allocation procedures, congestion management, balancing and other technical and access conditions. This degree of technical harmonisation has been necessary to make the internal energy market function properly, as the differences in technical and market codes formed a regulatory patchwork which made efficient access to networks and customers across borders difficult.

12.17

Following the revision to the Regulations in 2009, the procedure for the development of network codes consisted, in a very simplified form, of three steps: 1.

The Commission requests the Agency to develop non-binding framework guidelines which are the basis for one or several network codes.

2.

The Commission then requests ENTSOs to develop the network codes.

916 Regulations 714/2009 (now repealed) and 715/2009.

646

Chapter 12 The establishment of common network rules William Webster

3.

The Commission makes these codes legally binding through the Implementing Acts procedure with Member States endorsing the adoption of a binding network codes as Commission Regulations.

Stage 1. The Commission starts the process: –

The Commission establishes an annual priority list of issues to be included in the development of network codes, after consulting the Agency, ENTSO and relevant stakeholders.

–

The Commission requests the Agency to develop non-binding framework guidelines, within 6  months extendable once by 6  months. The framework guidelines must set clear and objective principles for the codes. The Agency has to consult ENTSO and stakeholders on the draft guidelines. The framework guidelines must be considered final when the Commission has not raised any objections within a reasonable period of time. They are not legally binding but guide the subsequent code development process to the extent that the Agency would be unlikely to accept network codes which are not in line with the framework guidelines.

–

The Commission requests then ENTSO to develop codes which comply with the framework guidelines.

Stage 2. ENTSO drafts the network codes: –

ENTSO must consult widely, with customers, network users, supply and production undertakings, industry associations, technical bodies and stakeholder platforms, in an open and transparent manner on its draft network codes.

–

For codes that have been identified in the Commission’s priority list, ENTSO must comply with the framework guidelines drafted by the Agency and must submit the codes to the Agency within a reasonable period of time not exceeding 12 months. For codes it wishes to develop in other areas it must also consult but there are no framework guidelines to comply with.

–

The Agency must give its opinion on the draft code within 3 months, during which it may carry out a consultation with relevant stakeholders.

647

12.18

12.19

Chapter 12 The establishment of common network rules William Webster

–

12.20

The Agency may request ENTSO to amend the code and re-submit it. Once the code complies with the framework guideline, the Agency must submit the code to the Commission and may recommend that it be adopted.

Stage 3. The code becomes binding: –

The Commission then, at the recommendation of the Agency or on its own initiative, adopts the proposed codes via the Implementing Acts procedure. If the Commission does not adopt a code after recommendation from the Agency, it must state the reasons why.

–

Where ENTSO and the Agency have failed to develop a code, the Commission may propose to adopt a code on its own initiative. In that case the Commission must consult at least for two months.

–

The network codes become binding Regulations with direct effect in all Member States.

12.21

When adopting Implementing Acts under the regulations, the Commission constitutes a Committee of Member States in accordance with Regulation 182/2011. The Electricity Cross Border Committee and the Committee on the implementation of common rules on the transport, distribution, supply and stor‑ age of natural gas first met in 2014. To date these Committees have approved 13 measures in the form of Commission Regulations. These are reviewed in more detail in Section 9 below.

12.22

The Figure 12.1 overleaf sets out, in diagrammatic form, the process described above. This basic approach has not been substantially changed by the adoption of a re-cast version of the Electricity Regulation 2019/943 and a revised version of the Agency Regulation (2019/942) as discussed in Section 4 below.

648

Chapter 12 The establishment of common network rules William Webster

Commission

ENTSO

Agency

annual priority list

framework guidelines

Stakeholders

consultation preparation of framework guidelines

consultation

preparation of codes

opinion on codes

consultation

consultation

preparation of codes

consultation

preparation of codes consultation non-binding codes

comitology compulsory step optional step

binding codes

Figure 12.1. Summary of Network Code development process.

649

Chapter 12 The establishment of common network rules William Webster

4.

The recasting of the Electricity Regulation 2019/943

12.23

In 2015 a process was initiated by the Juncker Commission aimed at a new Energy Union strategy and a comprehensive update of the energy policy framework. This was a consequence of the commitments made by the EU with respect to the Paris agreement concerning the objective to reduce greenhouse gas emissions. A set of proposals were made by the Commission in November 2016 across a range eight different pieces of legislation.

12.24

The Clean Energy Package consisted of revisions to the Directives on i) Renewables, ii) Energy Efficiency and iii) Energy performance in Buildings as well as iv) Regulation on Governance of the Energy Union. These put into effect a new system of target setting and oversight with respect to Climate Policy. There were also four measures relating to the internal market including the revised Electricity Directive, the re-cast Electricity Regulation, and a further Regulation on risk preparedness; and finally the regulation setting out the role of the Agency for the Cooperation of Energy Regulators (ACER) was revised.

12.25

The proposals mainly concerned electricity rather than gas. This was because the impacts of renewable and other low carbon generation on the market framework have, to date, been more profound. In particular, as a consequence of the targets set out in both the revised and previous Renewable Directives, very large amounts or intermittent generation would continue to be connected, both at transmission and distribution level. This created both challenges and opportunities for network management and market participation. One particular objective of the proposed revisions was to ensure that consumers, even down to household level, could participate fully in electricity wholesale markets, taking advantage of new technologies such as digitalisation.

12.26

Although the 2016 package did not propose changes to the gas market legislation, these were discussed in the 2019 meetings of the Madrid Forum and it is likely that the new Commission will be asked to come forward with new proposals during 2020-21. As for electricity, this will be driven by the Commission’s commitments relating to Climate Change and the potential for a “net zero” target for 2050 to be adopted, going beyond the commitment following the Paris agreement of a 80-95% reduction. A net zero target would require the use of gaseous fuels to also be decarbonised, including an expansion of biogases and hydrogen.

650

Chapter 12 The establishment of common network rules William Webster

In this Chapter, therefore, extracts from the Electricity Regulation are mainly included for analysis with the expectation that similar “mirroring” measures relating to cooperation between gas TSOs and DSOs are likely to be proposed by the Commission with respect to the overarching framework.

12.27

The re-cast Electricity Regulation was adopted by Council and Parliament in June 2019 with most of the provisions entering into force immediately or, at the latest by 1 January 2020. The revised Regulation makes a number of changes concerning the degree of cooperation between TSOs. It also sets out clear principles relating to the adoption of network codes and guidelines following implementing acts which have now been agreed by Council and Parliament rather than the Implementing Act process.

12.28

Regulation 2019/943 Article 3 Principles regarding the operation of electricity markets “Member States, regulatory authorities, transmission system operators, distribution system operators, market operators and delegated operators shall ensure that electricity markets are operated in accordance with the following principles: (a) prices shall be formed on the basis of demand and supply; (b) market rules shall encourage free price formation and shall avoid actions which prevent price formation on the basis of demand and supply; (c) market rules shall facilitate the development of more flexible generation, sustainable low carbon generation, and more flexible demand; (d) customers shall be enabled to benefit from market opportunities and increased competition on retail markets and shall be empowered to act as market participants in the energy market and the energy transition; (e) market participation of final customers and small enterprises shall be enabled by aggregation of generation from multiple power-generating facilities or load from multiple demand response facilities to provide joint offers on the electricity market and be jointly operated in the electricity system, in accordance with Union competition law;

651

Chapter 12 The establishment of common network rules William Webster (f ) market rules shall enable the decarbonisation of the electricity system and thus the economy, including by enabling the integration of electricity from renewable energy sources and by providing incentives for energy efficiency; (g) market rules shall deliver appropriate investment incentives for generation, in particular for long-term investments in a decarbonised and sustainable electricity system, energy storage, energy efficiency and demand response to meet market needs, and shall facilitate fair competition thus ensuring security of supply; (h) barriers to cross-border electricity flows between bidding zones or Member States and cross-border transactions on electricity markets and related services markets shall be progressively removed; (i) market rules shall provide for regional cooperation where effective; (j) safe and sustainable generation, energy storage and demand response shall participate on equal footing in the market, under the requirements provided for in the Union law; (k) all producers shall be directly or indirectly responsible for selling the electricity they generate; (l) market rules shall allow for the development of demonstration projects into sustainable, secure and low-carbon energy sources, technologies or systems which are to be realised and used to the benefit of society; (m) market rules shall enable the efficient dispatch of generation assets, energy storage and demand response; (n) market rules shall allow for entry and exit of electricity generation, energy storage and electricity supply undertakings based on those undertakings’ assessment of the economic and financial viability of their operations; (o) in order to allow market participants to be protected against price volatility risks on a market basis, and mitigate uncertainty on future returns on investment, long-term hedging products shall be tradable on exchanges in a transparent manner and long-term electricity supply contracts shall be negotiable over the counter, subject to compliance with Union competition law;

652

Chapter 12 The establishment of common network rules William Webster (p) market rules shall facilitate trade of products across the Union and. regulatory changes shall take into account effects on both short-term and long-term forward and futures markets and products; (q) market participants shall have a right to obtain access to the transmission networks and distribution networks on objective, transparent and non-discriminatory terms.”

Some key electricity market principles are contained in Article 3 of the Regulation and then elaborated in detail in its main sections. A review of some of these principles is set out below.

12.29

Balancing Articles 5-6 of the Regulation set out basic principles relating to balancing. This clarified that all market participants must be responsible for their imbalances. This was previously not always the case, particularly for renewable producers. The Regulation also standardises the functioning of balancing and settlement to a large degree in Article 6(4) – 6(6) with only limited justified exceptions being permitted. Regulation 2019/943 Article 6 (extract) “2. The price of balancing energy shall not be pre-determined in contracts for balancing capacity. Procurement processes shall be transparent in accordance with Article 40(4) of Directive (EU) 2019/944, while protecting the confidentiality of commercially sensitive information. 3. Balancing markets shall ensure operational security whilst allowing for maximum use and efficient allocation of cross-zonal capacity across timeframes in accordance with Article 17. 4. The settlement of balancing energy for standard balancing products and specific balancing products shall be based on marginal pricing (pay-as-cleared) unless all regulatory authorities approve an alternative pricing method on the basis of a joint proposal by all transmission system operators following an analysis demonstrating that that alternative pricing method is more efficient. Market participants shall be allowed to bid as close to real time as possible, and balancing 653

12.30

Chapter 12 The establishment of common network rules William Webster energy gate closure times shall not be before the intraday cross-zonal gate closure time.

Transmission system operators applying a central dispatching model may establish additional rules in accordance with the guideline on electricity balancing adopted on the basis of Article 6(11) of Regulation (EC) No 714/2009.

5. The imbalances shall be settled at a price that reflects the real-time value of energy. 6. Each imbalance price area shall be equal to a bidding zone, except in the case of a central dispatching model where an imbalance price area may constitute a part of a bidding zone.”

12.31

These Articles require imbalance prices to be determined on the basis of bids for energy-only (MWh) without any capacity. Unless an alternative model is jointly proposed and justified by TSOs, prices are to be based on the marginal bid received with all operators exposed to a single price that reflect market conditions close to real-time. The Regulation also harmonises gate closure at 15 minutes before real-time, which had already been implied in the Commission Regulation 2015/1222 (the CACM network code). Finally Article 6(6) ensures coherence between balancing market zones and those in day ahead and forward markets. This is important to ensure a coherent price formation since the imbalance prices is effectively the “market of last resort” for all participants and all trading in intraday, day-ahead and forward markets are driven by the imbalance regime. Electricity wholesale markets

12.32

Articles 7-11 of the Regulation confirm the harmonisation of most of the main features of intraday, day-ahead and forward markets including the settlement period, the application of maximum bidding limits in day-ahead and intraday markets and confirm several elements already agreed as part of Regulation 2015/1222.

654

Chapter 12 The establishment of common network rules William Webster

Regulation 2019/943 Article 8 “4. By 1 January 2021, the imbalance settlement period shall be 15 minutes in all scheduling areas, unless regulatory authorities have granted a derogation or an exemption. Derogations may be granted only until 31 December 2024.”

Regulation 2019/943 Article 10 “2. NEMOs may apply harmonised limits on maximum and minimum clearing prices for day-ahead and intraday timeframes. Those limits shall be sufficiently high so as not to unnecessarily restrict trade, shall be harmonised for the internal market and shall take into account the maximum value of lost load. NEMOs shall implement a transparent mechanism to adjust automatically the technical bidding limits in due time in the event that the set limits are expected to be reached. The adjusted higher limits shall remain applicable until further increases under that mechanism are required.”

Although many of the concepts in this section had already been agreed with respect to cross border market integration under Regulation 2015/1222, the recast Regulation effectively confirms similar practices for national markets and avoids the possibility of divergence of national market design leading to distortion of cross border trading and inefficient use of cross border capacity.

12.33

Dispatching and redispatching “Dispatch” refers to the decision making process determining the running schedules of generation plant, whereas redispatch refers to the modification of these schedules on the instructions of the transmission system operator. As discussed in Chapter 3, a self-dispatch model is generally assumed to be the default in most Member States. However, the Regulation does explicitly define and allow for a central dispatch model with greater involvement of the TSO. A key element of the new regulation is the restrictions being made to the practice of “priority dispatch” for renewable generation

655

12.34

Chapter 12 The establishment of common network rules William Webster

Regulation 2019/943 Article 12 “1. The dispatching of power-generating facilities and demand response shall be non-discriminatory, transparent and, unless otherwise provided under paragraphs 2 to 6, market based. 2. Without prejudice to Articles 107, 108 and 109 TFEU, Member States shall ensure that when dispatching electricity generating installations, system operators shall give priority to generating installations using renewable energy sources to the extent permitted by the secure operation of the national electricity system, based on transparent and non-discriminatory criteria and where such powergenerating facilities are either: (a) power-generating facilities that use renewable energy sources and have an installed electricity capacity of less than 400 kW; or (b) demonstration projects for innovative technologies, subject to approval by the regulatory authority, provided that such priority is limited to the time and extent necessary for achieving the demonstration purposes.”

12.35

Article 12 effectively restricts priority dispatch only to smaller generation facilities which is a major change. This, however, had become somewhat inevitable as ever larger amounts of renewable generated were added with more expected. Priority dispatch was already causing significant distortion of price formation in many Member States by the time of the Commission’s 2016 proposal. There were also major concerns around the unpredictability of TSOs practice in dispatching plant as well as the unbundling issues associated with how the output from renewables was sold into wholesale markets. With the objective to increase renewable penetration to over 50% and beyond, the continuation of priority dispatch would have eventually wholly undermined the internal electricity market. Capacity Allocation Congestion Management

12.36

As in the wholesale market section above, the recast Regulation clarifies and confirms a number of the principles already introduced in Commission Regulation 2015/1225. A number of issues, such as bidding zones, proved controversial in agreeing the CACM network code and were thus considered more suitable 656

Chapter 12 The establishment of common network rules William Webster

for consideration in the full co-decision process. Article 14 of the Regulation sets out updated process for review of bidding zones requiring regional cooperation and, where required, introduces a role for ACER and, “as a measure of last resort” the Commission itself in the decision-making process. Regulation 2019/943 Article 14 “4. For the purposes of this Article and of Article 15 of this Regulation, relevant Member States, transmission system operators or regulatory authorities are those Member States, transmission system operators or regulatory authorities participating in the review of the bidding zone configuration and also to those in the same capacity calculation region pursuant to the capacity allocation and congestion management guideline adopted on the basis of Article 18(5) of Regulation (EC) No 714/2009. 5. By 5 October 2019 all relevant transmission system operators shall submit a proposal for the methodology and assumptions that are to be used in the bidding zone review process and for the alternative bidding zone configurations to be considered to the relevant regulatory authorities for approval. The relevant regulatory authorities shall take a unanimous decision on the proposal within 3 months of submission of the proposal. Where the regulatory authorities are unable to reach a unanimous decision on the proposal within that time frame, ACER shall, within an additional three months, decide on the methodology and assumptions and the alternative bidding zone configurations to be considered. The methodology shall be based on structural congestions which are not expected to be overcome within the following three years, taking due account of tangible progress on infrastructure development projects that are expected to be realised within the following three years. 8. For those Member States that have opted to amend the bidding zone configuration pursuant to paragraph 7, the relevant Member States shall reach a unanimous decision within six months of the notification referred to in paragraph 7. Other Member States may submit comments to the relevant Member States, who should take account of those comments when reaching their decision. The decision shall be reasoned and shall be notified to the Commission and ACER. In the event that the relevant Member States fail to reach a unanimous decision within those six months, they shall immediately notify the Commission thereof. 657

Chapter 12 The establishment of common network rules William Webster As a measure of last resort, the Commission after consulting ACER shall adopt a decision whether to amend or maintain the bidding zone configuration in and between those Member States by six months after receipt of such a notification.”

12.37

This new procedure is aimed at an evolution of the bidding zone structure such that price areas correspond to the true structural limitations of the network rather than being automatically aligned to national boundaries, as was previously the case. Until the 2019 Regulation the main change made to the bidding zone configuration was the splitting of the common German-Austria price zone in October 2018. Although this was considered to have a positive impact in terms of avoiding congestion in other areas of the grid, it has long been clear that the main structural congestion had been within those Member States.

12.38

As well as the new process relating to bidding zones, the Regulation takes the major step of setting a binding requirement with respect to the availability of physical capacity in Article 16. It requires that at least 70% of capacity must be available for cross-zonal exchange. Regulation 2019/943 Article 16(8) “8. Transmission system operators shall not limit the volume of interconnection capacity to be made available to market participants as a means of solving congestion inside their own bidding zone or as a means of managing flows resulting from transactions internal to bidding zones. Without prejudice to the application of the derogations under paragraphs 3 and 9 of this Article and to the application of Article 15(2), this paragraph shall be considered to be complied with where the following minimum levels of available capacity for cross-zonal trade are reached: (a) for borders using a coordinated net transmission capacity approach, the minimum capacity shall be 70 % of the transmission capacity respecting operational security limits after deduction of contingencies, as determined in accordance with the capacity allocation and congestion management guideline adopted on the basis of Article 18(5) of Regulation (EC) No 714/2009;

658

Chapter 12 The establishment of common network rules William Webster (b) for borders using a flow-based approach, the minimum capacity shall be a margin set in the capacity calculation process as available for flows induced by cross-zonal exchange. The margin shall be 70 % of the capacity respecting operational security limits of internal and cross-zonal critical network elements, taking into account contingencies, as determined in accordance with the capacity allocation and congestion management guideline adopted on the basis of Article 18(5) of Regulation (EC) No 714/2009.

The total amount of 30 % can be used for the reliability margins, loop flows and internal flows on each critical network element.”

This requirement potentially represents a significant step forward for market integration. Market participants have long been concerned that TSOs had been systematically restricting capacity at borders in order to either make internal capacity more firmly available or to manage the costs of redispatch.

12.39

Resource adequacy and capacity mechanisms Chapter IV of the Regulation deals with resource adequacy and capacity mechanisms that have been an increasingly important area of market design, particularly as the share of intermittent renewable energy has increased. Chapter 13 covers these security of supply measures in detail.

12.40

TSO cooperation and regional control centres and cooperation between distribution system operators

12.41

A final area of innovation in the recast Regulation relates to enhanced cooperation between TSOs in the form of a new requirement to establish regional coordination centres. The Regulation also introduces a new institution for cooperation between European electricity distribution system operators. These initiatives are covered in more detail in Section 7 below.

12.42

In summary, therefore, with the recasting of the Electricity Regulation, the European Union in parallel with the institutions created, the Agency, ENTSOs and the new EU DSASO Entity, have an almost unconstrained scope to introduce binding rules across the full range of electricity market design.

12.43

659

Chapter 12 The establishment of common network rules William Webster

5.

Gas Regulation 715/2009 – Key principles

12.44

Although the 2009 Gas Regulation has not yet been modified in the same way, the list of topics already set out as valid for development of either network codes or binding guidelines is already considerable. Indeed, it is notable that the Gas Regulation still allows for the Commission to develop binding guidelines for all areas for which network codes will be developed according to Article 8(6). The implication of this is that the Commission would be able to act in a situation where the new code development process according to Article 6 of the Regulation would not deliver the desired results.

12.45

The setting up of ENTSOG, the scope for establishing network codes and the role of the Agency are set up in a similar manner to the Electricity section in Articles 4-12. Meanwhile the following key principles are set out the Regulation regarding a number of subjects. Transmission Tariffs

12.46

Article 13 requires the use of entry-exit tariffs. This removes the scope for specific point-point regime across individual pipeline routes that was typical of the regimes before market opening. An entry-exit regime fosters the development of liquid traded markets at virtual “hub” locations and this has been highly significant in increasing liquidity in wholesale gas markets, particularly in NW Europe. Capacity Allocation and Congestion Management

12.47

Likewise, Article 16 sets out the overriding principle that allocation mechanisms must be “compatible with the market mechanisms including spot markets and trading hubs”. As with tariffs, this implies capacity allocation must also be an entry-exit basis. TSOs would not, for example, be permitted to undermine an entry-exit tariff regime by imposing a point-point capacity allocation mechanisms. The Regulation also requires un-used capacity to be made available in shorter term time frames and on an interruptible basis. The 2009 Regulation already contained more detailed rules on congestion management that were further revised by the Commission in 2012 as discussed in Section 8 below. Issues relating to physical and contractual congestion have been reduced over the last years as a consequence of i) capacity release programmes resulting from investigations under EU Competition law; ii) gradual expiry of long term capacity reservations and iii) greater diversity of supplies of gas (e.g. via LNG) and reductions in demand. 660

Chapter 12 The establishment of common network rules William Webster

Transparency In earlier revisions of the Gas Regulation, the issue of transparency was a key sticking point. Those companies with legacy long term transmission rights were concerned that publication of information by TSOs would release commercially confidential information. However, by 2009 these concerns had abated, and the Regulation imposes requirement on TSOs to release data on “technical, contracted and available capacity on a numerical basis at all relevant points”. Market participants are obliged to provide information to the TSO required by Article 18. However, the specification of “relevant points” is decided by a competent authority which is not necessarily the regulator.

12.48

Balancing Finally, Article 21 requires balancing rules to reflect genuine market conditions and to be market based. Imbalance charges must be markets based and provide market participants with appropriate incentives to balance their positions.

6.

12.49

The electricity and gas Regulations and network codes: legal and procedural issues

6.1 Implementation of the Regulations: direct effect The requirements for enhanced cooperation between TSOs, both for electricity and gas are laid down in Regulations of the Council and Parliament. Likewise, the network codes adopted under this legislation have themselves become binding Commission Regulations as set out in the process in the previous section.

12.50

In order for these rules to be effective they must be implemented in a materially consistent manner in all Member States. To achieve this objective, a Regulation is the appropriate legal instrument since it has direct effect: it should in principle require no further implementation measures at national level. This means it creates immediate rights and obligations with respect to all EU citizens and undertakings. These rights and obligations are enforceable in and by national courts.

12.51

661

Chapter 12 The establishment of common network rules William Webster

12.52

By contrast, any scheme or mechanism in place, established either by a Member State, a regulatory authority or a private or public company, which does not meet the requirements of the Regulations, is illegal and unenforceable under national law. In practice, this means that national network codes have to be modified to incorporate exactly the new rules developed under the European framework in either the Regulations or the guidelines and networks codes adopted as a consequence.

12.53

Furthermore, any form of legislation implemented by national governments, including Ministerial decrees or regulatory decisions, which are inconsistent with the Regulations, can be challenged by the Commission at the Court of Justice through an infringement process.

6.2 The comitology and implementing acts procedure 12.54

For guidelines and network codes it was expected that detailed rules would develop and evolve over time. In order to provide for this evolution, the Regulations make use of a flexible mechanisms available under the EU Treaty which does not entail the lengthy procedures of a new legislative proposal. The 2009 Regulations provided for the adoption of detailed rules via the processes existing at that time under the EU Treaty.

12.55

In most case, for the adoption of binding guidelines and network codes, the 2009 Regulations specified a regulatory comitology procedure with scrutiny.917 In procedural terms the comitology procedure was first introduced in the Single European Act Treaty and subsequent Council Decision in 1987. This enabled the Commission to adopt detailed rules that have binding legal effect quickly and simply. In essence the process permits the Commission to adopt such rules, subject to either advice or approval of the Council through a specific committee appointed by the Member States to deal with the issues concerned. In principle, a new comitology committee is created every time that new legislation empowers the Commission to adopt rules under the procedure.

12.56

The initial framework was revised and updated in Council Decision 1999/486 which included four different comitology procedures,918 depending upon the degree of control that was considered necessary over the Commission’s right 917 Article 18 of Regulation 714/2009 and Article 23 of Regulation 715/2009 cited Regulation xxx/xx. 918 ��������������������������������������������������������������������������������������������������������� Established by Council Decision of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission. OJ L 184/23, 17.07.1999. This decision was amended Council Decision of 17 July 2006. OJ L 200/11, 22.07.2006.

662

Chapter 12 The establishment of common network rules William Webster

to adopt new rules. The Regulatory Committee with Scrutiny procedure, was developed in the 2006 amendment to improve the involvement of the European Parliament in the comitology procedure, was the main structure used in the 2009 Regulations. Under this procedure, if the Regulatory Committee agrees with a draft measure proposed by the Commission, the Commission has to submit it for scrutiny to the European Parliament and the Council either of which can dismiss the measure only by majority, i.e. qualified majority in the case of the Council

12.57

If the Regulatory Committee opposes the draft measure, the Commission has to submit it first to the Council and, if the Council agrees, then to the European Parliament. If any of the two institutions oppose the draft measure it is rejected.

12.58

The Lisbon Treaty of 2009 provided for substantial changes to the Comitology procedure. In particular, the Lisbon Treaty, in Articles 290 and 291 differentiates between two types of executive powers granted to the Commission by the co-legislators as follows:

12.59

–

Delegated acts that amend or supplement the basic act and are scrutinised by the European Parliament and Council (with veto powers) with no formal comitology system (TFEU Article 290); and

–

Implementing acts that are explicitly overseen by the Member States in the framework of a new comitology regulation to be adopted by the European Parliament and Council (TFEU Article 291).

Notably, TFEU Article 291 gives oversight of implementing acts only to the Member States. This could mean that the European Parliament loses its previous right of scrutiny, i.e. the possibility, within a period of one month, of adopting a non-binding resolution saying that the Commission has exceeded its competences. Regulation 182/2011 sets out the procedures for the adoption for Implementing Acts which is now the main avenue for new legislation.

663

12.60

Chapter 12 The establishment of common network rules William Webster

7.

TSO cooperation: establishment and tasks of ENTSOs

7.1 Background 12.61

Enhanced cooperation of transmission system operators was a key part of the third package and provided new impetus to the development of a truly integrated internal electricity and gas market. The third package legislation introduced the obligation on the (effectively unbundled) TSOs to cooperate in a number of areas. The changes to the Electricity Regulation further enhanced the required degree of cooperation. The cooperation of TSOs is shaped through three core measures:

12.62

1.

The obligation on TSOs to cooperate with one another,

2.

The establishment of a European Network for TSOs (ENTSOs),

3.

The requirement to cooperate at the regional level within the ENTSO structure, including through regional coordination centres.

The obligation to cooperate is now framed in the 2019 Electricity Regulation as follows. Regulation 2019/943 Article 28 European network of transmission system operators “1. Transmission system operators shall cooperate at Union level through the ENTSO for Electricity, in order to promote the completion and functioning of the internal market for electricity and cross-zonal trade and to ensure the optimal management, coordinated operation and sound technical evolution of the European electricity transmission network. 2. In performing its functions under Union law, the ENTSO for Electricity shall act with a view to establishing a well-functioning and integrated internal market for electricity and shall contribute to the efficient and sustainable achievement of the objectives set out in the policy framework for climate and energy covering the period from 2020 to 2030, in particular by contributing to the efficient inte664

Chapter 12 The establishment of common network rules William Webster gration of electricity generated from renewable energy sources and to increases in energy efficiency while maintaining system security. The ENTSO for Electricity shall be equipped with adequate human and financial resources to carry out its duties.”

In the case of electricity, the ENTSO for Electricity was established in December 2008 and became operational as of 1 July 2009.919 ENTSO-E replaced all former TSO associations in Europe, i.e. ETSO for the TSOs’ market-related activities and the five associations for Europe’s five synchronous areas (ATSOI, BALTSO, NORDEL, UCTE and UKTSOA).

12.63

Similarly, on 1 December 2009 the ENTSO for Gas920 was established. ENTSOG prepared its first Article of Association and related Rules of Procedures in December 2009. In 2011, ENTSOG went through the formal procedure with the Agency and Commission and was formally designated.

12.64

It is important to note that the cooperation of TSOs presupposes effective unbundling of TSOs from the vertically integrated supply and production companies. Without effective unbundling, the cooperation of TSOs in ENTSO, as well as through the regional structures, could give rise to competition concerns. Given that the tasks of ENTSO also entail, for example, the coordinated allocation of capacity – at least at the regional level – and the requirement to build on “reasonable needs of different network users” in establishing the network development plan, vertically integrated TSOs that have not yet unbundled effectively might exert discriminatory influence.

12.65

Although the ENTSO is probably not considered to be a “joint undertaking”, it is submitted that the risks identified by the Regulation and Directive mean that until effective unbundling has been fully implemented, TSO cooperation in ENTSO or at the regional level must, to a certain extent, be limited in order to prevent the risk of anti-competitive behaviour.

12.66

919 The European Transmission System Operators Association (ETSO) has now been merged into the ENTSO for electricity. More information may be found at the ENTSO-E website: www.entsoe.eu 920 See www.entsog.eu for more comprehensive information on the Articles of Association, Rules of Procedure and the List of Members.

665

Chapter 12 The establishment of common network rules William Webster

7.2 Tasks of the ENTSOs 12.67

Initially, in the 2009 Regulation, the precise form of the cooperation is left to the TSOs themselves, but with scrutiny from the Agency and the Commission. However, the new 2019 requirements set out in much detail the required functions of the ENTSO. Regulation 2019/943 Article 30 “1. The ENTSO for Electricity shall: (a) develop network codes in the areas set out in Article 59(1) and (2) with a view to achieving the objectives set out in Article 28; (b) adopt and publish a non-binding Union-wide ten-year network development plan, (‘Union-wide network development plan’), biennially; (c) prepare and adopt proposals related to the European resource adequacy assessment pursuant to Article 23 and proposals for the technical specifications for cross-border participation in capacity mechanisms pursuant to Article 26(11); (d) adopt recommendations relating to the coordination of technical cooperation between Union and third-country transmission system operators; (e) adopt a framework for the cooperation and coordination between regional coordination centres; (f ) adopt a proposal defining the system operation region in accordance with Article 36; (g) cooperate with distribution system operators and the EU DSO entity; (h) promote the digitalisation of transmission networks including deployment of smart grids, efficient real time data acquisition and intelligent metering systems;

666

Chapter 12 The establishment of common network rules William Webster (i) adopt common network operation tools to ensure coordination of network operation in normal and emergency conditions, including a common incident classification scale, and research plans, including the deployment of those plans through an efficient research programme. Those tools shall specify inter alia: (i) the information, including appropriate day-ahead, intraday and real-time information, useful for improving operational coordination, as well as the optimal frequency for the collection and sharing of such information; (ii) the technological platform for the exchange of information in real time and where appropriate, the technological platforms for the collection, processing and transmission of the other information referred to in point (i), as well as for the implementation of the procedures capable of increasing operational coordination between transmission system operators with a view to such coordination becoming Union-wide; (iii) how transmission system operators make available the operational information to other transmission system operators, or any entity duly mandated to support them to achieve operational coordination, and to ACER; and (iv) that transmission system operators designate a contact point in charge of answering inquiries from other transmission system operators or from any entity duly mandated as referred to in point (iii), or from ACER concerning such information; (j) adopt an annual work programme; (k) contribute to the establishment of interoperability requirements and nondiscriminatory and transparent procedures for accessing data as provided for in Article 24 of Directive (EU) 2019/944; (l) adopt an annual report; (m) carry out and adopt seasonal adequacy assessments pursuant to Article 9(2) of Regulation (EU) 2019/941;

667

Chapter 12 The establishment of common network rules William Webster (n) promote cyber security and data protection in cooperation with relevant authorities and regulated entities; (o) take into account the development of demand response in fulfilling its tasks.”

12.68

The scope of these tasks is now considerable and place the ENTSO at the heart of development of all technical rules with respect to the EU electricity market. This includes the new requirements relating to the regional coordination centres and the EU DSO entity.

12.69

The Regulations also require ENTSO to establish a specific framework for research in the field of energy efficiency, security of supply, access to renewable energy and the development of the network. This includes the financing, identification and management of these research and innovation activities, but it does not require that ENTSO or the TSOs should carry out this research themselves.

12.70

The tasks of ENTSO with respect to network planning is focussed on collecting, analysing and reporting on information on the adequacy of the European transmission network to meet demand for transmission and to integrate markets. Both the gas and electricity ENTSOs are in a unique position to collect and analyse the information on the future gas and electricity demand and on associated investments.

12.71

The ten-year Community-wide network development plan must build on national and regional network development plans and Community aspects of network planning including the guidelines for trans-European energy networks (TEN-E). The plan also has to include network modelling and scenario development. It can thus usefully identify potential capacity bottlenecks and “gaps” in the network which would need to be filled in order to achieve an integrated network, capable of delivering security of supply.

12.72

Furthermore, the network development plan has to contain a European supply/generation adequacy outlook, covering the overall adequacy of the gas or electricity system to supply current and projected demand for gas or electricity for the next five years as well as for the period between five and ten (electricity: fifteen) years from the date of the report.

12.73

Given the central importance of the ENTSO role in defining network rules and providing the information above, the Regulation imposes on ENTSO an obligation to extensively consult all relevant market participants when carrying 668

Chapter 12 The establishment of common network rules William Webster

out its core tasks such as drafting the work programme, code development and network development plan. Regulation 2019/943 Article 31 Consultations “1. While preparing the proposals pursuant to the tasks referred to in Article 30(1), the ENTSO for Electricity shall conduct an extensive consultation process. The consultation process shall be structured in a way to enable the accommodation of stakeholder comments before the final adoption of the proposal and in an open and transparent manner, involving all relevant stakeholders, and, in particular, the organisations representing such stakeholders, in accordance with the rules of procedure referred to in Article 29. That consultation shall also involve regulatory authorities and other national authorities, supply and generation undertakings, system users including customers, distribution system operators, including relevant industry associations, technical bodies and stakeholder platforms. It shall aim at identifying the views and proposals of all relevant parties during the decision-making process. 2. All documents and minutes of meetings related to the consultations referred to in paragraph 1 shall be made public. 3. Before adopting the proposals referred to in Article 30(1) the ENTSO for Electricity shall indicate how the observations received during the consultation have been taken into consideration. It shall provide reasons where observations have not been taken into account.”

7.3 Regional cooperation and Co-ordination Centres Voluntary regional cooperation Regional cooperation on a voluntary basis stems from the 11th Florence Forum in 2004, when the Commission, on the back of a “strategy paper”, launched the so-called mini-fora. The work within these mini-fora resulted in 2006 in the launch of the Regional Initiatives by the newly formed ERGEG as a way to move from national markets to regional energy markets as a staging post to a single EU energy market. With the Regional Initiatives, ERGEG hoped to accelerate 669

12.74

Chapter 12 The establishment of common network rules William Webster

progress in integrating the European gas and electricity markets by introducing collaboration at a regional level. The main focus of the Regional Initiatives was to accomplish integration by ensuring full compliance with the Regulations on gas and electricity cross-border transmission and related guidelines but for this to be achieved in a coordinated process.

12.75

Following EU enlargement in 2004 the EU grew from 15 to 25 Member States and which had become more heterogeneous in terms of the degree of integration and liberalisation of the electricity and gas markets. The idea of the Regional Initiatives was to promote the integration of regional markets encompassing several neighbouring Member States as a first step towards greater EU-wide integration. A governance structure was developed involving the main stakeholders and different regions were defined for electricity and gas. These regional initiatives evolved and merged over time.

12.76

For electricity the main initial focus was on establishing market coupling between five Member States (Belgium, France, Germany, Luxembourg and the Netherlands), which formed the “CWE region” and initiated the Pentalateral Forum. Ministers, regulatory authorities, transmission system operators, power exchanges, other market parties and the European Energy Commission signed a Memorandum of Understanding on 6 June 2007. In the Pentalateral Forum, the Member States aim to create a truly integrated regional electricity and gas market as an intermediate step towards a common European market, in close cooperation with stakeholders, TSOs and regulators. The main difference with the Regional Initiatives (apart from geographical) is that this process is driven by the governments.

12.77

The success of the CWE market coupling led to an extension of the approach to a wider selection of Member States and into the intraday timeframe. This led to the NWE (North West Europe) regional initiative which sought to couple electricity markets through the CWE, GB and Nordic countries with eventual extension to the Iberian Peninsula. Much of the detailed work was carried out under the supervision of ACER (through the Agency Electricity Stakeholder Advisory Group (AESAG) although regular updates were provided to the Florence Forum.

12.78

The NWE project was successful in many ways in that it allowed for a number of aspects of market integration to be tested in advance of the CACM Network Codes being agreed. Day ahead market coupling was launched in February 2014 in the NWE region with Iberian countries being added later in that year. 670

Chapter 12 The establishment of common network rules William Webster

With respect to gas, the Regional Initiatives progressed more slowly and to a large degree were overtaken by the arrangements following the third package. For example, the setting up of the international platform for auctions PRISMA was a direct consequence of the NC CAM, but was essentially developed outside the framework of the Gas Regional Initiative

12.79

Regional cooperation in the Third 2009 package The third legislative package set up the ENTSOs and ACER tasks focused at the Community level. However, the Regulations also explicitly promoted the regional cooperation of TSOs, regulatory authorities and Member States as an intermediary step to achieve a fully integrated internal market.

12.80

For example, the 2009 Directives attempted to translate the idea of regional cooperation into practical terms by requiring Member States to ensure that TSOs have at least one integrated system at the regional level covering at least two Member States for capacity allocation and for checking the security of the network. In the case of gas, the Directive also includes an Article 6 on regional solidarity which obliges Member States to cooperate regionally to ensure security of supply in emergency situations and in the longer term.

12.81

Likewise, for Regulatory Authorities, regional cooperation was specified in both the electricity and gas Directive. In particular, the regional cooperation of regulators is supposed to foster the creation of operational arrangements which will lead to integrated, more competitive markets and enhanced security of supply.

12.82

However, the third package did not give effective decision-making powers to national regulators regarding cross-border issues meaning they therefore often could not take into account cross-border effects of their decisions. Indeed, most regulators have a remit which is specifically aimed at national consumers and network users and thus does not take into account the international character of the energy markets. This has been especially problematic in the field of investments in new capacity or in expanding existing capacities, which may have an impact on gas or electricity flows to, through or from other Member States, the effects of which often cannot be taken into account by the national regulator.

12.83

671

Chapter 12 The establishment of common network rules William Webster

Enhanced cooperation in the 2019 Regulation

12.84

The recasting of the Electricity Regulation in 2019 significantly expands on these requirements by establishing a requirement on TSOs to establish regional cooperation structures. Regulation 2019/943 Article 34 Regional cooperation of transmission system operators “1. Transmission system operators shall establish regional cooperation within the ENTSO for Electricity to contribute to the activities referred to in Article 30(1), (2) and (3). In particular, they shall publish a regional investment plan biennially, and may take investment decisions based on that regional investment plan. The ENTSO for Electricity shall promote cooperation between transmission system operators at regional level ensuring interoperability, communication and monitoring of regional performance in those areas which have not yet been harmonised at Union level.

2. Transmission system operators shall promote operational arrangements in order to ensure the optimum management of the network and shall promote the development of energy exchanges, the coordinated allocation of cross-border capacity through non-discriminatory market-based solutions, paying due attention to the specific merits of implicit auctions for short-term allocations, and the integration of balancing and reserve power mechanisms. 3. For the purposes of achieving the goals set in paragraphs 1 and 2, the geographical area covered by each regional cooperation structure may be established by the Commission, taking into account existing regional cooperation structures. Each Member State may promote cooperation in more than one geographical area.”

12.85

The Commission is empowered to adopt delegated acts in accordance with Article 68, supplementing this Regulation, establishing the geographical area covered by each regional cooperation structure. For that purpose, the Commission shall consult the regulatory authorities, ACER and the ENTSO for Electricity. The delegated acts referred to in this paragraph shall be without prejudice to Article 36. 672

Chapter 12 The establishment of common network rules William Webster

As is clear from the text, the Article allows for a strong role to the European Commission in determining the scope of regional cooperation by allowing it to modify its geographical coverage through a delegated act. It is also a requirement for regional cooperation centres to be established with the geographical coverage of these to be approved by ACER. Article 35 Establishment and mission of regional coordination centres “1. By 5 July 2020, all transmission system operators of a system operation region shall submit a proposal for the establishment of regional coordination centres to the regulatory authorities concerned in accordance with the criteria set out in this Chapter. The regulatory authorities of the system operation region shall review and approve the proposal. The proposal shall at least include the following elements: (a) the Member State of the prospective seat of the regional coordination centres and the participating transmission system operators; (b) the organisational, financial and operational arrangements necessary to ensure the efficient, secure and reliable operation of the interconnected transmission system; (c) an implementation plan for the entry into operation of the regional coordination centres; (d) the statutes and rules of procedure of the regional coordination centres; (e) a description of cooperative processes in accordance with Article 38; (f ) a description of the arrangements concerning the liability of the regional coordination centres in accordance with Article 47; (g) where two regional coordination centres are maintained on a rotational basis in accordance with Article 36(2), a description of the arrangements to provide clear responsibilities to those regional coordination centres and procedures on the execution of their tasks.

673

12.86

Chapter 12 The establishment of common network rules William Webster 2. Following approval by regulatory authorities of the proposal in paragraph 1, the regional coordination centres shall replace the regional security coordinators established pursuant to the system operation guideline adopted on the basis of Article 18(5) of Regulation (EC) No 714/2009 and shall enter into operation by 1 July 2022. 3. Regional coordination centres shall have a legal form referred to in Annex II to Directive (EU) 2017/1132 of the European Parliament and of the Council (23). 4. In performing their tasks under Union law, regional coordination centres shall act independently of individual national interests and independently of the interests of transmission system operators. 5. Regional coordination centres shall complement the role of transmission system operators by performing the tasks of regional relevance assigned to them in accordance with Article 37. Transmission system operators shall be responsible for managing electricity flows and ensuring a secure, reliable and efficient electricity system in accordance with point (d) of Article 40(1) of Directive (EU) 2019/944.”

12.87

Articles 37-47 of the Regulation and the Annex set out in detail the tasks and administrative structure of the regional coordination centres. This includes the requirement for the RCCs to be adequately resourced and to have a separate administrative Board. This represents a strong shift towards a “Regional System Operator” model that has been successfully used to provide coordination where, initially, separate transmission system owners’ networks are closely integrates in physical terms. Examples include the RISO system used in the United States and indeed the establishment of the UK ESO as a legally separate business operating the three transmission networks in Great Britain.

7.4 The European Network of DSOs 12.88

The revised 2019 Regulation, for the first time, provides for a European network of DSOs in Articles 52-57. The motivation for this, as expressed in recital 60 to the Regulation is “to increase efficiencies in the electricity distribution networks in the Union and to ensure close cooperation with transmission system operators and the ENTSO for Electricity”

674

Chapter 12 The establishment of common network rules William Webster

The Regulation sets out requirements as to the membership, resourcing and decision-making processes of the EU DSO entity. The Regulation also contains requirements as to its tasks. The main relevance of the EU DSO entity for setting network rules is in Article 59.

12.89

Regulation 2019/943 Article 59 “3. If the subject matter of the network code is directly related to the operation of the distribution system and not primarily relevant to the transmission system, the Commission may require the EU DSO entity, in cooperation with the ENTSO for Electricity, to convene a drafting committee and submit a proposal for a network code to ACER.”

The enhancement of the role for DSOs reflects wide range of subjects on which network code may be put forward and adopted, and the fact that, increasingly, both generators and customers connected at distribution level are expected to be more active participants in wholesale electricity markets and provide balancing and reserve products.

8.

Establishment and modification of network codes

As discussed above, an important element of the 2009 Regulations was the ability of the Commission to adopt binding guidelines and network codes on a range of subjects. Although the legislation gives both ACER and the ENTSOs a central role in developing these rules, it is not possible for binding requirements to be imposed without these ultimately being approved by the Commission. This is due to the Meroni judgement of the European Court of Justice921 which limits the Commission’s possibility to delegate binding decision-making powers on codes to the Regulatory Agency.

12.90

The Regulations do, however, give the regulators an important role in the development of the network codes via the Agency. The Agency must give its opinion on the draft codes and has thus the possibility to propose amendments to the draft codes. And where ENTSO fails to develop network codes, or to do so in a manner that respects the Agency’s opinion, the Agency may even take over

12.91

921 Case 9/56 Meroni v. High Authority [1957-8] ECR 133.

675

Chapter 12 The establishment of common network rules William Webster

this task at the request of the Commission. The latter possibility is meant to put pressure on ENTSO to deliver on its task and to take the development of codes very seriously.

12.92

The re-cast Electricity Regulation covers this process in Article 58-61 does not substantially change the network code process but significantly widens the scope of subjects on which networks codes and guidelines may be established. Regulation 2019/943 Article 58 Adoption of network codes and guidelines “1. The Commission may, subject to the empowerments in Articles 59, 60 and 61, adopt implementing or delegated acts. Such acts may either be adopted as network codes on the basis of text proposals developed by the ENTSO for Electricity, or, where so provided for in the priority list pursuant to Article 59(3), by the EU DSO entity, where relevant in cooperation with the ENTSO for Electricity, and ACER pursuant to the procedure in Article 59, or as guidelines pursuant to the procedure in Article 61.

2. The network codes and guidelines shall: (a) ensure that they provide the minimum degree of harmonisation required to achieve the aims of this Regulation; (b) take into account regional specificities, where appropriate; (c) not go beyond what is necessary for the purposes of point (a); and (d) be without prejudice to the Member States’ right to establish national network codes which do not affect cross-zonal trade.”

Regulation 2019/943 Article 59 Establishment of network codes “1. The Commission is empowered to adopt implementing acts in order to ensure uniform conditions for the implementation of this Regulation by establishing network codes in the following areas: 676

Chapter 12 The establishment of common network rules William Webster (a) network security and reliability rules including rules for technical transmission reserve capacity for operational network security as well as interoperability rules implementing Articles 34 to 47 and Article 57 of this Regulation and Article 40 of Directive (EU) 2019/944, including rules on system states, remedial actions and operational security limits, voltage control and reactive power management, short-circuit current management, power flow management, contingency analysis and handling, protection equipment and schemes, data exchange, compliance, training, operational planning and security analysis, regional operational security coordination, outage coordination, availability plans of relevant assets, adequacy analysis, ancillary services, scheduling, and operational planning data environments; (b) capacity-allocation and congestion-management rules implementing Article 6 of Directive (EU) 2019/944 and Article 7 to 10, Articles 13 to 17 and Articles 35 to 37 of this Regulation, including rules on day-ahead, intraday and forward capacity calculation methodologies and processes, grid models, bidding zone configuration, redispatching and countertrading, trading algorithms, single day-ahead and intraday coupling, the firmness of allocated cross-zonal capacity, congestion income distribution, cross-zonal transmission risk hedging, nomination procedures, and capacity allocation and congestion management cost recovery; (c) rules implementing Articles 5, 6 and 17 in relation to trading related to technical and operational provision of network access services and system balancing, including rules on network-related reserve power, including functions and responsibilities, platforms for the exchange of balancing energy, gate closure times, requirements for standard and specific balancing products, procurement of balancing services, allocation of cross-zonal capacity for the exchange of balancing services or sharing of reserves, settlement of balancing energy, settlement of exchanges of energy between system operators, imbalance settlement and settlement of balancing capacity, load frequency control, frequency quality defining and target parameters, frequency containment reserves, frequency restoration reserves, replacement reserves, exchange and sharing of reserves, cross-border activation processes of reserves, time-control processes and transparency of information;

677

Chapter 12 The establishment of common network rules William Webster (d) rules implementing Articles 36, 40 and 54 of Directive (EU) 2019/944 in relation to non-discriminatory, transparent provision of non-frequency ancillary services,, including rules on steady state voltage control, inertia, fast reactive current injection, inertia for grid stability, short circuit current, black-start capability and island operation capability; (e) rules implementing Article 57 of this Regulation and Articles 17, 31, 32, 36, 40 and 54 of Directive (EU) 2019/944 in relation to demand response, including rules on aggregation, energy storage, and demand curtailment rules. Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 67(2). 2. The Commission is empowered to adopt delegated acts in accordance with Article 68 supplementing this Regulation with regard to the establishment of network codes in the following areas: (a) network connection rules including rules on the connection of transmissionconnected demand facilities, transmission-connected distribution facilities and distribution systems, connection of demand units used to provide demand response, requirements for grid connection of generators, requirements for high-voltage direct current grid connection, requirements for direct current-connected power park modules and remote-end high-voltage direct current converter stations, and operational notification procedures for grid connection; (b) data exchange, settlement and transparency rules, including in particular rules on transfer capacities for relevant time horizons, estimates and actual values on the allocation and use of transfer capacities, forecast and actual demand of facilities and aggregation thereof including unavailability of facilities, forecast and actual generation of generation units and aggregation thereof including unavailability of units, availability and use of networks, congestion management measures and balancing market data. Rules should include ways in which the information is published, the timing of publication, the entities responsible for handling; (c) third-party access rules; (d) operational emergency and restoration procedures in an emergency including system defence plans, restoration plans, market interactions, information exchange and communication and tools and facilities; 678

Chapter 12 The establishment of common network rules William Webster (e) sector-specific rules for cyber security aspects of cross-border electricity flows, including rules on common minimum requirements, planning, monitoring, reporting and crisis management. 3. The Commission shall, after consulting ACER, the ENTSO for Electricity, the EU DSO entity and the other relevant stakeholders, establish a priority list every three years, identifying the areas set out in paragraphs 1 and 2 to be included in the development of network codes. If the subject matter of the network code is directly related to the operation of the distribution system and not primarily relevant to the transmission system, the Commission may require the EU DSO entity, in cooperation with the ENTSO for Electricity, to convene a drafting committee and submit a proposal for a network code to ACER.”

The text somewhat constrains the scope of the Commission to subjects that only affect cross zonal trade. However, it is submitted that the nature of interconnected electricity and (eventually) gas networks are such that, in practice, the Commission probably now has almost unlimited scope to modify network rules across the whole European Union.

12.93

With respect to Guidelines, the Regulation retains the possibility for the Commission also to adopt binding requirements on a number of subjects in Article 61. However, most of these have some overlap with the scope for the adoption of network codes and it is likely that this process would be chosen. The main expectation is the issue of inter TSO compensation which is only specifically dealt with in Article 61.

12.94

Article 59(4) of the Regulation retains the mechanism for the Agency to develop “Framework Guidelines” which set out the principles for the development of the network codes. These guidelines will strongly influence the development of the network codes in spite of their qualification as non-binding. The Agency can put on hold the entire process of code development for as long as it considers that a network code fails to comply with the relevant framework guidelines. It can thus refuse to submit the code to the Commission which would mean that it cannot be adopted and may entail that the Agency would develop the code instead.

12.95

In practice, the level of detail and scope of the framework guidelines will depend on the circumstances of the area for which the codes are to be developed, but all framework guidelines that have so far been developed have been very detailed.

12.96

679

Chapter 12 The establishment of common network rules William Webster

9.

Summary of Network Codes and Guidelines adopted since 2009

9.1 Gas 12.97

12.98

Five network codes were adopted under gas regulation 715/2009 between 2013 and 2017. These were approved under the implementing act procedure by the Committee on the implementation of common rules on the transport, distribu‑ tion, supply and storage of natural gas and are now in force as the following binding Commission legislation. –

Decision 2012/490 on Congestion Management (amending the Annex to Regulation 715/2009)

–

Regulation 312/2014 on Gas Balancing of Transmission Networks

–

Regulation 2015/703 on Interoperability and Data Exchange

–

Regulation 2017/459 on Capacity Allocation

–

Regulation 2017/460 on Transmission Tariffs

The main features of each of these network codes with relevance to the internal market are summarised in bullet point form in the sections below setting out the location of the key Articles. Congestion Management (CMP)

12.99

12.100

The congestion management guidelines were adopted in the form of a modification to the Annex of Regulation 715/2009. The modified Annex now contains the following principles in the revised Section 2.2 of the guidelines. –

Allows for an incentive-based oversubscription and buy-back scheme in order to offer additional capacity on a firm basis.

–

Requirement on TSOs to apply use-it-or lose-it rules and constraining renomination rights for holders of firm capacity

Meanwhile Section 3 requires TSOs to publish a full set of relevant information to market participants at all relevant entry and exit points including information on contracted and available capacity and on historical flows. Previous 680

Chapter 12 The establishment of common network rules William Webster

restriction relating to concerns about commercially sensitive information were removed in earlier versions of the Gas Regulation. The issues of physical and contractual congestion have been reduced over the last years as a consequence of i) capacity release programmes resulting from investigations under EU Competition law; ii) gradual expiry of long term capacity reservations and iii) greater diversity of supplies of gas (e.g. via LNG) and reductions in demand.

12.101

Capacity Allocation (CAM) The CAM code establishes consistent and standardised practices and product definitions for capacity allocation at all interconnection points in European grids. –

It requires the maximum technical capacity to be made available to network users (Article 6) and for entry and exit capacity to be “bundled” as a single product (Article 19).

–

A common and consistent auction for buying and selling of primary capacity across a standard range of durations (Articles 8-9) with common processes as set out in Articles 10-15.

12.102

These requirements have been implemented in the form of a common platform for capacity allocation provided by TSOs under a multi-party agreement: PRISMA under the requirement set out in Article 37.

12.103

Articles 22-30 further established a process for TSOs to follow in developing incremental capacity on the basis of a specified economic test derived from “open season” approach typically used to evaluate new investment projects. The CAM code also defines a common “gas day” for all Member State running from 05000500 UTC in winter and 0400-0400 where daylight saving is applied.

12.104

Balancing (BAL) As for electricity, the balancing regime is an important element of the regime that impacts the entire functioning of the wholesale market. Trading of gas in day-ahead and forward markets are determined by the consequences of exposure to balancing prices. The regime of exchange of balancing gas across borders is 681

12.105

Chapter 12 The establishment of common network rules William Webster

also important in managing costs and maintaining competition. However, unlike electricity, the gas system need not perfectly balance on a real-time basis and different pressures in the network can be accommodated as “linepack”. The network code includes the following requirements. –

Network users are responsible for balancing their positions (Article 4), usually over a daily period corresponding to the “gas day” as defined in the CAM code.

–

TSOs permitted to trade in wholesale markets for short term products or via a trading platform to manage expected imbalances effectively (Article 6-10).

–

Standardised nomination procedures for market participants during a common “gas day”.

–

Imbalance prices based on the marginal buy and sell prices during the gas day in question (Article 22).

–

Restricted scope for TSOs to require market participants to balance within day (Article 24).

–

Interim arrangements for markets with insufficient liquidity (Article 4551).

Transmission Tariffs (TAR)

12.106

The objective of the TAR code is to reduce the scope for tariff regimes to distort flows of gas between different networks and price areas. The network code expands on the requirements for an entry-exit tariff structure in the Regulation 715/2009. The requirements, which apply to interconnection points in particular, are as follows. –

Requirement for tariff structures to be largely based on capacity bookings rather than commodity flows, in order to reduce potential distortions of wholesale prices (Article 4).

682

Chapter 12 The establishment of common network rules William Webster

–

Specification of a capacity weighted distance (CWD) model as a preferred reference model (Article 8).

–

Scope for adjustment at storage, LNG and infrastructure entry points to promote diversity of supplies (Article 9).

–

Scope for inter TSO compensation within Member States with more than one TSO (Article 10).

–

Use of reference prices as reserve prices where capacity auctions are used (Articles 11-16) or the use of multipliers to reflect scarcity.

–

Requirements for collecting any shortfall in revenue collected (Article 18).

The remaining parts of the network code, among other things, deals with information to be provided to market participants and the coordination of tariff setting with periodic reviews by regulatory authorities.

12.107

Interoperability (IO) The interoperability code sets out a range of obligations on TSOs to coordinate with neighbouring areas on a number of subjects ranging from metering, data exchange control of flows and pressures, and the use of common measurement units. Chapter IV deals with issues relating to gas quality and odourisation and imposes requirement to monitor the effects of different standards.

12.108

Currently there is no requirement to adopt common standards for specification of gas quality. The current publications of standard gas specifications produced by CEN (EN 437) or by EASEE gas are not mandatory.

12.109

9.2 Electricity Eight network codes were adopted under electricity regulation 714/2009 between 2013 and 2017. These were approved under the required procedure by the Electricity Cross Border Committee and are now in force as the following binding Commission legislation.

683

12.110

Chapter 12 The establishment of common network rules William Webster

Connection Codes –

Regulation 2016/631 on Grid Connection for Generators

–

Regulation 2016/1338 on Demand Connection

–

Regulation 2016/1447 on Grid connection of high voltage direct current systems and direct current-connected power park modules

Market Codes –

Regulation 2015/1225 on Capacity Allocation and Congestion Management

–

Regulation 2016/1719 on Forward Capacity Allocation

–

Regulation 2017/2195 on Electricity Balancing Guidelines

System Operation Codes –

Regulation 2017/1485 on Electricity Transmission System Operation

–

Regulation 2017/2196 on Electricity Emergency and Restoration

12.111

The main features of each of these groups of network codes with relevance to the internal market are summarised in bullet point form in the sections below setting out the location of the key Articles.

12.112

A common feature of several of the network codes, which applies across the board, is that instead of developing detailed rules, they often merely set deadlines for ENTSOE to develop more detailed rules. It is submitted that it was the intention of the European institutions, at the time of adoption of the Regulation, for the network codes themselves to contain detailed rules rather than merely set out an obligation on TSOs to develop those rules at a later date. It remains unclear what enforcement action would be possible in the event that TSOs do not fulfil the obligations placed on them by the network codes; for example, would individual TSOs or ENTSO-E as an organisation be legally responsible.

684

Chapter 12 The establishment of common network rules William Webster

Connection Codes The three connection codes relating to generators, demand and HVDC cables are largely concerned with the responsiveness of those facilities in circumstances where the TSO needs to take remedial actions to maintain secure system operation. Requirements are set out at different thresholds relating to the control elements that need to be built into the assets being connected to the TSO networks. For example, Article 5 of the RfG network code establishes four different generation types a-d and sets out thresholds established on a regional basis. These generation types are then required to offer certain functionality to the TSOs for system operation. There is a general exemption made available to existing generators which would otherwise be required to retrofit assets to meet the minimum requirements. The Demand Connection and HVDC network codes have a similar structure and objectives.

12.113

System Operation Codes The System Operation Code contains requirements on scheduling and load frequency control that allow for secure operation of the network and connected generation and load. The Electricity Emergency and Restoration code deals with recovery of the network from a black out. These procedures are covered in Chapter 13 on Security of Supply alongside the requirements of the new Electricity Directive 2019/944 and the 2019 Risk Preparedness Regulation 2019/941. CACM network code –

The purpose of the code was largely to give effect to the “EU target model” that was agreed during Florence Forum meetings in 2008-09. The main elements of the code are set out in the following sections.

–

Transmission capacity at the day-ahead stage will be allocated through an implicit auction process via the coordination of power exchanges through the “market coupling” process.

–

Explicit recognition of the role of power exchanges with legislative obligations via the concept of Nominated electricity Market Operators (NEMOs) and requirement for TSOs to cooperate. [Articles 4, 8]

685

12.114

Chapter 12 The establishment of common network rules William Webster

–

Requirement to use flow-based approach to allocation of capacity meaning that the interactions between flows in the system have to be taken into account. [Article 19].

–

Requirement for a high degree of TSO cooperation [Articles 14-16] which is now explained in Regulation 2019/943 through regional coordination centres.

–

Establishment of rules for cross border intraday markets including continuous trading and harmonised gate closure [Article 56] although also allowing scope for “regional intraday auctions” [Article 60]. This has now been clarified in the Regulation 2019/943.

–

Defined approach for deciding delimitation of bidding zones [Article 31] now also superseded by Regulation 2019/943 (see above).

Balancing Code

12.115

As discussed in Chapter 3, the rules with respect to balancing and dispatch are a key element of the functioning of electricity wholesale markets. Given that the TSO has the residual role to balance the system, trading in any market before this point is dependent on the prices that would otherwise be paid in the balancing market. These key principles were not fully covered in the network codes and are now contained in the recast Regulation 2019/943 as discussed above in Section 4. However, the Balancing network code also sets out the requirements for the cross-border operation of balancing markets (after gate closure) as follows. –

Harmonisation of requirements on TSOs to provide information to market participants [Article 12]

–

Common rules for balancing service providers (BSPs) and balance responsible parties (BRPs) [Articles 16 and 17]. Some of these have been further elaborated in the recast Regulation 2019/943.

–

Development of mechanisms to allow TSO-TSO sharing of balancing capacity products (Articles 19-22).

–

Harmonisation of gate closure time for the offering of balancing capacity products (Article 24). 686

Chapter 12 The establishment of common network rules William Webster

–

Standardisation of balancing capacity products (Articles 25-26).

–

Rules for cross border provision and activation of balancing energy (Article 20-31).

–

Scope for a cross border TSO-BSP model to be developed from four years after entry into force (i.e. from January 2022).

–

Process for determining allocation of transmission capacity for the purposes of exchanging balancing services (Article 40).

–

Common rules on imbalance settlement (Article 52-55) now superseded in the Regulation 2019/943

Forward transmission capacity The final “market” network code relates to the forward allocation of transmission capacity which makes a key contribution to cross border retail competition where contracts are typically signed over a one-year period. Market participants require forward contracts for firm capacity in order to trade electricity in another bidding zone and to make a competitive offering to a final consumer. The main areas being harmonised in the Regulation are as follows. –

Coordinated methodologies for calculating available amounts of capacity in each time frame (Articles 10-16) to be carried out in RCCs following the recast Regulation 2019/943.

–

Common definition of long-term products i.e. obligations and options, physical and financial products (Articles 31-34).

–

Single allocation platform for forward rights across all TSOs (Article 4950).

–

Common requirements on firmness and compensation for curtailment (Article 53-54)

687

12.116

Chapter 12 The establishment of common network rules William Webster

12.117

Following the recast Regulation (Article 9) a key principle has now been established that TSOs must provide forward products and not only allocated capacity to day-ahead markets.

10. Modification of network codes 12.118

A specific procedure is provided for the amendment of binding (and not voluntary) codes under Article 8(2) of the Regulations. The purpose of a separate procedure for the amendment of binding network codes is make this procedure simpler, quicker and more flexible than the first-time establishment of a new code. Notably, in such circumstances there is no requirement for (new) framework guidelines and any interested person, including the Agency and ENTSO may propose amendments through the Agency. The Agency then consults on the proposed amendments after which it may propose the amendment to the Commission, which can adopt it under comitology. For example, Article 7 of the gas Regulation reads as follows: Regulation 713/2009 Article 7 Amendments of network codes 1. Draft amendments to any network code adopted under Article 6 may be proposed to the Agency by persons who are likely to have an interest in that network code, including the ENTSO for Gas, transmission system operators, network users and consumers. The Agency may also propose amendments of its own initiative. 2. The Agency shall consult all stakeholders in accordance with Article 10 of Regulation (EC) No 713/2009. Following this process, the Agency may make reasoned proposals for amendments to the Commission, explaining how such proposals are consistent with the objectives of the network codes set out in Article 6(2) of this Regulation. 3. The Commission may adopt, taking account of the Agency’s proposals, amendments to any network code adopted under Article 6. Those measures, designed to amend non‑essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 28(2) [23(2)]. 688

Chapter 12 The establishment of common network rules William Webster 4. Consideration of proposed amendments under the procedure set out in Article 28(2) [23(2)] shall be limited to consideration of the aspects related to the proposed amendment. Those proposed amendments are without prejudice to other amendments which the Commission may propose.

It seems reasonable and appropriate to have this specific procedure for amending codes adopted through comitology, as such codes need to evolve over time to follow market developments. However, it is interesting to note that the Regulation does not include a process for the modification of the framework guidelines, which arguably remain in force even when the underlying network codes are subject to amendment. The only possibility for a revision of the framework guidelines would seem to be that the Commission includes it in the annual priority list in order to request the Agency to elaborate a new framework guideline.

12.119

In 2014, a modification process was started regarding the gas Network Code on Capacity Allocation Mechanisms (NC CAM) which was already in existence under the previous Regulation. The process for its modification would appear to deviate somewhat from the process foreseen in the Regulation.

12.120

The modification of the NC CAM was intended to complement the NC CAM by including rules on the allocation of new or “incremental” capacity at interconnection points; i.e. capacity that will be newly built (it could refer to the creation of a new interconnection point between two market areas, or to the creation of physical new capacity at an existing point).

12.121

The proposal to modify the NC CAM followed from both discussions in the Madrid Forum and studies undertaken by the regulators (in ACER and in their European association CEER). The Commission picked up on this and invited ACER – following its invitation to write a Framework Guideline for a network code on Tariff structures – to include tariff issues related to incremental capacity in the Framework Guideline.

12.122

This led to a further study commissioned by ACER to assess the impact of possible policy options on incremental capacity. In view of the study, CEER (it is not entirely clear why this was not done by ACER but is suggested that this may have a budgetary background) developed a discussion paper setting out possible options on when and how incremental capacity demand could be identified and offered in an auction. Based on this paper ACER developed a so-called guidance document for ENTSOG in which it gives guidance on the required

12.123

689

Chapter 12 The establishment of common network rules William Webster

amendments of the NC CAM, to be carried out by ENTSOG. Also, in the network code on tariff structures, attention will be paid to the tariff issues related to incremental capacity.

12.124

Thus, instead of an amendment proposed by ACER directly to the Commission as foreseen in Article 7, a route whereby ENTSOG is requested to develop an amendment (on the basis of guidance which could be interpreted to have the same purpose as a framework Guideline) was followed. It is intended that this modification process will follow the provisions of Article 7 of the Regulation by requesting ENTSOG to propose its amendments to ACER, who will then - in accordance with Article 7(2) of the Regulation – consult on the proposals and make a reasoned proposal for amendments to the Commission.

12.125

Established by Council Decision of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission. OJ L 184/23, 17.07.1999. This decision was amended Council Decision of 17 July 2006. OJ L 200/11, 22.07.2006.

690

Chapter 13 Security of supply William Webster

Chapter 13 Security of supply

1.

Security of supply context

1.1 Introduction Security of energy supply for both electricity and gas is a major policy objective. Unlike other products, households and industry rely on a continuously available service. Specifically, the daily lives of businesses and individuals are constructed around the assumption that electricity and gas are constantly available. As has been seen in previous example of large-scale blackouts and major gas supply interruptions during winter months, any impediment to the availability of energy causes a great deal of disruption to people’s lives and to businesses.

13.1

Issues relating to security of energy supply are therefore never far from the top of the list of priorities for legislators and politicians involved with the energy industry. There are a number of aspects to this question that the European Union has dealt with in the context of developing the internal market. This includes questions around how wholesale electricity and gas markets operate and the scope for government or regulatory interventions.

13.2

However, measures with respect to security of supply for electricity and gas are also set in the wider context of EU energy policy and these are increasingly dominated by the objective of reducing carbon emissions in line with the 2015 Paris agreement. As noted in the previous chapter, a set of eight pieces of legislation were put forward in November 2016 by the Commission as part of a “Clean Energy Package”. These proposals, after adoption through the co-decision process, gave

13.3

691

13.4

Chapter 13 Security of supply William Webster

effect to the overall 2030 energy policy objectives relating to; i) reduction in carbon emissions by 40% compared to 1990, ii) a 27% share of renewables in primary energy, and iii) a 32% improvement in energy efficiency. These replaced the previous 20:20:20 targets, for 2020, that have been largely achieved.

13.5

The Clean Energy Package also included the recast Electricity Directive and Regulation as well as a new Directive on Risk Preparedness and revised Gas Security of Supply Regulation. These measures have updated the EU policy on security of supply, repealing the previous Directive 2005/89 and Regulation 994/2010. As a result, both the gas and electricity sectors now have a comprehensive and similar overarching framework for managing security of supply and European level. This complements the network codes that, as discussed in Chapter 12, set out detailed requirements with respect to system operation and interoperability.

13.6

The central objective of this framework is to codify the interaction between the issues around security of supply and the liberalisation of the electricity and gas markets. On one hand a functioning internal energy market is now the backbone of any strategy to reduce the exposure of individual Member States to security of supply risks. For example, the creation of a Europe-wide market leads to the need to coordinate market structure and network operation at European level. Likewise, part of the logic for the development of markets for electricity and gas is to use competitive forces to ensure supply and demand are in balance.

13.7

However, on the other hand, the introduction of competition has changed the basis on which operational and investment decisions are made, including the balancing of supply and demand, and investments in production and storage. The latter issue remains a relevant consideration given the long time periods necessary to plan, construct and amortise new generating capacity and gas infrastructure.

13.8

Experience has shown that industry, if provided with a stable regulatory framework, can be expected to make the necessary investment to meet normal demand. However, this requires, in particular, that the regulatory regime permits the market to send the necessary price signals, and that the environmental and planning rules applicable to the construction of new electricity lines, gas pipelines and generating facilities are reasonable.

692

Chapter 13 Security of supply William Webster

Questions around investment incentives have been brought into even sharper focus in many Member States as a consequence of increased penetration of renewable energy sources for which output is variable and uncertain. Renewable penetration has provoked many Member States, including those which have a long experience of competitive markets, to establish mechanisms seeking to incentivise investment.

13.9

A further dimension to the question of security of supply relates to unexpected or rare events, such as extreme weather events or external disruption to supplies which need to be dealt with. Even well-functioning markets may not deal easily with these very uncertain and low probability events. Similarly, coordinated procedures may be necessary with respect to the operation of interconnections in times of crisis which may also require coordination at the European level.

13.10

The question of “Security of Supply” can therefore be deconstructed into the following issues, which for the basis of the rest of this Chapter as follows:

13.11

–

Balancing supply and demand

–

Incentivising investment

–

Secure network operation

–

Coordination of response to emergency situations.

At previous stages of development of the legislation, the question often arose around whether Member States would also be entitled to derogate from the requirements of the main electricity and gas Directives on the grounds of delivering or imposing public service obligations regarding security of supply. Given the comprehensive range of explicit measures that now exist to deal with security of supply, It is clear that this would only be possible where it can be established that no alternative measures that are less restrictive of trade and competition than those envisaged are reasonably available to address the issue. This is codified in, for example, Article 9 of the recast Electricity Directive.

693

13.12

13.13

Chapter 13 Security of supply William Webster

Article 9 Directive 2019/944 Public service obligations “1. Without prejudice to paragraph 2, Member States shall ensure, on the basis of their institutional organisation and with due regard to the principle of subsidiarity, that electricity undertakings operate in accordance with the principles of this Directive with a view to achieving a competitive, secure and environmentally sustainable market for electricity, and shall not discriminate between those undertakings as regards either rights or obligations. 2. Having full regard to the relevant provisions of the TFEU, in particular Article 106 thereof, Member States may impose on undertakings operating in the electricity sector, in the general economic interest, public service obligations which may relate to security, including the security of supply, regularity, quality and price of supplies and environmental protection, including energy efficiency, energy from renewable sources and climate protection. Such obligations shall be clearly defined, transparent, non-discriminatory and verifiable, and shall guarantee equality of access for electricity undertakings of the Union to national consumers. Public service obligations which concern the price setting for the supply of electricity shall comply with the requirements set out in Article 5 of this Directive. 3. Where financial compensation, other forms of compensation and exclusive rights which a Member State grants for the fulfilment of the obligations set out in paragraph 2 of this Article or for the provision of universal service as set out in Article 27 are provided, this shall be done in a non-discriminatory and transparent way. 4. Member States shall, upon implementation of this Directive, inform the Commission of all measures adopted to fulfil universal service and public service obligations, including consumer protection and environmental protection, and their possible effect on national and international competition, whether or not such measures require a derogation from this Directive. They shall subsequently inform the Commission every two years of any changes to those measures, whether or not they require a derogation from this Directive.”

13.14

It would therefore seem that there is prima facie no need for Member States to rely on any derogation from these Directives or Regulations for the purpose of ensuring security of supply. 694

Chapter 13 Security of supply William Webster

2.

Balancing Supply and Demand

2.1 Introduction The question of providing a balance between supply and demand in a market closed to competition was relatively simple. Before market opening, monopoly companies in Europe, and particularly continental Europe, maintained high reserve capacity, much of it inefficient and expensive. This placed important and often unnecessary costs on European energy consumers and/or taxpayers. And, if there were problems, these would be resolved by rationing of energy through voltage reductions and rota cuts for electricity, and pressure reductions or disconnection for gas.

13.15

The establishment of a more economic level of capacity, allowing for that capacity to be shared efficiently across borders, and using the price mechanism for balancing supply and demand, are among the reasons for establishing a competitive internal energy market in the first place. Similarly, a more disaggregated approach can allow for greater clarity about the roles and responsibilities of different operators and market participants that can improve security of supply, even at lower levels of spare and reserve capacity or storage levels.

13.16

However, the introduction of competition does bring different concepts regarding the delivery of security of supply. An immediate difference is that both market participants as well as system operators are now jointly responsible for matching supply and demand. And it is now the decisions of market participants how they manage their portfolio of contracts and physical capacity so that they are able to balance their own portfolios.

13.17

For gas, although the questions relating to balancing of supply and demand are to some extent similar to those for electricity. Some important differences are that gas is with some exceptions not widely produced throughout the EU but is to a large extent produced outside the Union. Also, in contrast to electricity, gas can be stored including within the transmission system itself, allowing for gas to be consumed at a different time from when it is produced.

13.18

System operators, particularly for electricity will still, as before, need reserve capacity or contractual arrangements in order to resolve residual imbalances and system constraints in real time. Spare capacity, whether retained by market participants or the TSOs, is expensive to maintain because, by definition, it is rarely or never used. Thus, in a competitive market there may be a natural tendency to reduce the amount of capacity.

13.19

695

Chapter 13 Security of supply William Webster

13.20

Furthermore customers, at least household or small customers rarely, if ever, choose a supplier on the ground of its ability to maintain secure supplies, instead focusing on price. Indeed, for most aspects of security of supply this is not even possible since an interruption will normally affect all users in a particular area no matter how much they have paid or would be prepared to pay to avoid such an event. Therefore, even in a competitive market there is a clear role for government or regulators to ensure that security of supply standards are maintained.

2.2 Role of the Wholesale markets 13.21

Both the gas and electricity legislation emphasise the role of the wholesale market as the primary mechanism to provide a balance between supply and demand. This is emphasised in the recast Electricity Regulation 2019/ 943. Regulation 2019/943 Article 3 Principles regarding the operation of electricity markets “Member States, regulatory authorities, transmission system operators, distribution system operators, market operators and delegated operators shall ensure that electricity markets are operated in accordance with the following principles: (a) prices shall be formed on the basis of demand and supply; (b) market rules shall encourage free price formation and shall avoid actions which prevent price formation on the basis of demand and supply; Likewise, the legislation envisages these price signals in the wholesale market being directly reflected into prices to end users. Indeed, the legislation restricts the scope for Member States to control prices to end users, while it also encouraging active participation by end users in the market in the form of dynamic price contracts.”

696

Chapter 13 Security of supply William Webster

Regulation 2019/943 Article 5 Market-based supply prices “1. Suppliers shall be free to determine the price at which they supply electricity to customers. Member States shall take appropriate actions to ensure effective competition between suppliers.”

Regulation 2019/943 Article 11 Entitlement to a dynamic electricity price contract “1. Member States shall ensure that the national regulatory framework enables suppliers to offer dynamic electricity price contracts. Member States shall ensure that final customers who have a smart meter installed can request to conclude a dynamic electricity price contract with at least one supplier and with every supplier that has more than 200 000 final customers. 2. Member States shall ensure that final customers are fully informed by the suppliers of the opportunities, costs and risks of such dynamic electricity price contracts, and shall ensure that suppliers are required to provide information to the final customers accordingly, including with regard to the need to have an adequate electricity meter installed. Regulatory authorities shall monitor the market developments and assess the risks that the new products and services may entail and deal with abusive practices. 3. Suppliers shall obtain each final customer’s consent before that customer is switched to a dynamic electricity price contract.”

The clear implication of these provisions is that, building on the requirements in the previous Directive 2005/89 and the development of the 2008 target model, the wholesale markets are the primary mechanism for ensuring demand and supply are in balance.

13.22

The 2009 Gas Directive and Regulations do not, as yet, have quite the same unequivocal and explicit provisions relating to the importance of wholesale markets and active consumer participation. However, the importance of functioning

13.23

697

Chapter 13 Security of supply William Webster

markets for security of supply is underlined at a number of points in the recitals to both the Directive and Regulation and can be inferred from the detailed requirements. Directive 2009/73 Recitals “(22) The security of energy supply is an essential element of public security and is therefore inherently connected to the efficient functioning of the internal market in gas (53) Market prices should give the right incentives for the development of the network.”

13.24

The Madrid Forum Conclusions of November 2019 and the Commission Communication of December 2019 indicated an intention to update and recast the Gas Directive to mirror the main elements in the electricity sector. If it were not clear already, it appears likely that the centrality of functioning liquid wholesale markets to the question of balancing supply and demand will be further restated.

13.25

To a large degree, both the gas and electricity Regulations and detailed network codes discussed in Chapter 12 also underline the role of wholesale markets. In particular, the balancing and capacity allocation rules, for both electricity and gas, are essentially about how transmission infrastructure is made available to market participants and around seeking to define a clear delimitation between the role of the market and that of the TSO in balancing the system. This, however, remain a blurred picture to some degree and particularly as real time delivery approaches. The TSOs and ENTSOs also have a strong role in monitoring and providing information.

2.3 The Role of the TSO: electricity Monitoring

13.26

Both the gas and electricity Directives place obligations on a number of parties to monitor the security of supply situation and the balance between supply and demand. For example, Article 5-7 of the Gas Directive 2009/73 places an obligation on Member States to monitor security of supply issues; to promote regional and bilateral solidarity; cooperating at the regional level to resolve is698

Chapter 13 Security of supply William Webster

sues. The recast Electricity Directive 2019/944 contains similar provisions and obligations on both TSOs and Regulators. Both Directives also include such functions in the duties of Transmission System Operators and expands these by placing obligations on TSOs relating to monitoring. Regulation 2019/943 has built on these requirements further in the roles of ENTSOs and, for electricity, in the tasks of Regional Coordination Centres. In practice, therefore, the requirements on Member States to monitor the supply-demand situation is very often delegated to TSOs.

13.27

Balancing Meanwhile the role of the TSO in the delivery of a balance between supply and demand system has evolved significantly. As noted above, in the past, vertically integrated companies both developed electricity generation and gas resources and also operated the network. The balance between supply and demand was therefore conducted on an isolated basis at Member State or a more localised level by a single entity. The development of the internal markets is partly to address the inefficiencies inherent in such an approach.

13.28

At the same time, some vestiges of the vertically integrated approach remain in evidence. For example, the “central dispatch” model which is included as an option in the 2019 Electricity Regulation does allow for a direct role for the TSO in scheduling generation. Likewise, in the gas sector, the system operator can resolve imbalances by, in some circumstances, trading gas alongside market participants and making use of the storage capacity (“linepack”) embodied in the physical network.

13.29

However, in general, the legislation reflects the expectation that the TSOs role in balancing supply and demand will be a residual one. This is reflected, for example, in the Electricity Regulation in terms of setting the settlement period at 15 minutes and gate closure times at 15 minutes before real time. Market participants are expected to, as far as possible, balance their positions themselves through trading with others. It is also reflected in the definition of tasks of the TSO in Directive 2019/944 which emphasise their role in facilitating the market, rather than being active in terms of production or supply of electricity or gas.

13.30

699

Chapter 13 Security of supply William Webster

Article 40 Directive 2019/944 “Each transmission system operator shall be responsible for: (a) ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity, operating, maintaining and developing under economic conditions secure, reliable and efficient transmission system with due regard to the environment, in close cooperation with neighbouring transmission system operators and distribution system operators; (b) ensuring adequate means to meet its obligations; (c) contributing to security of supply through adequate transmission capacity and system reliability; (d) managing electricity flows on the system, taking into account exchanges with other interconnected systems. To that end, the transmission system operator shall be responsible for ensuring a secure, reliable and efficient electricity system and, in that context, for ensuring the availability of all necessary ancillary services, including those provided by demand response and energy storage facilities, insofar as such availability is independent from any other transmission systems with which its system is interconnected; (e) providing to the operator of other systems with which its system is interconnected sufficient information to ensure the secure and efficient operation, coordinated development and interoperability of the interconnected system; (f ) ensuring non-discrimination as between system users or classes of system users, particularly in favour of its related undertakings; (g) providing system users with the information they need for efficient access to the system;”

13.31

Likewise, the unbundling requirements i.e. a separation in ownership terms between system operators and generators and producers, also implies a residual role for system operators. Thus, for example in electricity, TSOs may contract with market participants to provide the necessary reserve capacity but cannot themselves own that capacity.

700

Chapter 13 Security of supply William Webster

Article 43 Directive 2019/944 “1. Member States shall ensure that: (a) each undertaking which owns a transmission system acts as a transmission system operator; (b) the same person or persons are not entitled either: (i) directly or indirectly to exercise control over an undertaking performing any of the functions of generation or supply, and directly or indirectly to exercise control or exercise any right over a transmission system operator or over a transmission system; or (ii) directly or indirectly to exercise control over a transmission system operator or over a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of generation or supply;”

Contracting reserve capacity and Storage As discussed in Chapter 12, the Balancing and System Operation network codes set out in detail how this contracting should be organised, the requirements for cross border arrangements and the necessity to operate capacity so as not to distort the traded market before gate closure. The recast Electricity Directive however has demonstrated more flexibility in this area, in recognition of the potential challenges associated with decarbonisation. These allow a procedure for TSOs and DSOs to develop storage assets themselves which was previously not permitted by the unbundling requirements. Article 54 Directive 2019/944 Ownership of energy storage facilities by transmission system operators Regulation “1. Transmission system operators shall not own, develop, manage or operate energy storage facilities. 2. By way of derogation from paragraph 1, Member States may allow transmission system operators to own, develop, manage or operate energy storage facilities, where they are fully integrated network components and the regulatory authority has granted its approval, or where all of the following conditions are fulfilled: 701

13.32

Chapter 13 Security of supply William Webster (a) other parties, following an open, transparent and non-discriminatory tendering procedure that is subject to review and approval by the regulatory authority, have not been awarded a right to own, develop, manage or operate such facilities, or could not deliver those services at a reasonable cost and in a timely manner; (b) such facilities or non-frequency ancillary services are necessary for the transmission system operators to fulfil their obligations under this Directive for the efficient, reliable and secure operation of the transmission system and they are not used to buy or sell electricity in the electricity markets; and (c) the regulatory authority has assessed the necessity of such a derogation, has carried out an ex ante review of the applicability of a tendering procedure, including the conditions of the tendering procedure, and has granted its approval. The regulatory authority may draw up guidelines or procurement clauses to help transmission system operators ensure a fair tendering procedure. 3. The decision to grant a derogation shall be notified to the Commission and ACER together with relevant information about the request and the reasons for granting the derogation. 4. The regulatory authorities shall perform, at regular intervals or at least every five years, a public consultation on the existing energy storage facilities in order to assess the potential availability and interest of other parties in investing in such facilities. Where the public consultation, as assessed by the regulatory authority, indicates that other parties are able to own, develop, operate or manage such facilities in a cost-effective manner, the regulatory authority shall ensure that transmission system operators’ activities in this regard are phased-out within 18 months. As part of the conditions of that procedure, regulatory authorities may allow the transmission system operators to receive reasonable compensation, in particular to recover the residual value of their investment in the energy storage facilities.”

13.33

The procedure for this is clearly designed so that this should be a last resort. As discussed above and in Chapter 12, the expectation is that, where required, TSOs will enter into contracts with market participants to provide network capacity rather than owning it themselves.

702

Chapter 13 Security of supply William Webster

2.4 Role of TSOs: Gas The Gas Directive takes a similar approach with respect to the tasks and functions of the TSO. However, the unbundling rules already allow for TSOs and DSOs to own storage facilities provided these are legally unbundled and are offered to market participants on a non-discriminatory basis. Indeed, depending on the Member State, gas storage straddles the boundary between network infrastructure and being a purely market based element of the value chain. Directive 2009/73 Article 13 Tasks of TSOs “1. Each transmission, storage and/or LNG system operator shall: (a) operate, maintain and develop under economic conditions secure, reliable and efficient transmission, storage and/orange facilities to secure an open market, with due regard to the environment, ensure adequate means to meet service obligations; (b) refrain from discriminating between system users or classes of system users, particularly in favour of its related undertakings; (c) provide any other transmission system operator, any other storage system operator, any other LNG system operator and/or any distribution system operator, sufficient information to ensure that the transport and storage of natural gas may take place in a manner compatible with the secure and efficient operation of the interconnected system; and (d) provide system users with the information they need for efficient access to the system.”

703

13.34

Chapter 13 Security of supply William Webster

Directive 2009/73 Article 15 Unbundling of transmission system owners and storage system operators “1. A transmission system owner, where an independent system operator has been appointed, and a storage system operator which are part of vertically integrated undertakings shall be independent at least in terms of their legal form, organisation and decision making from other activities not relating to transmission, distribution and storage.”

13.35

Meanwhile, in terms of system operation and balancing rules, there is not the same need in gas for TSOs to systematically enter into contracts with market participants for a capacity product or for storage. This is because, some storage is embodied in the transmission system itself in the form of linepack and gas networks do not need to be in instantaneous balance.

13.36

In summary, the role of the TSO in balancing supply and demand is rather subtle and more complicated than previously. Clearly the TSO has an important monitoring role and is expected to respond to market conditions in constructing infrastructure. However, it is clear that there are boundaries. TSOs may not systematically buy or sell gas and electricity other than for real time operation. With respect to storage, gas TSOs can initiate storage investment whereas for electricity this is exceptional. However, electricity TSOs can enter into contracts for production capacity for system operation which is not normally needed for gas.

3.

System operation and operational security

3.1 Background 13.37

Particularly for electricity, security of supply is not simply a case of balancing supply and demand. It is also necessary for generation, transmission and demand to be aligned so that the overall operational security of the network is maintained. As well as the requirement for instantaneous balance there is also a locational element to this to avoid overloading particularly elements of the transmission grid which can then extent to lead to a more general breakdown in the system.

704

Chapter 13 Security of supply William Webster

Action at European level on this subject was first prompted by blackouts in Italy in September 2003 and in central and Western Europe in November 2006. This demonstrated the importance of clear network security rules, including for emergency situations. The exact causes and responsibilities for the blackouts were in both cases investigated by the Union for the Co-ordination of Transmission of Electricity (UCTE) a predecessor to ENTSOE.922 One major lesson from these blackouts was that network security rules needed to be agreed at least at regional level, i.e. covering synchronous areas (UCTE, NORDEL), if not at Community level. Furthermore, it became clear that these rules need to be legally binding.

13.38

At that time, with respect to the main continental European network, these issues were covered by the UCTE operational rules. Whilst these rules were accepted and in principle implemented by all UCTE members, they were not legally binding until 2005 when the members of the UCTE signed a multilateral agreement in April 2005 committing themselves to the implementation of the “Operation Handbook”. This was underlined by the requirements of the, now repealed, Directive 2005/89.

13.39

These requirements have mainly also been brought into the network codes and, in particular the Network Code on System Operation (Regulation 2017/1485) and on Emergency and Restoration (Regulation 2017/2196).

13.40

3.2 System Operation Code (SO) The System Operation code, Regulation 2017/1485, contains requirements on scheduling and load frequency control that allow for secure operation of the network and connected generation and load. One of the underlying objectives of the whole package of network codes is to maintain a secure delimitation between changes to scheduling that take place as a result of market signals up to gate closure, and those which are required after gate closure so that the grid maintains secure operation at the required frequency.

13.41

A large section of the Regulation (Article 18-26) sets out classifications of various system states; “normal”, “alert”, “emergency”, “black out” and the remedial actions that the TSO is able to take in terms of instructing market participants in order to return the system to normal.

13.42

922 UCTE (2004) Final Report of the Investigation Committee on the 28 September 2003 Blackout in Italy. UCTE (2007) Final Report on the System Disturbance on 4 November 2006. http://www.entsoe.eu/resources/publications/ce/otherreports/

705

Chapter 13 Security of supply William Webster

13.43

Meanwhile Part III of the Regulation requires the TSOs to derive grid scenarios and operational security analysis based on information collected from market participants. Article 70 and 74 calls for day-ahead and intraday analysis of this type based on up to date generation forecasts. This may create something of a circular outcome in short time frames in that generators may look to modify their dispatch decisions in response to the grid situation so it is difficult to know how reliable any model can be at that stage and an overcautious response could constrain the scope for the market to solve potential issues.

13.44

The last part of this section of the network code also calls for regional coordination of the type that is now required more widely as part of regional coordination centres in the re-cast Regulation 2019/943.

13.45

A further interface between system operation and the market can be found in Title 3 Chapter 1 whereby “relevant” assets are required to agree outage schedules with the TSO with Article 95 and Article 102 setting out processes whereby the TSO may challenge or override a relevant generator’s outage plans. Likewise, part IV of the network code dealing with Load Frequency Control (Article 137) potentially provides TSOs with the right to place ramping restrictions on generation on demand units.

13.46

Finally, Title V of this part of the code sets out requirement for the dimensions of different type of reserve products (frequency containment reserve (FCR), frequency restoration reserve (FRR) and replacement reserve (RR) as well as the procedures for TSOs to share these reserves. For RR in particular, there are potential overlaps between this process and the exchange of balancing reserve in the Balancing Code in which inconsistencies would need to be resolved.

3.3 Electricity Emergency and Restoration Code (EER) 13.47

The EER code, Regulation 2017/2196, sets out requirements on how TSOs are required to cooperate to restore reliable network operation from an emergency or blackout situation. This requires a high degree of regional coordination by TSOs in repairing system defence and restoration plans, anticipating to some extent the new 2019 requirements for Regional Coordination Centres. In implementing such plans, TSOs are obliged (Article 14) to provide assistance to neighbouring TSOs in an emergency state.

706

Chapter 13 Security of supply William Webster

Various common producers are required by the Regulation in terms of frequency control, automatic prevention of voltage collapse and frequency deviation (Article 15-19). Meanwhile Article 21 allows TSOs to request assistance from participants where market activities are suspended for which a procedure is established in Article 35. Meanwhile Article 39 contains rules to settle imbalances if the market is suspended.

13.48

Where a system breakdown has occurred, Article 26-34 provide for procedures for system re-energisation and restoration. This requires a carefully planned procedure which needs to be led by an individual TSO depending on individual circumstances. Finally, Chapters V-VI of the Regulation contains requirements with respect to information exchange and compliance testing of generator and large demand unit equipment.

13.49

4.

Investment in the competitive market

4.1 Electricity: Tendering and Capacity markets The first Electricity Directive (1996/92) envisaged a centralised tendering option for generation. However, although this was retained in the second Directive in 2003 the scope for Member States to direct investments through a tender process was reduced. The authorisation process was made the default process for generation investment with the implication that most investments would be initiated spontaneously by market participants as in other sectors of the economy. At that time, it was thought that, given the increasingly integrated nature of the internal market, it would however seem less and less necessary and appropriate for Member States to influence electricity supply and demand at national level by such measures at national level. This situation has changed significantly since 2008 with many measures being initiated at national level in the subsequent period, particularly as the Renewable share of electricity generation increased. These were largely in the form of capacity mechanism rather than specific tenders for new capacity. The scope for Member States in this area was recognised in Directive 2005/89 (now repealed).

13.50

The mechanisms usually involve a quasi-market process to determine a capacity price (Euro/KW) which will allow for some fixed cost recovery for generators even if plant concerned is not running. These have been a common part of market design in US jurisdictions and were increasingly seen as a necessary element

13.52

707

13.51

Chapter 13 Security of supply William Webster

as more intermittent renewable generation was connected to the system, even in long standing liberalised markets such as the UK.

13.53

Until the recasting of the legislation, the Commission generally dealt with such interventions under the State Aid rules given the large extent of autonomy given to Member States. With incentives for generation becoming more prominent, the Commission developed new guidelines on the application of the State Aid rules to the energy sector during 2013923 following a Communication setting out guidance on public interventions in energy markets.924

13.54

In the UK case, the Commission approved the capacity mechanism in 2014. The main change required was the requirement for non-UK capacity owners to be permitted to participate in the auction from 2015. Meanwhile the first auction was held in 2014 without this requirement for capacity to be made available in winter 2018/19. The outcome was that a payment of around £20/KW will be made to generators which demonstrate their availability over that period.

13.55

However, there was a subsequent successful challenge to the Commission’s decision by Tempus. The Court of Justice concluded that the Commission should have opened the full investigation procedure in taking its decision. The Decision was therefore annulled, and the scheme was suspended on 15 November 2018.925 Following an investigation, the Commission re-approved the scheme in 2019.

13.56

In the meantime, capacity mechanisms were reviewed as part of the 2019 review of the Directive and Regulation. The outcome was a significant reduction in the discretion of Member States reflecting some of the concerns around both consistency with the internal markets, and with the increasing prominence of the decarbonisation objectives of the EU. Regulation 2019/943 Article 21 General principles for capacity mechanisms

923 http://ec.europa.eu/competition/sectors/energy/legislation_en.html 924 http://ec.europa.eu/energy/en/topics/markets-and-consumers/government-intervention 925 Case 793/14 Tempus Energy Ltd and Tempus Energy Technology .v. Commission

708

Chapter 13 Security of supply William Webster “1. To eliminate residual resource adequacy concerns, Member States may, as a last resort while implementing the measures referred to in Article 20(3) of this Regulation in accordance with Article 107, 108 and 109 of the TFEU, introduce capacity mechanisms. 2. Before introducing capacity mechanisms, the Member States concerned shall conduct a comprehensive study of the possible effects of such mechanisms on the neighbouring Member States by consulting at least its neighbouring Member States to which they have a direct network connection and the stakeholders of those Member States. 3. Member States shall assess whether a capacity mechanism in the form of strategic reserve is capable of addressing the resource adequacy concerns. Where this is not the case, Member States may implement a different type of capacity mechanism. 4. Member States shall not introduce capacity mechanisms where both the European resource adequacy assessment and the national resource adequacy assessment, or in the absence of a national resource adequacy assessment, the European resource adequacy assessment have not identified a resource adequacy concern. 5. Member States shall not introduce capacity mechanisms before the implementation plan as referred to in Article 20(3) has received an opinion by the Commission as referred to in Article 20(5). 6. Where a Member State applies a capacity mechanism, it shall review that capacity mechanism and shall ensure that no new contracts are concluded under that mechanism where both the European resource adequacy assessment and the national resource adequacy assessment, or in the absence of a national resource adequacy assessment, the European resource adequacy assessment have not identified a resource adequacy concern or the implementation plan as referred to in Article 20(3) has not received an opinion by the Commission as referred to in Article 20(5). 7. When designing capacity mechanisms Member States shall include a provision allowing for an efficient administrative phase-out of the capacity mechanism where no new contracts are concluded under paragraph 6 during three consecutive years. Capacity mechanisms shall be temporary. They shall be approved by the Commission for no longer than 10 years. They shall be phased out or the amount of the committed capacities shall be reduced on the basis of the imple709

Chapter 13 Security of supply William Webster mentation plans referred to in Article 20. Member States shall continue to apply the implementation plan after the introduction of the capacity mechanism. Capacity mechanisms shall be temporary. They shall be approved by the Commission for no longer than 10 years. They shall be phased out or the amount of the committed capacities shall be reduced on the basis of the implementation plans referred to in Article 20. Member States shall continue to apply the implementation plan after the introduction of the capacity mechanism.”

13.57

In many respects a more prescriptive approach is not surprising. Given the increasing interlinkages between Member States’ electricity markets, the existence of additional capacity in one will inevitably have some indirect impact on forward price formation in other bidding zones and, as a result cause some distortion. Furthermore, some capacity mechanism designs specifically require the supported capacity to be dispatched in particular circumstances will would have a direct impact on wholesale prices in short term and forward markets.

13.58

Indeed, it is clear from both the Directive and Regulation, that the legislation envisages increasing demand side participation in the market, including among small consumers via digitalisation as the enduring solution to questions around the balance between supply and demand. Finally, it is noted that, in the 2019 version of the Directive, the option to run a tendering process for new generation has now been removed entirely.

4.2 Infrastructure and Storage – Gas 13.59

As for electricity, the presumption in the third gas Directive and Regulation is that market participants will make the required investments in new production and /or import capacity to meet the needs of gas consumers in response to price signals coming from the gas market. It is also expected that, in normal circumstances, gas will flow to and around the EU markets in response to price signals. The internal energy market legislation is intended to provide a stable framework for these investments, thus ensuring security of supply.

13.60

However, a key difference for gas is that a large proportion of the EU requirements are imported, and the infrastructure facilities often are connected to a limited number of markets in Europe. In case of supply disruptions, problems may then arise in case the regions which are not sufficiently interconnected, as was shown in the 2009 gas crisis.

710

Chapter 13 Security of supply William Webster

One strategy for dealing with this has been for the EU to encourage interconnections within the European grid. This enables better connection of regional gas markets to a greater number of supply sources and improve the diversification of regional markets. Typical interconnections which may be considered “weak” are East-West connections and North-South connections. Sometimes these connections are missing due to the unavailability of compression facilities in the “right” direction, and in other instances the physical connections (pipelines) are missing.

13.61

These “missing links” in terms of interconnections or flow possibilities may not be provided for by the market, even under a favourable regulatory regime. This is because in a competitive market, companies may be unwilling to invest in infrastructure for infrequent events, such as the particularly cold conditions or disruptions to particular individual sources as a result of physical unavailability or geo-political tensions. Yet, where these missing links have been completed, they may also serve to facilitate the development of a more efficient market because previously unavailable arbitrage opportunities may arise.

13.62

The Directive also specifies an authorisation procedure for new investment as the default model in Article 4. However, Article 22 allows for an annual procedure for the regulator to review transmission businesses network development plans and, in certain cases place a requirement on the TSO to invest in new capacity.

13.63

Directive 2009/73 Article 22 Network Development and power to make Investment decisions “1. Every year, transmission system operators shall submit to the regulatory authority a ten-year network development plan based on existing and forecast supply and demand after having consulted all the relevant stakeholders. That network development plan shall contain efficient measures in order to guarantee the adequacy of the system and the security of supply. 2. The ten-year network development plan shall, in particular: (a) indicate to market participants the main transmission infrastructure that needs to be built or upgraded over the next ten years;

711

Chapter 13 Security of supply William Webster (b) contain all the investments already decided and identify new investments which have to be executed in the next three years; and (c) provide for a time frame for all investment projects. 3. When elaborating the ten-year network development plan, the transmission system operator shall make reasonable assumptions about the evolution of the production, supply, consumption and exchanges with other countries, taking into account investment plans for regional and Community-wide networks, as well as investment plans for storage and LNG regasification facilities. 4. The regulatory authority shall consult all actual or potential system users on the ten-year network development plan in an open and transparent manner. Persons or undertakings claiming to be potential system users may be required to substantiate such claims. The regulatory authority shall publish the result of the consultation process, in particular possible needs for investments. 5. The regulatory authority shall examine whether the ten-year network development plan covers all investment needs identified during the consultation process, and whether it is consistent with the non-binding Community-wide ten-year network development plan (Community-wide network development plan) referred to in Article 8(3)(b) of Regulation (EC) No 715/2009. If any doubt arises as to the consistency with the Community-wide network development plan, the regulatory authority shall consult the Agency. The regulatory authority may require the transmission system operator to amend its ten-year network development plan. 6. The regulatory authority shall monitor and evaluate the implementation of the ten-year network development plan. 7. In circumstances where the transmission system operator, other than for overriding reasons beyond its control, does not execute an investment, which, under the ten-year network development plan, was to be executed in the following three years, Member States shall ensure that the regulatory authority is required to take at least one of the following measures to ensure that the investment in question is made if such investment is still relevant on the basis of the most recent ten-year network development plan: (a) to require the transmission system operator to execute the investments in question;

712

Chapter 13 Security of supply William Webster (b) to organise a tender procedure, open to any investors for the investment in question; or (c) to oblige the transmission system operator to accept a capital increase to finance the necessary investments and allow independent investors to participate in the capital.

Where the regulatory authority has made use of its powers under point (b) of the first subparagraph, it may oblige the transmission system operator to agree to one or more of the following: (a) financing by any third party; (b) construction by any third party; (c) building the new assets concerned itself; (d) operating the new asset concerned itself.



The transmission system operator shall provide the investors withal information needed to realise the investment, shall connect new assets to the transmission network and shall generally make its best efforts to facilitate the implementation of the investment project.



The relevant financial arrangements shall be subject to approval by the regulatory authority.

8. Where the regulatory authority has made use of its powers under the first subparagraph of paragraph 7, the relevant tariff regulations shall cover the costs of the investments in question.”

This requirement is further elaborated in the tasks of the ENTSOG, (Article 8 of the Regulation 715/2009) is to adopt and publish a network development plan, which must include Community aspects of network planning and must identify investment gaps, notably with respect to cross-border capacities (Article 8 (10) (a) and (c) of the gas and of the electricity Regulation).” Article 8 (6) of the Regulation also requires ENTSOG to develop a network code for security of supply although this has not yet been implemented.

713

13.64

Chapter 13 Security of supply William Webster

13.65

The CAM network code (Chapter V) further develops a common EU procedure by which TSOs are required to organise the development of incremental connection capacity. This requires both a standardised economic test and a market demand assessment by TSOs at either side of connection points (Article 26 of Regulation 2017/459, CAM code). Regulation 2017/459 Article 26 “13. The market demand assessment report shall include at least the following: (a) a conclusion on whether to initiate an incremental capacity project; (b) the aggregated non-binding demand indications received no later than 8 weeks after the start of the annual yearly capacity auction in the year of the publication of the respective demand assessment report; (c) the aggregated non-binding demand indications submitted after the deadline referred to in paragraph 6 during the previous incremental capacity process in case these demand indications were not considered for the previous demand assessment; (d) the aggregated non-binding demand indications submitted in accordance with paragraph 7 where the transmission system operators has decided to consider them in the ongoing market demand assessment; (e) an assessment of the expected amount, direction and duration of demand for incremental capacity at the interconnection points with each adjacent entryexit system or interconnectors; (f ) a conclusion on whether technical studies for incremental capacity projects will be conducted, specifying for which interconnection points and for which expected demand level; (g) provisional timelines for the incremental capacity project, technical studies and the consultation referred to in Article 27(3); (h) a conclusion on what fees, if any, will be introduced, according to paragraph 10; 714

Chapter 13 Security of supply William Webster (i) the types and, where available the aggregated size of conditional demand indications according to point paragraph 9; (j) how transmission system operators intend to apply Article 11(3) with regards to limitation of the number of years being offered in the annual yearly capacity auctions during the incremental process. 14. Transmission system operators and the relevant national regulatory authorities shall publish respective points of contact for incremental capacity projects initiated at the publication of the market demand assessment report and update this information on a regular basis throughout the project.”

Regulation 2017/459 also sets out the role of regulators and ACER in the oversight of the incremental capacity process. This requires coordination on transmission infrastructure on either side of the connection point. Regulation 2017/459 Article 28 (2) “Within 6 months of receipt of the complete project proposal by the last of the relevant regulatory authorities, those national regulatory authorities shall publish coordinated decisions on the project proposal defined in paragraph 1 in one or more official languages of the Member State and to the extent possible in English. The decisions shall include justifications. National regulatory authorities shall inform each other of the receipt of the project proposal and its completeness in order to determine the start of the 6 months period. When preparing the national regulatory authority’s decision, each national regulatory authority shall consider the views of the other national regulatory authorities involved. In any case national regulatory authorities shall take into account any detrimental effects on competition or the effective functioning of the internal gas market associated with the incremental capacity projects concerned. If a relevant national regulatory authority objects to the submitted project proposal, it shall inform the other involved national regulatory authorities as soon as possible. In such a situation, all the national regulatory authorities involved shall take all reasonable steps to work together and reach a common agreement. Where the relevant national regulatory authorities cannot reach an agreement on the proposed alternative allocation mechanism within the 6 months period referred to in the first subparagraph, the Agency shall decide on the alternative allocation mechanism to be implemented, following the process set out in Article 8(1) of Regulation (EC) No 713/2009.” 715

13.66

Chapter 13 Security of supply William Webster

13.67

Finally, Directive 2009/73 also continues to contain a procedure for exemption from regulation for new infrastructure under certain conditions. A number of infrastructure projects, including both pipelines and LNG import terminals have been developed on this basis over many years as discussed in Chapter 11. In summary, there are a number of levers available to incentivise investment in gas transmission infrastructure.

5.

Emergency Coordination and Safeguards

5.1 Gas 5.1.1 Background and key principles 13.68

As well as security of supply issues associated with investment and the balance between supply and demand, a final area where Community legislation has seen substantial development concerns requirements to cooperate when dealing with emergency situations and in safeguarding particular customers. Both the gas and electricity sector now have specific analogous Regulations in this respect emphasising solidarity between Member States in such circumstances. These were initially developed for the gas market and, most recently, in the 2019 package, for electricity.

13.69

For gas, these requirements were initially established in the Gas Security of Supply Directive (2004/67/EC) which aimed to create a common framework for Member States to establish the following measures at the national level:

13.70

–

to put in place security of supply policies, specifying roles and responsibilities of market actors,

–

to take measures to ensure security of supply is safeguarded for specific customers (households and SMEs),

– to put in place national emergency measures. The initial gas security of supply Directive also contained provisions for the coordination of actions at the Community level in case of emergencies which affected more than one Member State. The Directive sought to achieve this level of co-ordination by establishing, a Coordination Group and by requiring this Group to be convened in the event of a “major supply disruption”. This was de716

Chapter 13 Security of supply William Webster

fined as a situation where the Community would risk losing more than 20 % of its gas supply from third countries and the situation at Community level would not likely to be adequately managed by national measures. These requirements allowed for a wide range of approaches by Member States. Rather than specifying what the policy should be in this regard, it merely required that Member States had to have a policy and for this to clearly specified. Experience with the implementation of the Directive 2004/67 had shown that it was necessary to establish further harmonisation of the national measures for security of supply. For example, given that the Directive was very focused on subsidiary level measures and no ex-ante scenarios at the bilateral, regional or Community level were available. As a result, it was not really possible for the EU to play an effective role in dealing with the consequences of the 2006 and 2009 gas disputes between the Ukraine and Russia. The 2009 Gas Directive extended the framework for cooperation and solidarity. This includes both issues relating to potential disruption and initial rules around infrastructure development discussed in the section above. Directive 2009/73 Article 6 Regional solidarity “1. In order to safeguard a secure supply on the internal market in natural gas, Member States shall cooperate in order to promote regional and bilateral solidarity. 2. Such cooperation shall cover situations resulting or likely to result in the short term in a severe disruption of supply affecting a Member State. It shall include: (a) coordination of national emergency measures referred to in Article 8 of Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply; (b) identification and, where necessary, development or upgrading of electricity and natural gas interconnections; and (c) conditions and practical modalities for mutual assistance.

717

13.71

13.72

Chapter 13 Security of supply William Webster 3. The Commission and the other Member States shall be kept informed of such cooperation. 4. The Commission may adopt guidelines for regional cooperation in a spirit of solidarity. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 50(3).”

13.73

However, the overall framework was much further elaborated in the Gas Security of Supply Regulation (994/2010) which was itself further revised in 2017. The starting point the current Regulation 2017/1938, as laid down in Article 3, is that security of supply is a shared responsibility of both gas undertakings, Member States and the Commission and that this shared responsibility requires a high degree of cooperation between them. Article 3 also requires Member States to designate a specific “competent authority” to handle the issue. Regulartion 2017/938 Article 3 Responsibility for the security of gas supply “1. The security of gas supply shall be the shared responsibility of natural gas undertakings, Member States, in particular through their competent authorities, and the Commission, within their respective areas of activity and competence. 2. Each Member State shall designate a competent authority. The competent authorities shall cooperate with each other in the implementation of this Regulation. Member States may allow the competent authority to delegate specific tasks set out in this Regulation to other bodies. Where competent authorities delegate the task of declaring any of the crisis levels referred to in Article 11(1), they shall do so only to a public authority, a transmission system operator or a distribution system operator. Delegated tasks shall be performed under the supervision of the competent authority and shall be specified in the preventive action plan and in the emergency plan. 3. Each Member State shall, without delay, notify the Commission, and make public, the name of its competent authority and any changes thereto.

718

Chapter 13 Security of supply William Webster 4. When implementing the measures provided for in this Regulation, the competent authority shall establish the roles and responsibilities of the different actors concerned in such a way as to ensure a three-level approach which involves, first, the relevant natural gas undertakings, electricity undertakings where appropriate, and industry, second, Member States at national or regional level, and third, the Union. 5. The Commission shall coordinate the action of the competent authorities at regional and Union levels, pursuant to this Regulation, inter alia, through the GCG or, in particular, in the event of a regional or Union emergency pursuant to Article 12(1), through the crisis management group referred to in Article 12(4). 6. In the event of a regional or Union emergency, the transmission system operators shall cooperate and exchange information using the ReCo System for Gas established by ENTSOG. ENTSOG shall inform the Commission and the competent authorities of the Member States concerned accordingly. 7. In accordance with Article 7(2), major transnational risks to the security of gas supply in the Union are to be identified and risk groups are to be established on that basis. Those risk groups shall serve as the basis for enhanced regional cooperation to increase the security of gas supply and shall enable agreement on appropriate and effective cross-border measures of all Member States concerned within the risk groups or outside the risk groups along the emergency supply corridors. The list of such risk groups and their composition are set out in Annex I. The composition of the risk groups shall not prevent any other form of regional cooperation benefiting security of supply. 8. The Commission is empowered to adopt delegated acts in accordance with Article 19 in order to update the composition of the risk groups set out in Annex I by amending that Annex in order to reflect the evolution of the major transnational risks to the security of gas supply in the Union and its impact on Member States, taking into account the result of Union-wide simulation of gas supply and infrastructure disruption scenarios carried out by ENTSOG in accordance with Article 7(1). Before proceeding to the update, the Commission shall consult the GCG in the setting provided for in Article 4(4) on the draft update.”

Article 4 of the Regulation continues the Gas Coordination Group which was established under the initial Security of Supply Directive. It clarifies the composition of the Group, which now consists of the Commission, Member States (and in particular the competent authorities thereof ), the Agency, ENTSOG, and representative bodies of industry concerned and those of relevant customers. 719

13.74

Chapter 13 Security of supply William Webster

Regulation 2017/1938 Article 4 Gas Coordination Group “1. A Gas Coordination Group (GCG) shall be established to facilitate the coordination of measures concerning the security of gas supply. The GCG shall be composed of representatives of the Member States, in particular representatives of their competent authorities, as well as the Agency for the Cooperation of Energy Regulators (the ‘Agency’), ENTSOG and representative bodies of the industry concerned and those of relevant customers. The Commission shall, in consultation with the Member States, decide on the composition of the GCG, ensuring it is fully representative. The Commission shall chair the GCG. The GCG shall adopt its rules of procedure. 2. The GCG shall be consulted and shall assist the Commission in particular on the following issues: (a) the security of gas supply, at any time and more specifically in the event of an emergency; (b) all information relevant to the security of gas supply at national, regional and Union level;(c) best practices and possible guidelines to all the parties concerned; (d) the level of the security of gas supply, benchmarks and assessment methodologies; (e) national, regional and Union scenarios and testing the levels of preparedness; (f ) the assessment of the preventive action plans and the emergency plans, the coherence across the various plans, and the implementation of the measures provided for therein; (g) the coordination of measures to deal with an Union emergency, with the Energy Community Contracting Parties and with other third countries; (h) assistance needed by the most affected Member States. 3. The Commission shall convene the GCG on a regular basis and shall share the information received from the competent authorities whilst preserving the confidentiality of commercially sensitive information. 4. The Commission may convene the GCG in a setting which is restricted to the representatives of the Member States and in particular of their competent authorities. The Commission shall convene the GCG in this restricted setting if so requested by one or more of the representatives of the Member States and in particular of their competent authorities. In this case, Article 16(2) shall not apply.”

720

Chapter 13 Security of supply William Webster

As well as these overarching principles, the main elements of the Regulation are the introduction of a common supply standard for protected customers, a common infrastructure standard, strengthened cooperation, solidarity and emergency measures and the obligation for member states to be fully prepared for a supply disruption. These elements are discussed below.

13.75

5.1.2 Common infrastructure standard The 2009 Regulation introduced a harmonised infrastructure standard. This is direct consequence of the 2009 gas crisis in which it was found that although the EU had access to sufficient amounts of gas on an aggregated level, but it could not or only with great difficulty transport the gas to the affected Eastern European Member States.

13.76

This requirement now appears in Article 5 of the 2017 Regulation which requires Member States, or the competent authority to ensure that infrastructure is available to ensure that demand in extreme conditions can be met, even if the most important piece of infrastructure fails. This requirement is referred to as the N-1 rule and the gas security of supply Regulation contains a detailed set of formulas in a separate Annex which must be used to test whether the Member State meets the N-1 standard.

13.77

This rule is meant to ensure that gas markets that are dependent on for example a single supply pipeline, gas storage facility or LNG terminal to have in place redundant infrastructure in order to meet supply disruptions. Alternatively, if the Member State or competent authority can show that the supply disruption can be covered by demand side management measures, the N-1 rule may also be met. Furthermore, it is allowed to meet the N-1 test at a regional level, provided that the relevant Member States involved establish a joint Risk Assessment and Prevention / Action Plans.

13.78

A second provision in Article 5 related to infrastructure standards is the requirement, with some exceptions, to enable permanent bi-directional capacity on all cross-border interconnections between Member States. The Article requires the Member States or the competent authority to regularly check whether the market still fulfils these requirements. Article 5 also sets out the procedure to be used in deciding on the enabling of the bi-directional capacity or for the granting of an exemption. The exemption can notably be granted if the benefits of enabling bi-directionality do not outweigh the investment costs, or where the enabling would not significantly improve the security of supply situation on the

13.79

721

Chapter 13 Security of supply William Webster

connected market. An exemption must be notified to the Commission who may require an amendment of the exemption decision.

13.80

It is clear that the infrastructure standard may impose additional costs on the TSO (or in the case of the N-1 rule, the LNG or Storage operator). Therefore Article 5(6) provides specifically for the possibility to recover these costs in tariffs, where these are regulated. The Regulation is silent on the recovery of costs in non-regulated infrastructure (for example a necessary investment in a storage facility operating under negotiated TPA) for which it is assumed that compensation will be arranged otherwise. Interestingly however, where bi-directional capacity is enabled and more Member States of authorities are involved in the decision making about the need for such capacity, the decision making on the allocation of costs is left to the regulatory authorities. Thus, the decision to enable this capacity could be taken on the basis of a cost benefit analysis by different authorities from those ultimately deciding on the cost recovery.

5.1.3 Common supply standard and protected customers 13.81

Article 6 of Regulation 2017/1938 sets out requirements for a common supply standard for protected customers. Article 8 of the gas security of supply Directive establishes a supply standard, ensuring that protected customers will have uninterrupted gas supplies for a minimum of 7 or 30 days during different situations of extreme conditions. Regulation 2017/1938 Article 6 Gas supply standard “1. The competent authority shall require the natural gas undertakings that it identifies, to take measures to ensure the gas supply to the protected customers of the Member State in each of the following cases: (a) extreme temperatures during a 7-day peak period occurring with a statistical probability of once in 20 years; (b) any period of 30 days of exceptionally high gas demand, occurring with a statistical probability of once in 20 years;

722

Chapter 13 Security of supply William Webster (c) for a period of 30 days in the case of disruption of the single largest gas infrastructure under average winter conditions.”

By 2 February 2018, each Member State shall notify to the Commission its definition of protected customers, the annual gas consumption volumes of the protected customers and the percentage that those consumption volumes represent of the total annual final gas consumption in that Member State. Where a Member State includes in its definition of protected customers the categories referred to in point (5)(a) or (b) of Article 2, it shall specify the gas consumption volumes corresponding to customers belonging to those categories and the percentage that each of those groups of customers represents in total annual final gas consumption.

13.82

The competent authority shall identify the natural gas undertakings referred to in the first subparagraph of this paragraph and shall specify them in the preventive action plan.

13.83

Any new non market-based measures envisaged to ensure the gas supply standard shall comply with the procedure established in Article 9(4) to (9).

13.84

Member States may comply with the obligation laid down in the first subparagraph through the implementation of energy efficiency measures or by replacing the gas with a different source of energy, inter alia, renewable energy sources, to the extent that the same level of protection is achieved.

13.85

The definition of protected customer is now contained in Article 2(5). Whereas there is some room for Member States to expand the scope of the definition, the Regulation requires as a minimum that all households are protected customers. The possibilities for expanding the scope are notably aimed at the inclusion of essential social services and small and medium enterprises connected to the distribution network as long as these do not represent more than 20% of the final use of gas. This Article shows that the Regulation 2017/1938 allows Member States to implement higher standards (in some cases Member States already had in place these stronger measures to protect customers), but these member states must identify how these stronger standards can be temporarily be reduced in the event of a Union or regional emergency. Therefore, higher standards are allowed, but if there is a crisis that exceeds the national. level solidarity takes precedence.

13.86

723

13.87

Chapter 13 Security of supply William Webster

13.88

Although the minimum supply standard is harmonised, the Regulation leaves a lot of room for implementation. Although this is necessary given the very different ways in which markets are organised and the different technical and climatic conditions in the various Member States, it means that in practice it is difficult to assess whether the standard is applied correctly.

5.1.4 Coordination: preparation for a supply disruption 13.89

The gas security of supply Regulation requires either ENTSOG or the competent authority to prepare a Risk Assessment, a Preventive Action Plan and an Emergency Plan, which are all submitted to the Commission for review and possible amendment.

13.90

Risk assessment: the requirement is laid down in Article 7 of the Regulation and comprises a full assessment of the risks affecting the security of gas supply both at Union level by ENTSOG and by the competent authority in each Member State. The risk assessment requires analysis of various scenarios of exceptionally high gas demand and supply disruption, by presenting the outcome of the N-1 formula, by taking into account all relevant national and regional circumstances (especially with respect to market development and infrastructure development) and by identifying the interaction of risks with other Member States. The risk assessment is updated every four years and is sent to the Commission.

13.91

Preventive Action Plan and Emergency Plan: the Competent Authority is required by Article 8 to establish and consults on a Preventive Action Plan which is based on the Risk Assessment and lists the measures needed to remove or mitigate the risks identified. It also requires the establishment of a national Emergency Plan, which contains the measures to be taken to remove or mitigate the impact of a gas supply disruption.

724

Chapter 13 Security of supply William Webster

Regulation 2017/1938 Article 8 Establishment of preventive action plans and emergency plans “1. The measures to ensure the security of gas supply contained in a preventive action plan and an emergency plan shall be clearly defined, transparent, proportionate, non-discriminatory and verifiable, shall not unduly distort competition or the effective functioning of the internal market in gas and shall not endanger the security of gas supply of other Member States or of the Union. 2. The competent authority of each Member State shall, after consulting the natural gas undertakings, the relevant organisations representing the interests of household and industrial gas customers, including electricity producers, electricity transmission system operators, and, where it is not the competent authority, the national regulatory authority, establish: (a) a preventive action plan containing the measures needed to remove or mitigate the risks identified, including the effects of energy efficiency and demand-side measures in the common and nationals risk assessments and in accordance with Article 9; (b) an emergency plan containing the measures to be taken to remove or mitigate the impact of a disruption of gas supply in accordance with Article 10.”

Article 8 also allows for Preventive Action Plans and Emergency Plans to be defined at the regional level, to be established by the Competent Authorities of the involved Member States. The joint Preventive Action Plans or joint Emergency Plans are in addition to the national plans.

13.92

The content of the Preventive Action Plan is described in detail in Article 9 of the Regulation. It is important to note that the measures in the Preventive Action Plan must be primarily market based, as the Plan is meant to prevent a crisis and must – to the extent possible – not distort the efficient functioning of the market.

13.93

Meanwhile the content of the Emergency Plans is described in more detail in Article 10 and 11. Article 11 defines three main crisis levels: early warning level, alert level and emergency level. The Emergency Plan provides for concrete actions to be taken under those three crisis levels. Thus, it defines the roles and responsibilities of market participants and the competent authority, the way in which information is exchanged and the actions taken by the different actors.

13.94

725

Chapter 13 Security of supply William Webster

13.95

Particular attention is given to Article 10(4) which requires that the emergency measures do not unduly restrict the flow of gas within the internal market, do not endanger the security of supply situation in another Member State and access to cross border infrastructure is maintained as far as technically and safely possible. 5.1.5 Crisis Resolution

13.96

In the case that a Competent Authority declares an emergency, they must immediately inform the Commission which may then declare a Union or Regional Emergency. Where two or more Competent Authorities have declared an emergency and the reasons for the emergency are linked, the Commission must declare a Regional or Union emergency, however. This follows from Articles 1113 of the Regulation. The Commission must declare this emergency within 5 days after having received notification form the Competent Authorities, during which time the Commission verifies that the emergency is justified.

13.97

In that case the Commission shall convene the Gas Coordination Group. Also, during a Union or regional emergency, the Commission coordinates the actions of the Competent Authorities, thereby consulting the Gas Coordination Group. The Commission is also responsible for coordinating actions regarding third countries. This last requirement is aimed to ensure that the European Union speaks with “one voice” in its interactions with third countries that - in relation to a gas crisis – are likely to be supplying countries.

5.2 Electricity 5.2.1 Background and key principles 13.98

Although the network codes provide for a high level of TSO cooperation, there is a corresponding need, as already established for gas, to ensure coordination between Member States and regulators, particularly in circumstances of potential disruption and the use of non-market mitigation mechanisms. This was recognised as early as 2012 in that an Electricity Coordination Group (ECG) had already been set up in 2012 through a Commission Decision of 15 November 2012 (9) as a forum in which to “exchange information and foster cooperation among Member States, in particular in the area of security of electricity supply”.

726

Chapter 13 Security of supply William Webster

The 2009 version of the Electricity Directive allowed Member States the right to take safeguard measures, not specified in detail. The only requirements were that such safeguard measures should not unduly distort the internal market, they should be proportionate and they should not discriminate against market participants from other Member States.

13.99

However, the new 2019/941 Regulation on risk-preparedness in the electricity sector is now the most important legislation relating to emergency procecdures. This specifies in detail common procedures to be followed similar to those already applying in the gas sector. As for gas, the starting point for the Regulation, as set out in Article 1, is “cooperation between Member States with a view to preventing, preparing for and managing electricity crises in a spirit of solidarity and transparency and in full regard for the requirements of a competitive internal market for electricity”.

13.100

The 2019 Regulation further includes new procedures for preparing and dealing with crisis events on the same lines as the existing requirements for gas and with close involvement of the Electricity Coordination Group. This built on the details already contained in the network codes with respect to System Operation that are discussed in Section 3 above. Regulation 2019/941 also repeals the previous Security of Electricity of Supply Directive 2005/89 whose provisions have now been superseded.

13.101

The main elements of the Regulation are (i) risk assessment and scenario modelling including short term and seasonal adequacy assessment; (ii) the establishment of risk-preparedness plans and (iii) the management of crisis situations. There is less emphasis compared to gas on establishing a common infrastructure standard although the methodology on crisis scenarios requires consideration on situation goings beyond N-1 situations. This is largely because the potential causes of such crises are more multi-faceted than for gas. Likewise, the concept of “protected consumers” is not included given that the management of the electricity network makes it more difficult to target particular consumers for special treatment and the consequences of, for example, interruptions may be just as important for businesses as for households.

13.102

727

Chapter 13 Security of supply William Webster

Article 3 Regulation 2019/941 Competent authority “1. As soon as possible and in any event by 5 January 2020, each Member State shall designate a national governmental or regulatory authority as its competent authority. The competent authorities shall be responsible for, and shall cooperate with each other for the purposes of, carrying out the tasks provided for in this Regulation. Where appropriate, until the competent authority has been designated, the national entities responsible for the security of electricity supply shall carry out the tasks of the competent authority in accordance with this Regulation. 2. Member States shall, without delay, notify the Commission and the ECG and make public the name and the contact details of their competent authorities designated pursuant to paragraph 1 and any changes to their name or contact details. 3. Member States may allow the competent authority to delegate the operational tasks regarding risk-preparedness planning and risk management set out in this Regulation to other bodies. Delegated tasks shall be performed under the supervision of the competent authority and shall be specified in the risk-preparedness plan in accordance with point (b) of Article 11(1).”

13.103

As for gas, the Regulation provides each Member State to appoint a “competent authority” with respect to the subject. This may either be the energy regulator itself or another body. The competent authority is permitted to delegate tasks to another body, including the TSO. This structure reflects the differing situation in Member States concerning the administrative and governance structures.

5.2.2 Risk Assessment and Scenario Modelling 13.104

In terms of risk assessment and scenario modelling, the Regulation requires ENTSOE to develop and overarching methodology for identifying regional crisis scenarios. As noted, these are wider than the N-1 methodology contained in the gas sector since these may have a variety of contributing factors and not be only a result of unavailable single piece of infrastructure. This methodology has to be presented at a meeting of the ECG and must be approved by the Agency. ENTSOE are required to consult a wide range of other organisations and stakeholders. 728

Chapter 13 Security of supply William Webster

Article 5 Regulation 2019/941 Methodology for identifying regional electricity crisis scenarios “1. By 5 January 2020, the ENTSO for Electricity shall submit to ACER a proposal for a methodology for identifying the most relevant regional electricity crisis scenarios. 2. The proposed methodology shall identify electricity crisis scenarios in relation to system adequacy, system security and fuel security on the basis of at least the following risks: (a) rare and extreme natural hazards; (b) accidental hazards going beyond the N-1 security criterion and exceptional contingencies; (c) consequential hazards including the consequences of malicious attacks and of fuel shortages. 3. The proposed methodology shall include at least the following elements: (a) a consideration of all relevant national and regional circumstances, including any subgroups; (b) interaction and correlation of risks across borders; (c) simulations of simultaneous electricity crisis scenarios; (d) ranking of risks according to their impact and probability; (e) principles on how to handle sensitive information in a manner that ensures transparency towards the public.”

On the basis of the approved methodology ENTSOE then identify the most relevant scenarios at regional level, in collaboration with RCCs. Meanwhile national competent authorities assess the most relevant scenarios at national level. These have to be updated every four years and form the basis for the risk preparedness plans. 729

13.105

Chapter 13 Security of supply William Webster

13.106

A similar process is envisaged for short term and seasonal adequacy assessments. A common methodology is developed by the ENTSOE and then annual winter outlook assessment are carried out by them with more localised week-ahead and day-ahead assessments performed by RCCs.

5.2.3 Risk preparedness plans 13.107

Once the relevant scenarios are identified, the national competent authorities are required to develop risk-preparedness plans. These have to be, initially, published by 5 January 2022 and will be updated every four years based on new scenario assessments. Article 10 Regulation 2019/941 Establishment of risk-preparedness plans “1. On the basis of the regional and national electricity crisis scenarios identified pursuant to Articles 6 and 7, the competent authority of each Member State shall establish a risk-preparedness plan, after consulting distribution system operators considered relevant by the competent authority, the transmission system operators, the relevant producers or their trade bodies, the electricity and natural gas undertakings, the relevant organisations that represent the interests of industrial and non-industrial electricity customers, and the regulatory authority where it is not the competent authority. 2. The risk-preparedness plan shall consist of national measures, regional and, where applicable, bilateral measures as provided for in Articles 11 and 12. In accordance with Article 16, all measures that are planned or taken to prevent, prepare for and mitigate electricity crises shall fully comply with the rules governing the internal electricity market and system operation. Those measures shall be clearly defined, transparent, proportionate and non-discriminatory. 3. The risk-preparedness plan shall be developed in accordance with Articles 11 and 12 and with the template set out in the Annex. If necessary, Member States may include additional information in the risk-preparedness plan.

730

Chapter 13 Security of supply William Webster 4. In order to ensure consistency of risk-preparedness plans, competent authorities shall, before adopting their risk-preparedness plans, submit the draft plans, for consultation, to the competent authorities of the relevant Member States in the region and, where they are not in the same region, to the competent authorities of directly connected Member States, as well as to the ECG. 5. Within six months of receipt of the draft risk-preparedness plans, the competent authorities referred to in paragraph 4 and the ECG may issue recommendations relating to the draft plans submitted pursuant to paragraph 4. 6. Within nine months of submitting their draft plans, the competent authorities concerned shall adopt their risk-preparedness plans, taking into account the results of the consultation pursuant to paragraph 4 and any recommendations issued pursuant to paragraph 5. They shall notify their risk-preparedness plans to the Commission without delay. 7. The competent authorities and the Commission shall publish the risk-preparedness plans on their websites, while ensuring confidentiality of sensitive information, in particular information on measures relating to the prevention or mitigation of consequences of malicious attacks. The protection of the confidentiality of sensitive information shall be based on the principles determined pursuant to Article 19. 8. The competent authorities shall adopt and publish their first risk-preparedness plans by 5 January 2022. They shall update them every four years thereafter, unless circumstances warrant more frequent updates.”

These plans have to be provided to the ECG who are allowed to proposed recommendations. Competent authorities are required to set out all national, regional and bilateral measures to deal with risk scenarios covering the measures set out in Article 11 of the Regulation, including both market and non-market measures. This includes providing a framework for manual load shedding, stipulating the circumstances in which loads are to be shed and, specifying which categories of electricity users are entitled to receive special protection against disconnection. So unlike for gas, this is at the discretion of Member States. Meanwhile regional measures include the appointment of a crisis coordinator similar to the requirements for gas.

13.108

The Commission is able to provide a non-binding opinion of these measures. This includes evaluating distortion of the internal market or non-compatibility with other legislation.

13.109

731

Chapter 13 Security of supply William Webster

5.2.4 Management of Crisis Situations 13.110

Articles 14-16 of the Regulation contain a standard process for the management of crisis situations. These envisage an early warning process between competent authorities and the Commission. Note that this does not directly correspond to any notification process that TSOs might provide to market participants in circumstances of e.g. market tightness but short of a full-blown crisis situation.

13.111

Article 15 envisages bilateral assistance through market and non-market-based measures between Member States on the basis of «  fair compensation  » for assistance provided. While finally Article 16 sets out the type of measures that are permitted, including both market and non-market-based operations. Any curtailment of cross border capacity must be in line with the requirements of Regulation 2019/943. Article 16 Regulation 2019/941 Compliance with market rules “1. Measures taken to prevent or mitigate electricity crises shall comply with the rules governing the internal electricity market and system operation. 2. Non-market-based measures shall be activated in an electricity crisis only as a last resort if all options provided by the market have been exhausted or where it is evident that market-based measures alone are not sufficient to prevent a further deterioration of the electricity supply situation. Non-market-based measures shall not unduly distort competition and the effective functioning of the internal electricity market. They shall be necessary, proportionate, non-discriminatory and temporary. The competent authority shall inform relevant stakeholders in its Member State of the application of any non-market-based measures. 3. Transaction curtailment including curtailment of already allocated cross zonal capacity, limitation of provision of cross zonal capacity for capacity allocation or limitation of provision of schedules shall be initiated only in accordance with Article 16(2) of Regulation (EU) 2019/943, and the rules adopted to implement that provision.”

732

Chapter 13 Security of supply William Webster

The remainder of the Regulation deals with ex-post monitoring and evaluation requirements and cooperation with third countries which are Members of the wider European Energy Community

6.

13.112

Overall summary of security of supply legislation

Both the gas and electricity sector now have comprehensive rules to govern the scope for either Member States or TSOs to influence or even override decisions being taken in the market, in order to protect the integrity of supplies.

13.113

Generally speaking, these start from the presumption that intervention, in the form of “non-market” operations is not permitted. Therefore, government or TSO involvement is not normally expected in for example; (i) operational and investment decisions on generation, including mothballing and closure decisions; (ii) contractual arrangement with upstream gas producers. The Regulations do however allow for such measures as part of coordinated and predetermined plans for potential crisis situations. Similarly, the System Operation network code envisages some involvement for TSOs in planning of e.g. maintenance outages.

13.114

With respect to investment decisions there is a distinction between the network elements of the value chain and productive capacity. On the production side, the tendering option has been removed from the regime, and replaced by rules governing the setting up and operation of capacity mechanisms. Member States are permitted to provide incentives to invest in new capacity and maintain existing plant, provided this is in line with the requirements of the Regulation and State Aid provisions.

13.115

Meanwhile for networks, including gas import infrastructure, there is a stronger role for either or both TSOs and Member States. The regime for storage facilities is more nuanced and will depend on the situation in different Member States. However, for gas the regime is relatively permissive regarding network operator involvement in investment decisions, while for electricity storage, the new Directive and Regulations view any regulatory or government intervention as exceptional.

13.116

733

Chapter 14 Reporting and review of the Directives Jan Papsch

Chapter 14 Reporting and review of the Directives926

1.

Purpose of reporting obligations

The creation of a well-functioning internal energy market is an ongoing longterm process. The move from vertically integrated national monopolies to competitive supply markets with regulated non-discriminatory access to key infrastructure requires changing fundamental parameters of the European energy sector. It would therefore have been hubris to assume at the time of drafting the necessary legislation that its implementation will be optimal right from the start. In fact, in a technically, economically and legally complex environment such as the energy sector, changes necessarily take time, and big changes will often have to be executed via a multitude of small steps. Along the road, technological or economic changes, such as the increasing importance of renewable energies or progress on energy storage solutions, as well as new information on perhaps unexpected impact of legislation, can require adjustments to the existing framework or its application. Other policy objectives, such as the decarbonisation of the energy sector, can also require re-thinking the basic premises on how the energy market is to be developed. To enable adjusting the planned trajectory in time, regular reporting can contribute by highlighting relevant developments in the energy markets. Where particular issues are already hotly debated at the start (such as the TSO unbundling provisions in the third package or the network codes and guidelines in the recast electricity Regulation), expressly including reporting and review obligations can also facilitate reaching a political compromise. 926 The content of this article does not necessarily reflect the official position of the European Union. Responsibility for the information and views expressed herein lies entirely with the author.

735

14.1

14.2

14.3

Chapter 14 Reporting and review of the Directives Jan Papsch

14.4

But also if no changes to the initial intentions are required, regular reporting on market developments can contribute to reaching policy objectives. First, verifying if Member States are correctly applying EU legislation and exposing major problems can allow the Commission and the concerned Member States to react. Second, by showing successful examples, Member States can learn from each other and the European Institutions can draw lessons for future steps. By comparing Member States amongst each other, a political incentive is created to be amongst the more successful states. This is particularly important where EU legislation leaves a wide margin of interpretation and application, and thus for the choice of Member States. This is one of the reasons why, for example, a best practice report on electrity tariffs is provided for under the recast electricity Regulation.

14.5

Finally, reports can be used as a basis to justify new legislation – they provide input for the required impact assessment, increase visibility for the market on which issues are currently subject to legislative discussions, and thus contribute to legal certainty.

2. 14.6

14.7

Reporting by the Commission

The Commission has as regards the internal energy market in practice a more limited reporting approach than ACER; this makes sense, as the creation of ACER also has the purpose of discharging the Commission of some of the monitoring and reporting needs, thereby freeing ressources for policy work. Nevertheless, the Third Package foresees several reporting obligations for the European Commission. Under the third package, Article 47 (1) of the electricity Directive and Article 52(1) of the gas Directive set out detailed annual reporting obligations on a wide range of issues such as market functioning and competition, unbundling and non-discrimimantory access, security of supply, derogations, relations with third countries, harmonisation, as well as environmental and consumer protection issues. Paragraphs (2) to (6) of these Articles foresee more specific reporting obligations within particular timeframes. Often, the reporting obligations cover areas in which no political agreement could be found and the discussion was thereby postponed, or future developments were already predictable. In some areas, reporting possibilities indicate policy proposals which have since not been addressed (such as Article 52 (1) last sentence of the Gas Directive, which raises the possibility of creating a single European gas TSO – a proposal which cannot be found in the electricity Directive). 736

Chapter 14 Reporting and review of the Directives Jan Papsch

Before 2015, Commission fulfilled most reporting obligations by the publication of a report on the progress of the internal energy market.927 Since 2015, the Commission has integrated reporting obligations, publishing a general annual report on the state of the Energy Union.928 This approach has been the guideline for developing the Clean energy for all Europeans package, which replaced most specific electricity market reporting of the Commission with the annual state of the energy union report.

14.8

The report on the state of the Energy Union is not only a report on past activity and changes in the energy sector, but also an opportunity for the Commission to highlight or scetch out future policy initiatives. Thus, the publication is often accompanied by a set of specific reports or communications which would in the past have been published separately. The annual state of the energy union is thus used as an opportunity to increase visibility for Commission initiatives and to better structure the publication activitiy of the Commission.

14.9

In April 2019, the fourth report on the state of the Energy Union was accompanied by the following documents:

14.10

–

a communication on more efficient and democratic decision makingin EU energy and climate policy929 proposing to move towards greater use of qualified majority voting, notably as regards environmental taxation measures, as well as in the longer term reforms to the Euratom Treaty notably regarding greater involvement of the European Parliament, national Parliaments and civil society;

–

a report on the Implementation of the Strategic Action Plan on Batteries930 highlighting the importance of building up a battery production value chain in the EU;

–

a report on f the progress made by Member States towards the national energy efficiency targets for 2020 and towards the implementation of the Energy Efficiency Directive, highlighting that energy savings in recent years were not sufficient to set off increase in energy consumption due to economic growth;931

927 See https://ec.europa.eu/energy/en/topics/markets-and-consumers/single-market-progress-report for reports up to 2014. 928 https://ec.europa.eu/commission/energy-union-and-climate/state-energy-union_en. 929 COM(2019) 177 final of 9 April 2019. 930 COM(2019) 176 final of 9 April 2019. 931 COM(2019) 224 final of 9 April 2019.

737

Chapter 14 Reporting and review of the Directives Jan Papsch

–

a report on progress in renewable energies folloying the political objective of making the Union the global leader in renewable energies, with more than 30 % of EU gross electricity production in 2017 coming from renewable energies;932

–

a report on the implementation and the impact on the environment and the functioning of the internal market of Directive 2006/66/EC of the European Parliament and of the Council of 6 September 2006 on batteries and accumulators and waste batteries and accumulators933, related to the environmental impact of batteries and their components, setting out that only 14 Member States have met the 2016 target of collecting at least 45 % of waste portable batteries and that, notwithstanding a high degree of recycling, the overall objective of the Directive of achieving a high degree of material recovery is not being met;

–

a staff working document with a detailed evaluation of Directive 2006/66/EC;934

–

14.11

a staff working document on progress in accelerating clean energy innovation935 setting out developments in financial support granted by various European programmes; – five factsheets, a press release and a Q&A document complete the publication package.936 However, the annual state of the energy union report still is not the only instance in which the Commission reports on energy matters. Seperately published reports include notably the following: –

The report on energy prices and costs, published every two years;937

–

Quarterly reports on European Gas and Electrcitiy Markets;938

932 933 934 935 936 937 938

COM(2019) 225 final of 9 April 2019. COM(2019) 166 final of 9 April 2019. SWD(2019) 1300 final of 9 April 2019. SWD(2019) 157 final of 9 April 2019. https://ec.europa.eu/commission/publications/4th-state-energy-union_en https://ec.europa.eu/energy/en/data-analysis/energy-prices-and-costs https://ec.europa.eu/energy/en/data-analysis/market-analysis

738

Chapter 14 Reporting and review of the Directives Jan Papsch

–

A very helpful annual statistical pocketbook on energy statistics, including relevant country-specific information939 which is also complemented by an Energy Union Indicators webtool;940

–

A report on the development of single day-ahead and intraday coupling under the Capacity Allocation and Congestion Management Guideline.941 Of course, the above list is far from complete, as the Commission publishes numerous studies and working documents every year. The initial Commission proposal for the Clean Energy for all Europeans package had proposed reducing the total number of required reports. However, a number of new reporting obligations where reintroduced in the recast electricity Regulation or Directive in the course of the negotiations, notably on request of the European Parliament.

3.

14.12

Reporting by ACER

The Agency for the Cooperation of Energy Regulators has an ambivalent role in energy regulation. First, it is a European Agency, with a strong role in the development and implementation of network codes. Second, it serves as coordinator of national regulatory authorities, in some cases with the right to decide in case of disagreement between two or more national authorities. In view of this double role, it is eveident that ACER has a large number of reporting obligations, notably related to the implementation of network codes. With every step forward in implementation of the Network Codes and even more so the Guidelines, the role of ACER has grown in importance. This is probably most apparent for the methodologies to be developed under the Guidelines, particularly for capacity allocation and congestion management. Approval of these methodologies often required agreement of all national regulatory authorities, failing which ACER became competent. The recast ACER regulation directly makes ACER competent to streamline this process. Besides these important decisionmaking tasks, ACER however remains competent for a number of reports, and for analysing an even greater number of reports from transmission system operators.

939 https://ec.europa.eu/energy/en/data/energy-statistical-pocketbook 940 https://ec.europa.eu/energy/en/data-analysis/energy-union-indicators 941 Report on the development of single day-ahead and intraday coupling in the Member States and the development of competition between NEMOs in accordance with Article 5(3) of Commission Regulation 2015/1222 (CACM), COM(2018) 538 final of 16 July 2018, https://ec.europa.eu/transparency/regdoc/ rep/1/2018/EN/COM-2018-538-F1-EN-MAIN-PART-1.PDF.

739

14.13

Chapter 14 Reporting and review of the Directives Jan Papsch

14.14

ACER publishes a wide variety of reports on different topics, which are accessible online.942 In 2018 and 2019, ACER published the following reports: –

A number of reports analysing the consultation on national tariff structures in the gas transmission system. National tariff structures can have discriminatory effects, e.g. by shifting costs from national consumers to transit shipping. The reports provide a good overview of planned methodologies at national level, though they can be hampered by lack of information or analysis provided by national regulatory authorities.943

–

Report on the conditionalities stipulated in contracts for standard capacity products for firm gas transmission capacity:944 This report is required by the capacity allocation mechanisms code (NC CAM). It is interesting to note that, although the report is European-wide in scope, it reports on a category of products almost only used Germany and to a more limited extent in Austria. ACER however notes that also a lot of other contracts, notably legacy long-term contracts, do not apply the NC CAM rules. ACER recommends increased transparency and standardization on the use of conditional products, as well as integrating transit lines into larger entry-exit zones. It also highlights the possibility of entry-exit-zone mergers to result in reduced cross-border capacity.

–

The Monitoring report on the implementation of the CACM Regulation and the FCA Regulation945 provides an overview on the stage of implementation of the two core regulations for integrating the internal electricity market. As ACER has a strong role in approving the relevant methodologies, it is best placed to provide this overview. As points of criticism, ACER notably highlights that (i) some regional provisions on long-term allocation deviate from the harmonized allocation rules or the FCA Regulation (thus constituting an infringement of EU law); (ii) TSO proposals on capacity calculation, redispatch and countertrading do not properly address the discrimination between internal and crosszonal flows (a treaty requirement); (iii) the NTC approach for capac-

942 https://www.acer.europa.eu/Official_documents/Publications/Pages/Publication.aspx 943 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/Transmission%20 Tariff%20Structures%20for%20Gas%20-%20ACER%20Analyses.pdf. 944 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Report%20on%20the%20conditionalities%20stipulated%20in%20contracts%20for%20standard%20capacity%20products%20for%20firm%20capacity.pdf 945 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/FCA_CACM_Implementation_Monitoring_Report_2019.pdf

740

Chapter 14 Reporting and review of the Directives Jan Papsch

ity calaculation remains very intransparent, (iv) the legal framework for bidding zone definitions does not suffice to find optimal solutions; (v) the governance of the market coupling operator function is lacking due to conflicting incentives between nominated market operators and transmission system operators and (v) intraday coupling is not sufficiently defined in the regulation, bringing with it the risk of market fragmentation. The ACER report thus highlights a number of core issues which merit further attention, be it in legislative processes such as future amendments of FCA and CACM regulations, be it in implementation and enforcement of existing legislation. –

Report on the methodologies and parameters used to determine the allowed or target revenue of gas transmission system operators:946 This report is required under Article 34 of the Network Code on Harmonised Transmission Tariff Structures for Gas (“NC TAR”). The report is based on a consultant study providing an overview on the main elements of revenue calculation for gas transmission system operators. As transmission tariffs are a socialized cost and preventing overcompensation is a main task of regulatory authorities, such a comparative study can provide significant added value.

–

ACER Work Programme:947 the annual work program sets out the priorities of the Agency for the following year and a multiannual outlook, creating both transparency on planned policy developments and allowing the Commission to comment on priorities and staff allocation by the Agency.

–

ITC monitoring report 2017:948 this report provides the Agency’s position on the implementation of the Inter-Transmission System Operator Compensation mechanism pursuant to Regulation (EU) No 838/2010.949 Article 1.4 of Annex 1 of this regulation requires ACER to report annually on this subject. The Agency concludes that the implementation of the ITC mechanism and the management of the ITC Fund in 2017 continues to be in line with the requirements set out in the Regulation.

946 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Report%20Methodologies%20Target%20Revenue%20of%20Gas%20TSOs.pdf. 947 https://www.acer.europa.eu/en/The_agency/Mission_and_Objectives/Pages/Work-programme.aspx 948 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ITC%20Monitoring%20Report%202018.pdf 949 Commission Regulation (EU) No 838/2010 on laying down guidelines relating to the inter-transmission system operator compensation, OJ 2010/L 250/5. mechanism and a common regulatory approach to transmission charging.

741

Chapter 14 Reporting and review of the Directives Jan Papsch

–

Summary report on project-specific risk-based incentives:950 This report summarises the results of ACER monitoring as regards the application of Article 13 Regulation (EU) No 347/2013 on granting project-specific incentives for projects of common interest (PCI). It provides an overview on the 6 PCI projects receiving project-specific incentives since 2013, detailing the type of incentives granted and project-specific risks taken into account. This is an important summary of flexibility inside the regulated system, which can in some cases be used instead of requesting a formal exemption under Article 36 of the Gas Directive or Article 63 of the recast Electricity Regulation (see chapter 11 of this publication for further details).

–

Market monitoring report 2017: this extensive report was prepared jointly by ACER and CEER. The voluminous publication is split up in a summary document,951 an electricity wholesale markets chapter,952 a gas wholesale markets chapter,953 an electricity and gas retail markets chapter954 and a consumer protection chapter.955 It provides a detailed overview on developments in the gas and electricity markets, such as e.g. the development of competition in wholesale and retail markets, price convergence and the average markup of retail prices compared to wholesale prices. This e.g. shows that in some Member States with regulated retail prices, the energy component of regulated prices was below wholesale costs, thus clearly preventing effective competition against regulated prices. The report aims at fulfilling the obligation on ACER under Article 11 Regulation (EU) 713/2009 to provide an annual report on the results of its market monitoring obligations. This reporting obligation is taken very seriously by ACER, and the annual report is a very helpful source of information.

950 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER-summaryreport-on-project-specific-risk-based-incentives_2018.pdf. 951 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/MMR%202017%20 -%20SUMMARY.pdf. 952 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/MMR%202017%20 -%20ELECTRICITY.pdf. 953 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Market%20Monitoring%20Report%202017%20-%20Gas%20Wholesale%20Markets%20Volume.pdf. 954 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/MMR%202017%20 -%20RETAIL.pdf. 955 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/MMR%202017%20 -%20CONSUMER%20PROTECTION.pdf

742

Chapter 14 Reporting and review of the Directives Jan Papsch

–

ACER annual activity report 2017:956 this report is required under Articles 13 (12),15 (4) and 17 (8) of Regulation (EU) 713/2009. It contains an overview of regulatory activities (such as work on the network codes) and administrative matters.

–

Report on the implementation of the gas balancing network code:957 The report is part of the ACER implementation monitoring activity and shows that while significant progress has been made, implementation of the gas balancing network code remains incomplete in many Member States. This is an important consideration in view of the April 2019 deadline for implementation of the Network Code Regulation.

–

Implementation monitoring report on the network codes for demand connection and requirements for grid connection of high-voltage direct current systems:958 Most provisions of these network codes apply only as of the summer of 2019. The report therefore focusses on the efficient implementation of the provisions already applicable in 2018 and on identifying challenges for full application where possible. The report thus mostly provides an overview on the status of setting the derogation criteria at national level.

–

Report on the progress of Projects of Common Interest (PCI) 2017:959 PCI projects are obliged to submit annual progress reports, which are consolidated by ACER. ACER notes that the quality of reports leaves a lot of room for improvement. ACER notes significant delays: the commissioning dates for almost half the PCI projects have (“again”) been shifted one or two years into the future compared to earlier plans. 7 gas projects were farther away from realization than at the previous report. It thus appears that initial plans for PCI projects are very often overly ambitious on timing and/or that the PCI status does not achieve the expected expediency in project implementation. Similarly, the Agency notes that for 26 projects, no implementation effort could be observed in 2017, putting the usefulness of their PCI status seriously into question.

956 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Annual%20Activity%20Report%20for%20the%20year%202017.%20Designed%20version.pdf 957 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/ACER%20Report%20on%20the%20implementation%20of%20the%20Balancing%20Network%20Code%20 (Third%20edition).pdf. 958 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/Demand%20connection%20NC%20and%20requirements%20for%20grid%20connection%20NC.pdf. 959 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/Consolidated%20 Report%20on%20the%20progress%20of%20electricity%20and%20gas%20Projects%20of%20Common%20Interest%20for%20the%20year%202017.pdf.

743

Chapter 14 Reporting and review of the Directives Jan Papsch

–

Annual eport on contractual congestion at gas interconnection points:960 This report is required pursuant to the Guidelines on Congestion Management Procedures (CMP GL) and sets out where the offer for firm capacity was lower than demand. It shows that only 17 of 262 interconnection points were subject to contractual congestion, whereas another 72 points did not see any offered firm long-term product for the following gas year.

–

Summary report on cross-border cost allocation decisions: The report provides information regarding decisions on investment requests, including cross-border cost allocation decisions for projects of common interest adopted either by National Regulatory Authorities or by ACER.

–

REMIT quarterly: ACER has a significant role in monitoring of market integrity and transparency rules under Regulation (EU) No 1227/2011. This task represents a major element of the ACER budget and is of curcial importance for the reliability of the market environment. As of 2017, the previous REMIT annual report961 has been replaced by the REMIT quarterly.962

4.

Reporting by ENTSO-E and ENTSOG

14.15

ENTSO-E and ENTSOG publish a large variety of reports on a regular basis as well as additional ad-hoc reports. These reports generally provide important technical and market information and serve as a basis for further work done by ACER or the Commission.

14.16

Major reports published by ENTSO-E include: –

The winter outlook/summer review and summer outlook/ winter review reports963 provide an overview of the short term adequacy in the past summer as well as forecasts for the following winter and the other way around respectively. They are therefore an important element to provide a factual assessment of security of supply in electricity. ENTSO-E is obliged to provide these biannual reports on the basis of Article 30 (1) (m) of the recast electricity Regulation.

960 https://www.acer.europa.eu/Official_documents/Acts_of_the_Agency/Publication/Congestion%20Report%205th%20ed.pdf. 961 https://documents.acer-remit.eu/category/remit-annual-reports 962 https://documents.acer-remit.eu/remit-quarterly/ 963 https://www.entsoe.eu/outlooks/seasonal/

744

Chapter 14 Reporting and review of the Directives Jan Papsch

–

Ten year network development plans (“TYNDP”).964 These plans are one of the main instruments to coordinate infrastructure development at a European level. They have to be prepared every two years on the basis of Article 30 (1) (b) of the electricity Regulation. The system adequacy outlook previously part of these plans has now been upgraded to a European system adequacy assessment provided for in Article 23 of the recast Electricity Regulation. Pursuant to Article 23 (2) of the recast electricity Regulation, this assessment is still to be provided by ENTSO-E.965 This outlook is based on scenarios and goes farther into the future than the short-term summer report/winter outlook.

–

The annual work programme of ENTSO-E966 is established on the basis of Article 30 (1) j) of the recast electricity Regulation. It is subject to comments by ACER and includes e.g. an overview on network code development and implementation work as well as research & development activities. Complementing the forward-looking annual work programme, the annual report967 gives an overview of past developments, in significantly more detail than in the work programme. The annual report is established on the basis of Article 30 (1) l) of the electricity Regulation. Some reports relate to individual events, such as the 2015 solar eclipse.968

– –

Furthermore, ENTSO-E provides detailed statisctial information on the European electricity system.969 In principle, this includes e.g. a monthly overview of national systems and physical energy flows, which was however not updated for periods after September 2015.970 This is probably due to a drop in demand on retrospective statistics following the go-live of the ENTSO-E transparency platform.971

–

The recast electricity regulation lifts one of the most important ENTSO-E reporting obligations from network codes to the higher level of the Regulation: Article 14 (2) provides for an obligation to report on the existence of structural congestion, which is the basis for triggering an action plan for increases in available cross-border capacity and an eventual review of bidding zones.

964 965 966 967 968 969 970 971

https://tyndp.entsoe.eu/ https://www.entsoe.eu/publications/system-development-reports/adequacy-forecasts/Pages/default.aspx. https://www.entsoe.eu/publications/general-publications/awp/ https://www.entsoe.eu/publications/general-publications/annual-report/ https://www.entsoe.eu/publications/system-operations-reports/continental-europe/Pages/default.aspx https://www.entsoe.eu/publications/statistics-and-data/ https://www.entsoe.eu/publications/statistics-and-data/#monthly-statistics-reports https://transparency.entsoe.eu/

745

Chapter 14 Reporting and review of the Directives Jan Papsch

14.17

Reporting obligations for ENTSOG largely resemble the ENTSO-E obligations. Main publications include: –

Ten year network development plans (“TYNDP”).972 These plans are one of the main instruments to coordinate infrastructure development at a European level. They have to be prepared every two years on the basis of Article 8 (3) (b) of the gas Regulation. The two year rhythm allows to avoid overlaps between gas and electricity infrastructure planning (gas impair years, electricity pair years).

–

The annual work programme of ENTSOG973 is established on the basis of Article 8 (3) d) gas Regulation. It provides an overview on planned activities and allows stakeholder comments via a public consultation. Again, it is complemented by an annual report on the basis of Article (3) e) gas Regulation.

–

Also ENTSOG provides twice per year summer/winter supply outlooks and reviews.974 This approach is due to the significantly higher gas consumption in winter, for heating, and the need for storage filling in summer periods. The annual outlooks are mandatory on the basis of Article 8 (3) f ) gas Regulation.

–

Statistical data on gas transmission systems is provided on the ENTSOG transparency platform.975 The data is presented as a map of the EU-wide gas transmission system, showing available capacities and booking information per interconnection point.

–

In addition to the transparency platform, ENTSOG also provides together with ACER for a gas network codes functionality platform976 where stakeholders can provide comments on the functioning of network codes in gas.

–

ENTSOG also provides input on ad hoc requests, such as the stress tests prepared by the European Commission in order to assess security of gas supplies in case of specific interruption scenarios.

972 973 974 975 976

https://entsog.eu/tyndp#. https://entsog.eu/annual-work-programme-annual-reports# https://entsog.eu/outlooks-reviews#. https://transparency.entsog.eu/ http://www.gasncfunc.eu/

746

Chapter 14 Reporting and review of the Directives Jan Papsch

5.

Reporting obligations of national authorities

National regulatory authorities are a core element of the third energy package. They are obliged to report annually to the Commission, ACER and relevant authorities of the concerned Member State pursuant to Article 37 (1) e) of the electricity Directive and Article 41 (1) e) of the gas Directive respectively. National regulatory authorities generally combine those reports into a general annual report, which is in most countries available online. They are also available on the CEER website.977 Pursuant to Articles 37 (1) g) of the electricity Directive and 41 (1) g) of the gas Directive, these reports shall include an assessment of the TSO’s investment plans and their compliance with the TYNDP. Further monitoring and reporting obligations exist for security of supply purposes, an area where national competences are often seen as particularly important. The former Articles 4 of the electricity Directive and Article 5 of the gas Directive respectively requested Member States to publish every two years a report on security of supply issues. These obligations had already been included in the second package but have since been replaced by more coherent security of supply frameworks. For gas, this framework is contained in Regulation (EU) 2017/1938 on the security of gas supply.. This Regulation provides for much more stringent obligations than the previous Article 5. Member States are obliged to prepare detailed preventive action and emergency plans. Article 5 was thus consequently repealed by the Governance Regulation. Similarly for electricity, the new risk preparedness Regulation as well as the provisions on European and national generation adequacy assessments in the recast Electricity Regulation provide a much more detailed framework than the previous Article 4, which was repealed.

14.18

Furthermore, Regulation (EU) 2018/1999 on Governance of the Energy Union and Climate Action sets out a comprehensive reporting obligation for Member States to the Commission. Pursuant to Article 3 of the Governance Regulation, Member States shall submit integrated national enery and climate plans covering the five dimensions of the energy union. The first such plan shall be submitted by 31 December 2019, with new plans due every ten years thereafter. The 10-year-rhythm already shows the very much forward-looking and comprehensive nature of these plans, compared to other shorter-term outlooks.

14.20

977 https://www.ceer.eu/

747

14.19

Chapter 14 Reporting and review of the Directives Jan Papsch

14.21

As regards the energy union dimension of the internal electricity market, Article 4 (d) of the Governance Regulation puts the focus firmly on infrastructure development. This is understandable, as infrastructure investment has a large market impact but perhaps more importantly is easy to measure, plan, report and compare. However, the “hardware” underlying electricity trade does not guarantuee market integration by itself. In fact, even the best network does not integrate markets if the regulatory framework as the “software” for market integration is not adequate. This is much more difficult to measure. Article 4(d)(3) lists a number of “other aspects of the internal electricity market” but it is difficult to define decades years in advance which precise elements will be decisive in measuring and improving market integration. Thus, the list remains at the level of principles which will need to be filled with life in national reporting.

14.22

The recast electricity Regulation has introduced a number of new reporting obligations for national regulatory authorities. By way of example, pursuant to Article 6 (10) of the Regulation, national regulatory authorities shall, by 1 January 2028, report to the Agency and the Commission on the share of contract durations and procurement periods for balancing products longer than one day. A single report by 2028 on such a technical subject is puzzling. This can be explained by the general reporting obligation of the Commission on the Regulation, which was finally moved back to 2030, thus justifying an equally late date for national input to this report. In practice, one can expect the framework for electricity balancing to have significantly evolved by then. Article 10 (5) of the recast Electricity Regulation provides for national regulatory authorities or other authorities designated by Member States (such as the ministry for energy or the competition authority) to report on national policy measures which could restrict price formation (such as price caps or presumptions of abuse under competition law). This report needs to be submitted to the Commission already by 6 months after entry into force, thus likely still in the course of 2019. Pursuant to Article 5 (9) of the recast Electricity Directive, Member States shall by 1 January 2022 and 1 January 2025 respectively submit reports to the Commission on the implementation of the Article on regulated prices, as well as the necessity and proportionality of public interventions. This information will provide the basis for a Commission report by 31 December 2025. An important reporting obligation for Member States is contained in Article 20 (3) of the recast Electricity Regulation, which obliges Member States willing to introduce or maintain capacity mechanisms to develop and publish an imple-

14.23

14.24

14.25

748

Chapter 14 Reporting and review of the Directives Jan Papsch

mentation plan. This plan shall in particular consider removal of regulatory distortions, increasing interconnections or removing regulated prices. The Commission has four months to assess the implementation plan, and the Member State shall not implement a new mechanism or issue contracts under an old mechanism before an opinion has been issued. It is important to note that the passage of the four month deadline does not allow the Member State to proceed. While the Commission will clearly be under significant pressure to adopt an opinion, Member States which e.g. refuse to provide required information or analysis could legally not proceed with the implementation. The Commission opinion is not binding, but will have significance in the state aid analyisis which usually will be required and which ends with a binding Commission Decision.

6.

Reporting obligations on national transmission system operators

The recast electricity Regulation and recast electricity Directive have also introduced reporting obligations for national transmission system operators. These obligations generally also contain an obligation for the national regulatory authority to pass the reports onwards to ACER and/or the Commission.

14.26

Notably, Article 13 of the recast electricity Regulation provides that, as a principle, market-based redispatching should be used. However, broad derogations allow the use of non-market-based remedial actions, such as cost-based redispatching. At least once per year, transmission system operators shall report to the national regulatory authority, which shall pass on the report to the Agency, on development and effectiveness of market-based redispatching, the reasons and volumes for redispatching of different sources of energy, and the measures taken to reduce the need for downward redispatching of renewable energies or high-efficiency cogeneration. This detailed reporting obligation is the counterpart for allowing the downward regulation of renewable energies in order to improve their integration into the electricity market.

14.27

Article 14 (3) to (6) of the recast Electricity Regulation provide that a specific bidding zone review shall be carried out by all transmission system operators after entry into force of the Electricity Regulation. This bidding zone review is part of the political compromise but one should not expect a very conclusive outcome. As this review will be carried out in parallel to any existing action plans, it is difficult to imagine how the undetermined success of the action plan could allow for credible assumptions in the ongoing bidding zone review. As such, this review, which seems to have an EU-wide geographic scope, will be

14.28

749

Chapter 14 Reporting and review of the Directives Jan Papsch

14.29

useful mostly to get an objective basis in regions without action plans, as well as in order to hopefully improve methodology and assumptions prior to future reviews. Article 15 (4) of the recast electricity Regulation provides that the relevant transmission system operators (which includes all transmission system opertors from the concerned capacity calculation region) report on a yearly basis during the implementation of an action plan for increased available cross-border capacity whether the obligations on respecting at least a linear trajectory for increased capacity have been met. National contributions to this report are subject to regulatory approval. This unusual mechanism has been used as Member States wanted to avoid having joint approval by more than one regulatory authority of the final report, which would have allowed an involvement of ACER in case of disagreement. Similarly, the regional coordination centres shall, pursuant to Article 16 (3) of the recast electricity Regulation, report to the national regulatory authorities and to ACER on deviations from the minimum available crossborder capacity pursuant to Article 16 (7).

7.

Review provisions

14.30

Article 45 of the electricity Directive and Article 50 of the gas Directive foresee a specific review procedure to be executed in the event the Commission finds that, given the effective manner in which network access has been carried out in a MemberState — which gives rise to fully effective, non-discriminatory and unhindered network access — certain obligations imposed by the respective Directive on undertakings (including those with respect to legal unbundling for distribution system operators) are not proportionate to the objective pursued, the Member State in question may submit a request to the Commission for exemption from the requirement in question. This is likely to be the result of a political compromise to reassure those who found the planned provisions to be excessive.

14.31

To make this procedure applicable, the Commission has to conclude in its report on progress in the internal market that the Directives impose disproportionate obligations. This has not been established so far, and the procedure has thus not been applied to date.

750

Chapter 14 Reporting and review of the Directives Jan Papsch

The recast electricity Directive has in consequence not maintained this provision. However, Article 69 of the recast Electricity Regulation and Article 69 of the recast Electricty Directive respectively introduce new, far-reaching review opbligations for the Commission which were accepted to reach a political compromise. Article 69 of the Regulation reads as follows:

14.32

14.33

Commission reviews and reports 1.   By 1 July 2025, the Commission shall review the existing network codes and guidelines in order to assess which of their provisions could be appropriately incorporated into legislative acts of the Union concerning the internal electricity market and how the empowerments for network codes and guidelines laid down in Articles 59 and 61 could be revised.

The Commission shall submit a detailed report of its assessment to the European Parliament and to the Council by the same date.



By 31 December 2026, the Commission shall, where appropriate, submit legislative proposals on the basis of its assessment.

2.   By 31 December 2030 the Commission shall review this Regulation and shall submit a report to the European Parliament and to the Council on the basis of that review, accompanied by a legislative proposal where appropriate.

The general review obligation in the Regulation has thus a deadline for 2030. In view of the highly detailed technical nature of the Regulation and the dynamic development of electricity markets based on the energy transition, it is very likely that a review of the Regulation would be required by this date in any case. Thus, the general review obligation appears to be of limited impact. More important is the will of the legislator set outin paragraph 1 that the Commission shall assess and where appropriate make legislative proposals by end 2026 on whether elements of network codes and guidelines could be appropriately lifted to a higher legislative level by the ordinary legislative procedure, and how the related empowerments could be revised. This clearly shows that Council and Parliament recognized the important contribution of network codes and guidelines to market integration and thus did not want to undermine existing legislation, but also insist on deciding core questions of electricity markets in the ordinary legislative procedure. This will maintain significant political pressure on 751

14.34

Chapter 14 Reporting and review of the Directives Jan Papsch

14.35

the Commission to continue the approach chosen in the Commission proposal for an Electricity Regulation to determine the main policy choices in network codes and guidelines and to submit these choices to the legislators for discussion in the ordinary legislative procedure. While many of these questions in practice are highly technical and ill suited for the ordinary legislative procedure, their significant economic and societal impact justify this burden. Article 69 of the Directive reads as follows: Commission monitoring, reviewing and reporting 1.   The Commission shall monitor and review the implementation of this Directive and shall submit a progress report to the European Parliament and the Council as an annex to the State of the Energy Union Report referred to in Article 35 of Regulation (EU) 2018/1999. 2.   By 31 December 2025, the Commission shall review the implementation of this Directive and shall submit a report to the European Parliament and to the Council. If appropriate, the Commission shall submit a legislative proposal together with or after submitting the report.

14.36

14.37

14.38

The Commission’s review shall, in particular, assess whether customers, especially those who are vulnerable or in energy poverty, are adequately protected under this Directive. Contrary to the Regulation, the Directive thus requires expressly the publication of an annex to the State of the Energy Union report related to the implementation monitoring by the Commission. It appears that this annex should be annual, although this is not expressly stated. Due to the close relationship between Directive and Regulation, one should expect this annex to also contain elements on the implementation of the Electrictiy Regulation, at least where they are directly related to the provisions of the Directive. Furthermore, it is important to note that the Directive has a much shorter deadline for general review than the Regulation, asking for a report already in 2025 at the latest. Taking into account the lengthy procedures for ensuring correct implementation of Directives (infringement procedures on non-Compliance with the third package Directives are currently pending at the European Court of Justice, ten years after adoption of the Directives) one should expect this report to be rather careful and any legislative proposals related thereto to be rather 752

Chapter 14 Reporting and review of the Directives Jan Papsch

limited. In particular, should infringement procedures be pending at that point of time, experience shows that neither the Commission nor the Member States concerned would be willing to clarify the sections of the Directive concerned by the procedure. It is important to note that neither review or reporting obligation can legally bind the European Commission to actually submit any legislative proposal. This would be contrary to the EU Treaty, which in Article 17 (2) TEU sets out that legislative acts may only be adopted on the basis of a Commission proposal. Legal obligations for the Commission to set out specific proposals would thus circumvent the exclusive right of initiative set out in the Treaty.

14.39

On the other hand, the review provisions and the wording on legislative proposals “where appropriate” are sure to put considerable pressure on the Commission to provide at least a substantive evaluation. In particular as regards the possible lifting of elements from network codes and guidelines to a higher legislative level, the Commission also has an interest to provide room for Council and Parliament to amend main principles in the ordinary legislative procedure. Otherwise, the resistance towards entrusting the Commission with important empowerments to further regulate electricity market integration could be even stronger when discussing the next legislative framework.

14.40

753

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

Chapter 15 Implementation of the Third Internal Energy Market Package978

1.

The Third Internal Energy Market Package

The Third Energy Package was formally adopted on 13 July 2009 and entered into force on 3 September 2009. It comprises five legislative texts – two directives and three regulations. The Member States had to adopt all national measures necessary to transpose the Electricity Directive 2009/72/EC and the Gas Directive 2009/73/EC979 and to notify them to the Commissions by 3 March 2011.980 The Directives entered into application as of 3 March 2011, except for some of the rules on unbundling.981

15.1

The Electricity Regulation (EC) No 714/2009, the Gas Regulation (EC) No 715/2009 and Regulation (EC) No 713/2009 establishing the Agency for the Cooperation of Energy Regulators (ACER)982 are directly applicable. As such

15.2

978 Opinions expressed in this chapter are those of the author and do not reflect necessarily the position of the European Commission. 979 Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing 2003/54/EC, OJ L 211, 14.08.2009, p. 55; Direc‑ tive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC, OJ L 211, 14.08.2009, p. 94. 980 Articles 49(1) and 54(1) of Directives 2009/72/EC and 2009/73/EC, respectively. 981 Namely, Article 11 on certification in relation to third countries entered into application as from 3 March 2013 (see Articles 48 and 54 of Directives 2009/72/EC and 2009/73/EC, respectively). 982 Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on condi‑ tions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003, OJ L 211, 14.08.2009, p. 15; Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repeal‑ ing Regulation (EC) No 1775/2005, OJ L 211, 14.08.2009, p. 36; Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators, OJ L 211, 14.08.2009, p. 1.

755

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

15.3

they do not require transposition into national law and automatically become part of the national legal orders. The Regulations also entered into application as from 3 March 2011 apart from some provisions of the ACER Regulation concerning the establishment of the Agency which were applicable already as from 2009.983 Thus the entry into application of the Regulations was aligned to the transposition and entry into application of the Directives and time was allowed for ACER to be set up and become operational, as otherwise certain rules and procedures of the Gas and Electricity Regulations could not be properly implemented.984 At the same time, the Gas and Electricity Directives and Regulations of the Second Internal Energy Market Package were repealed as from 3 March 2011.985

15.4

The Third Package Directives and Regulations set out key rules necessary for the proper functioning of the electricity and gas markets. The new or reinforced requirements concerning the unbundling of transmission system operators and transmission systems, the independence and powers of the national regulatory authorities (NRA) and the functioning of retail markets through enhanced consumer protection, represent major developments compared to the provisions of the Second Package. The Regulations complement the new regulatory regime by setting out detailed rules on core principles of market operation such as nondiscriminatory third party access, non-discriminatory and transparent capacity allocation and congestion management rules, etc.

1.1 Implementation via formal enforcement action and other tools 15.5

Timely, complete and correct implementation and application of the Third Package is essential for ensuring an open and competitive internal market for electricity and gas, with a level-playing field for all market players.

15.6

The primary responsibility for the application of EU law rests with the Member States and so their commitment to fully abide by the EU energy acquis is of utmost importance. The Commission, as the guardian of the Treaties, has enforcement powers to address deficiencies on national level, including by taking a formal legal action and opening infringement procedures against Member States for failure to comply with EU law. 983 See Article 35 of Regulation (EC) No 713/2009 providing that Articles 5 to 11 therein apply as from 3 March 2011 while the rest of the rules – upon entry into force, that is, already from 3 September 2009. 984 Emmanuel Cabau in Christopher Jones, EU Energy Law, Volume I, The Intrenal Energy Market, Third edition, paragraph 15.4. 985 Article 48 (Electricity Directive 2009/72/EC), Article 53 (Gas Directive 2009/73/EC), Article 25 (Electricity Regulation (EC) No 714/2009) and Article 31 (Gas Regulation (EC) No 715/2009).

756

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

This chapter firstly presents the enforcement actions taken so far by the Commission under the Third Energy Package.986 The latter built in many aspects upon regulatory rules already enshrined in the Second Energy Package. Thus in order to provide a comprehensive background, the chapter outlines the main infringement cases under the Second Energy Package, including an overview of the Commission’s follow-up action on such proceedings after 3 March 2011 (i.e. when the Second Package was repealed and replaced by the Third Energy Package). Finally, the Chapter discusses other implementation tools, apart from infringement action, which also play an important role for the proper application of the acquis. A focus is put in this regard on the guidance given by the European Court of Justice in the context of references for preliminary rulings made by national courts.

2.

15.7

Infringement action under the Third Energy Package

2.1 Initiation and steps in infringement proceedings Before looking at the concrete cases initiated by the Commission, it is useful to briefly outline the steps in infringement proceedings.

15.8

2.1.1 Procedural steps in infringements If an infringement of EU law is identified by the Commission, based on its own action or pointed at by a complaint, the Commission may open an infringement procedure against a Member State for violation of EU law under Article 258 Treaty on the Functioning of the European Union (TFEU) by addressing to the national authorities a letter of formal notice. This could be preceded by a structured problem-solving dialogue between the Commission and Member States, known as EU Pilot.987

15.9

The Member State has normally two months to reply to the letter of formal notice, following which the Commission could either close the case or take the next procedural step by sending a reasoned opinion to the national authorities, to which a reply is due normally also within 2 months. The Commission could afterwards either terminate the procedure (should the Member State comply

15.10

986 The current chapter reflects the state of play as of 19 November 2019. 987 In its Communication on EU law: Better results through better application (C/2016/8600), OJ C 18, 19.1.2017, p. 10, the Commission announced that it will launch infringement procedures without relying on the EU Pilot problem-solving mechanism, unless recourse to EU Pilot is seen as useful in a given case.

757

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

with EU law) or take a decision to refer the case to the Court of Justice of the European Union.

15.11

If the Court in its judgment concludes that a violation of EU law has taken place, but the Member State is not taking the necessary measures to comply with this judgement, the Commission can address to the Member State a letter of formal notice pursuant to Article 260(2) TFEU.

15.12

If afterwards compliance is still not in place, the Commission can directly bring a case before the Court for failure to comply with the judgement, without issuing a reasoned opinion. The step of the reasoned opinion was eliminated by the TFEU in order to urge the Member States to avoid any delay in complying with the rulings of the Court. The Commission’s decision for a second referral to the Court on the basis of Article 260 TFEU must be accompanied by a proposal for a daily penalty and/or lump sum payment by the Member State. Due to another novelty in the TFEU, the introduction of Article 260(3) therein, for cases concerning non-transposition of Directives, the Commission can propose financial penalties already at the stage of first referral to the Court. Both of these novelties, introduced by the TFEU have been used in energy infringements and have proven effective (as discussed below).

2.1.2 Confidentiality obligations 15.13

The infringement procedure has a bilateral nature between the Commission and the Member State. Thus there are confidentiality requirements the Commission has to observe in on-going procedures, including in its communication with the public. The fact of the opening, as well as the content of an EU Pilot are in general confidential between the Commission and the Member State concerned.988 In accordance with its current practice the Commission normally does not issue press releases on the adoption of letters of formal notice. The fact that a letter has been issued and the title of the infringement case will be visible on the website of the Europa website on application of EU law.989 The issue of a reasoned opinion is accompanied by a short “chapeau” communication by the Commission, while

988 According to the jurisprudence of the Court of Justice (case T-191/99 Petrie, paragraph 68) the Member States are entitled to expect the respect of confidentiality during an investigation which eventually leads to an infringement procedure. This confidentiality requirement lasts even after the matter has been brought up to the Court as the discussion between the Commission and the Member States as regards voluntary compliance may continue up until the delivery of a judgement. 989 See the information available at: http://ec.europa.eu/atwork/applying-eu-law/infringements-proceedings/ infringement_decisions/?lang_code=en

758

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

the decision for referral to Court – by a press release.990 The fact that a decision on the closure of an infringement case has been taken by the Commission is also visible on the website of the Europa website on application of EU law.991

2.2 Infringement cases for non-transposition 2.2.1 Situation upon expiry of the transposition deadlines Following the expiry of the transposition deadline for the Electricity and Gas Directives on 3 March 2011, the Commission assessed in a systematic manner all national transposition measures, notified to it by the Member States. This was done in order to verify whether these measures fully transpose the Directives, that is, whether they contain rules corresponding to all Directives’ provisions. The Commission thus performed the so-called “non-transposition check”.992

15.14

Full and timely transposition of the Directives had been a challenge for all Member States and in fact, at the end of the transposition deadline none of the Member States had fully transposed the Directives.

15.15

2.2.2 Initiation of infringement procedures: Letters of formal notice Consequently, in September and November 2011 the Commission initiated altogether 38 infringement proceedings against 19 Member States for not communicating to the Commission any transposition measures or for communicating measures which only partially transposed the Directives. These proceedings are referred to as “non-transposition” or “non-communication” cases. Letters of formal notice were sent to Austria, Belgium, Bulgaria, Cyprus, Denmark, Estonia, Finland, France, Ireland, Lithuania, Luxembourg, Netherlands, Poland, Romania, Slovakia, Slovenia, Spain, Sweden and the UK (for each Member State cases were initiated as regards both Directives).

15.16

This legal action urged the Member States to accelerate the transposition process. In 2012 and 2013 an increasing number of transposition acts were notified to the Commission. Based on their assessment many of the infringement cases were terminated as the assessment indicated that the measures fully transposed the Directives’ rules into national law.

15.17

990 See, for example, http://ec.europa.eu/energy/en/topics/enforcement-laws 991 The information in this Chapter follows the requirements for respect of confidentiality as outlined. 992 Due to the complexity and length of the Directives, some Member States have notified a large number of transposition acts, in some cases comprising over 100 measures.

759

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

15.18

However, for a number of countries deficiencies were still in place and so in April, May and June 2012, and February 2013 the Commission sent reasoned opinions to the Member States concerned.

2.2.3 Reasoned opinions 15.19

In February 2012 the Commission addressed 15 reasoned opinions to 8 Member States that had not yet adopted and notified any transposition measures for the Directives. Bulgaria, Cyprus, Luxembourg, Netherlands, Romania, Slovakia and Spain had failed to do so as regards both Directives, while Estonia – as regards the Gas Directive.993 In April 2012 the Commission sent eight reasoned opinions to five Member States which had communicated some transposition legislation but its examination indicated that it only partially transposed the Directives. Finland, Sweden and the United Kingdom received such reasoned opinion as regards both Directives, while Austria and Estonia – as regards the Electricity Directive.994 This was followed in May 2012 by a reasoned opinion sent to Poland for only partly transposing the Electricity Directive.995 Furthermore, in June 2012 reasoned opinions were also sent to Ireland and Slovenia for only partially transposing both Directives, and to Poland – for only partially transposing the Gas Directive.996 Finally, reasoned opinions were addressed to Lithuania for partial transposition of both Directives.997

2.2.4 Decisions for referral to Court. Application of Article 260(3) TFEU 15.20

As of October 2012, the Commission started to refer to the Court of Justice those Member States which had only partially transposed the Directives. In September 2012 the Commission decided to refer to the Court the cases for partial transposition of the Electricity Directive in Poland and the cases concerning partial transposition of the Electricity and Gas Directives in Slovenia.998 In November 2012 the Commission referred to the Court Finland for failing to fully transpose the two Directives and Poland – for failing to fully transpose the Gas Directive.999 In January 2013 the Commission decided to refer 6 more cases to the Court concerning Bulgaria, Estonia and the United Kingdom. Each 993 994 995 996 997 998 999

Press Release IP/12/181 at http://europa.eu/rapid/press-release_IP-12-181_en.htm?locale=fr Press ReleaseIP/12/410 at http://europa.eu/rapid/press-release_IP-12-410_en.htm?locale=fr Press Release IP/12/543 at http://europa.eu/rapid/press-release_IP-12-543_en.htm?locale=fr Press Release IP/12/639 at http://europa.eu/rapid/press-release_IP-12-639_en.htm?locale=fr Press Release MEMO/13/122 at http://europa.eu/rapid/press-release_MEMO-13-122_en.htm Press Release IP/12/1139 at http://europa.eu/rapid/press-release_IP-12-1139_en.htm Press Release IP/12/1236 at http://europa.eu/rapid/press-release_IP-12-1236_en.htm

760

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

of these Member States had failed to fully transpose both Directives.1000 Decisions against Romania for partial transposition of the two Directives followed in March 2013.1001 Finally, in February 2014 the Commission referred to the Court Ireland for only partially transposing the Electricity Directive.1002 Thus in total 15 cases of partial transposition were referred to the Court of Justice.1003 Examples for non-transposed provisions of the Electricity and/or Gas Directives which led to the decisions for referral are lack of transposition of the ownership unbundling model or of elements thereof, incomplete transposition of the independent transmission operator or the independent system operator unbundling model (for Member States which have chosen to make those models available in their national laws), incomplete transposition of the rules on unbundling of distribution system operators, incomplete transposition of the competences of the NRA, non-transposed confidentiality obligations for system operators, incomplete transposition of rules concerning consumer protection relating e.g. to the concept of vulnerable consumers, the content of consumer contracts with service providers, the procedures for handling of consumer complaints, etc.

15.21

A specificity of the decisions for referral was that they were accompanied by proposals from the Commission to the Court to impose financial penalties to the Member States with the judgement. These proposals were made in application of the new Article 260(3) TFEU.

15.22

The aim of this rule, a novelty in the TFEU, is to urge the Member States to avoid any delay in complying with their obligation to transpose fully EU Directives by the transposition deadline. The Commission first outlined its approach to the application of the rule in its 2011 Communication on the implementation of Article 260(3) TFEU.1004 This approach was followed in the non-transposition cases under the Third Energy Package referred to the Court which were the first big group of decisions for referral taken by the Commission, making use of the new rule.

15.23

1000 1001 1002 1003

Press Release IP/13/42 at http://europa.eu/rapid/press-release_IP-13-42_en.htm Press Release IP/13/260 at http://europa.eu/rapid/press-release_IP-13-260_en.htm?locale=en Press Release IP/14/155 at http://europa.eu/rapid/press-release_IP-14-155_en.htm C-598/12 Commission v. Poland and C-55/13 Commission v. Poland, C-8/13 Commission v. Slovenia and C-9/13 Commission v. Slovenia, C-109/13 Commission v. Finland and C-111/13 Commission v. Finland, C-203/13 Commission v. Bulgaria and C-253/12 Commission v. Bulgaria, C-240/13 Commis‑ sion v. Estonia and C-241/13 Commission v. Estonia, C-405/13 Commission v. Romania and C-406/13 Commission v. Romania, C-217/14 Commission v. Ireland. The cases against the UK were closed before the Commission’s applications were submitted to the Court. 1004 OJ C12 of 15.01.2011.

761

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

15.24

Article 260(3) TFEU allows the Commission, when bringing a case to the Court of Justice pursuant to Article 258 TFEU on the grounds that a Member State has failed to fulfil its obligation to notify measures transposing a directive adopted under a legislative procedure (such as the Electricity and Gas Directives), to propose a lump sum and/or penalty payment to be paid by the Member State. In case the Court finds that there is an infringement, the lump sum or penalty payment imposed on the Member State cannot exceed the amount specified by the Commission (2nd subparagraph of Article 260(3) TFEU). Thus now the Commission can propose financial penalties already with the first referral of a case to Court. Before this regime was introduced the Commission could propose financial penalties in infringement cases concerning non-transposition of Directives only under the regime of Articles 258 and 260(2) TFEU which foresee financial penalties in referral for non-execution of a judgement, i.e. in a second court procedure.

15.25

In accordance with the Commission’s practice at the time,1005 the Commission proposed only a daily penalty payment when referring the above-mentioned non-transposition cases to the Court. The penalties proposed by the Commission were calculated in accordance with the relevant Commission’s rules. Namely, the amount of the daily penalty is to be calculated by multiplying the standard flat-rate amount, first by coefficients for seriousness and duration, and then by the “n” factor set for the Member State in question. While the seriousness factor is to be determined on a case-by-cases basis, in view of the particular infringement at issue, the duration is determined by the period from the date following the expiry of the deadline for transposition until the date the Commission’s decision for referral. The standard flat-rate amount (the same for all Member States) and the “n” factor (different for the individual Member States) are set in Communications from the Commission and are subject to a periodic update. 1006

1005 In its 2011 Communication on the implementation of Article 260(3) of the Treaty, the Commission announced that, in infringement cases concerning failure to transpose a legislative directive, it would usually request the Court to impose only a penalty payment. It also noted, however, that it reserved its right in appropriate cases to ask the Court to impose a lump sum fine as well and that it would review its practice of not generally asking for lump sums, depending on how the Member States responded to its approach of asking only for periodic penalty payments. In its Communication on EU law: Better results through better application (C/2016/8600), OJ C 18, 19.1.2017, p. 10, the Commission announced that, in the light of experience, it will now adjust its practice in cases brought to the Court of Justice under Article 260(3) TFEU by systematically asking the Court to impose a lump sum as well as a periodic penalty payment. 1006 See the information on the Communications available at http://ec.europa.eu/atwork/applying-eu-law/ infringements-proceedings/financial-sanctions/index_en.htm

762

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

In all of the cases referred to the Court for non-transposition of the Electricity or Gas Directives, the concerned Member States took the necessary steps to adopt legislation fully transposing the EU rules before a ruling from the Court and in few cases before the Commission’s application was sent to the Court. Thus the Member States managed to avoid a judgment under Article 260(3) TFEU and the payment of financial penalties.

15.26

The last Court procedure of this kind – against Ireland under the Electricity Directive - was withdrawn by the Commission with a decision taken in February 2015 due to compliance by the Member State. Thus all infringement proceedings for partial transposition of the Electricity and/or Gas Directives have been now closed.

15.27

As a result of the enforcement action by the Commission, national legislation transposing fully the Directives is in place in all Member States.1007

15.28

2.3 Infringement cases for incorrect transposition or bad application 2.3.1 Non-conformity problems With national legislation introducing fully the Directives’ requirements into national law being in place, the Commission has moved as a next step to address problems concerning incorrect transposition or bad application of the Third Package rules by the Member States – the so-called “non-conformity” problems. These include cases where the national legislation transposes the requirements of the Third Package in a complete manner but incorrectly (e.g. it subjects them to conditions the Third Package does not envisage) or where the national law fully and correctly implements the EU rules but is not properly applied in practice.

15.29

Such non-conformity problems are identified either in the context of systematic non-conformity checks carried out by the Commission or on a more ad-hoc basis.

15.30

2.3.2 Systematic non-conformity assessment The Commission carries out systematic non-conformity assessment of all national transposition measures of the Third Package Directives, notified to it by the national authorities. It is initiated once a Member State has achieved if not 1007 An overview of the transposition measures notified to the Commission by the Member States can be found at https://eur-lex.europa.eu/collection/n-law/mne.html.

763

15.31

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

full, at least substantial transposition of the Directives. Thus the countries which have first achieved full transposition have been first subject to non-conformity assessment.

15.32

The assessment is focussed in particular on those violations which have the highest impact on the functioning of the internal market. This includes as a matter of principle the three areas of the Directives which have been subject to core developments, compared to the Second Energy Package, i.e. unbundling, independence, powers and duties of the national regulatory authorities and consumer protection. Other pertinent issues, for example, issues relating to the application of the Electricity and Gas Regulations, are also addressed in the assessment on a case-by-case basis, depending on the specificities of the national legislation and situation (e.g. rules related to tariffs, interconnectors, capacity-allocation, etc.).1008

15.33

On this basis the Commission opened EU Pilot cases as regards several Member States in order to discuss the potential non-conformity problems with the national authorities, and where those failed to resolve the issue, the Commission initiated infringement proceedings. In total 17 such infringement procedures were opened. Luxembourg and Belgium received letters of formal notice in March and October 2014, respectively, France, Germany, Hungary, Italy and Spain – in February 2015, Austria – in June 2015, Bulgaria and Portugal in July 2016, Lithuania, Sweden, Estonia, the Netherlands and Croatia – in February, April, May, June and July 2017, respectively, and Cyprus and Czech Republic - in December 2017.1009 Following compliance steps by the Member States, a number of these proceeding have been closed and as of 19 November 2019, 5 cases are on-going,1010 3 of which have been referred to the Court of Justice in July 2018 and July 2019.1011

2.3.3 Ad-hoc cases 15.34

In parallel to these systematic non-conformity procedures, the Commission has been also acting on an ad-hoc basis. This type of action targets a specific nonconformity problem of which the Commission becomes aware and which needs 1008 See Report on the progress towards completing the Internal Energy Market [COM(2014) 634], Annex VI: Enforcement: Commission Staff Working Document on Enforcement of the Third Internal Energy Market Package (SWD(2014) 315 final). 1009 For information on the issuing of a letter of formal notice, see http://ec.europa.eu/atwork/applying-eu-law/ infringements-proceedings/infringement_decisions/index.cfm 1010 Concerning Belgium, the Czech Republic, Croatia, Germany and Hungary. 1011 Concerning Germany, Hungary and Belgium, http://europa.eu/rapid/press-release_IP-18-4487_EN.htm and https://ec.europa.eu/commission/presscorner/detail/en/IP_19_4254.

764

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

to be urgently raised with the Member State concerned. Such issues could be brought to the attention of the Commission for example, by means of complaints from individuals or undertakings or based on exchanges with the NRAs. These contacts are an important source of information for the Commission in identifying possible deficiencies at national level. The issues that have been brought to the attention of the Commission in that manner concern a range of matters such as tariff rules, potential export and import restrictions, independence requirements for the national regulator, public service obligations not respecting EU law, etc. Thus, for example, in 2012 the Commission opened an infringement procedure against Romania as regards restrictions on the export of natural gas. The Commission sent a reasoned opinion in July 2014 and an additional reasoned opinion in July 2019, and the case is on-going.1012 In 2013, the Commission opened an infringement procedure against Spain to challenge restrictions imposed by the Spanish legislation on the import of electricity into the Iberian electricity market. The procedure was closed in 2013 as Spain modified its legislation.1013 In 2015 the Commission opened an infringement procedure against Croatia concerning non-compliance of its gas market rules with some provisions of the Gas Directive 2009/73/EC, the Gas Regulation (EC) No 715/2009 and the free movement of goods rules of the TFEU. The Commission considered that the national framework creates unjustified barriers to the export of domestic gas production and restricts gas imports from other Member States, and that the existing price regulation for non-household customers and the regime on access to and capacity allocation of storage do not fully comply with EU internal energy market rules. The Commission followed up with a reasoned opinion in February 20161014 and the case is on-going.

3.

15.35

Infringement action under the Second Energy Package

The Third Package built in many aspects upon regulatory rules already enshrined in the Second Energy Package. In parallel to its enforcement action under the Third Energy Package, after the entry into application of the latter on 3 March 2011, the Commission continued with pursuing cases initiated on the basis of the Second Energy Package, where necessary and appropriate. 1012 Press Release MEMO/14/470 at http://europa.eu/rapid/press-release_MEMO-14-470_en.htm and https://ec.europa.eu/commission/presscorner/detail/EN/INF_19_4251. 1013 For information on the issuing of a letter of formal notice and the closure, see http://ec.europa.eu/atwork/ applying-eu-law/infringements-proceedings/infringement_decisions/index.cfm 1014 https://ec.europa.eu/commission/presscorner/detail/EN/MEMO_16_319

765

15.36

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

The following sections present the main elements of the enforcement action under the Second Energy Package, including information of the Commission’s follow-up action after 3 March 2011 and most important judgements in infringement cases.

3.1 Infringement cases for non-transposition 15.37

The Commission had launched in total 126 infringement procedures on the basis of the Second Energy Package.1015 This included cases for non-transposition of the Electricity Directive 2003/54/EC and the Gas Directive 2003/55/ EC, cases for incorrect transposition of these Directives, as well as cases for bad application of the Electricity Regulation (EC) No 1228/2003 and/or the Gas Regulation (EC) No 1775/2005.

15.38

In October 2004 the Commission sent letters of formal notice to 18 Member States1016 which had not yet transposed or had not transposed fully the Second Package Directives by the transposition deadline (1 July 2004). The Commission followed up with reasoned options to 10 Member States in March 20051017 and in July and December 2005 took decisions to refer several Member States to the Court – Estonia, Greece, Ireland, Luxembourg, Portugal and Spain. While the rest of the Member States complied before a ruling from the Court, Spain (cases C-357/05 and C-358/05 Commission v. Spain)1018 and Luxemburg (cases C-353/05 and C-354/05 Commission v. Luxembourg) transposed the Directives after judgements by the Court finding them to have violated EU law.

3.2 Infringement cases for incorrect transposition or bad application 3.2.1 Follow-up on the actions under the Second Energy Package 3.2.1.1 Infringements initiated in 2006-20081019 15.39

In April 2006 the Commission opened infringement procedures by sending 27 letters of formal notice to 17 Member States with respect to the non-conformity

1015 See Emmanuel Cabau in Christopher Jones, EU Energy Law, Volume I, The Internal Energy Market, Third edition, paragraph 15.6. 1016 Press Release IP/04/1216 at http://europa.eu/rapid/press-release_IP-04-1216_en.htm 1017 Press Release IP/05/319 at http://europa.eu/rapid/press-release_IP-05-319_en.htm 1018 Press Release IP/06/1573 at http://europa.eu/rapid/press-release_IP-06-1573_en.htm 1019 See Emmanuel Cabau in Christopher Jones, EU Energy Law, Volume I, The Internal Energy Market, Third edition, paragraphs 15.13-15.16.

766

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

of national laws with the Second Gas and Electricity Directives.1020 The infringements concerned irregularities relating to unbundling, third party access, discriminatory allocation of capacity by TSOs, public service obligations and price regulation for non-household customers, etc. In December 2006 the Commission sent 26 reasoned opinions to 16 Member States: Austria, Belgium, the Czech Republic, Germany, Estonia, Spain, France, Greece, Ireland, Italy, Lithuania, Latvia, Poland, Sweden, Slovakia and the United Kingdom.1021

15.40

In June 2008, a reasoned opinion was also addressed to Hungary for incorrect transposition of the Electricity Directive and in September 2008 – to Poland for failure to designate a storage system operator under the Gas Directive.1022

15.41

While designation took place after the reasoned opinion was sent, in October 2009 the Commission issued an additional letter of formal notice in the case, in order to challenge the obligation imposed on importers of gas to store certain percentage of gas in a storage facility located on Polish territory.1023 The Commission considered that such legislation violated the internal market rules for gas as it foreclosed the market for EU gas suppliers endangering in turn security of supply in Poland.

15.42

In June 2008 Bulgaria received a letter of formal notice for incorrect transposition of the Electricity Directive, followed by a reasoned opinion in January 2009.1024 The Commission considered that the rules requiring the major electricity producers to sell a quota of their production to the incumbent company at a regulated purchase price may lead to distortions in the opening of the electricity market and that irregularities existed as regards the third party access principle of the Electricity Directive.

15.43

In 2008 the Commission reported that its enforcement action had eliminated many violations.1025 However, it also referred those cases to the Court of Justice

15.44

1020 Press Release IP/06/430, MEMO/06/152 at http://europa.eu/rapid/press-release_IP-06-430_en.htm 1021 Press Releases MEMO/06/481 and 06/480 at: http://europa.eu/rapid/press-release_MEMO-06-481_ en.htm and http://europa.eu/rapid/press-release_MEMO-06-480_fr.htm 1022 Press Release IP/08/1374 at http://europa.eu/rapid/press-release_IP-08-1374_en.htm 1023 The Polish legislation on this matter was amended in 2011 which allowed for the closure of the procedure. 1024 Press Release IP/09/181 at http://europa.eu/rapid/press-release_IP-09-181_en.htm?locale=en 1025 For example, in June 2008 the Commission communicated that as a result of the infringements only few problematic issues remained: failure to appoint gas and electricity distribution network managers, or to ensure legal separation in the electricity sector, failure to notify exemption from provisions on new gas installations, lack of means of appeal against refusal of access to the electricity network on technical grounds, lack of

767

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

where the legal action had not led to satisfactory changes in the national laws and practices.

3.2.1. 2 Infringements referred to Court in 2008 15.45

In May and June 2008 the Commission decided to refer to Court Belgium, Sweden and Greece for failure to comply with the Gas and Electricity Directives, as well as Poland for violating the Electricity Directive. The procedures against Poland and Greece were terminated before a judgement. The referrals of the cases against Belgium and Sweden resulted in rulings from the Court concluding that the Member States had indeed violated their obligations under EU law. Namely:

3.2.1.3 Case C-474/08 Commission v. Belgium 15.46

In its judgement from 29 October 2009 the Court considered that Belgium had failed to comply with the Electricity Directive. Firstly, the national legislation has not provided that cases concerning refusal of access to the transmission or distribution network could be referred to the NRA which can take a binding decision within 2 months, thus disregarding Article 23(5) of the Directive. Secondly, the national law granted to the King the possibility to set special rules determining depreciation and profit margin. The Court found that by giving to another body but the NRA competences concerning the determination of elements decisive for the calculation of the electricity network tariffs, the Belgium legislation had contravened Article 23(2)(a) of the Directive, requiring that the NRA is responsible for fixing or approving, at least the methodologies used to calculate or establish, the terms and conditions for connection and access to national networks, including transmission and distribution tariffs. The circumstance that the NRA was competent to approve the final tariffs did not eliminate the violation: the assignment of powers to the King reduced the powers conferred upon the Regulator by the Directive, since, in approving the tariffs, the NRA was bound by the special rules on depreciation and the profit margin established by the King (paragraphs 30 and 31).

3.2.1.4 Case C-475/08 Commission v. Belgium 15.47

In its judgement from 3 December 2009 the Court concluded that Belgium had violated the Gas Directive by failing to designate transmission, storage and LNG ex-ante approval by regulators of the method for determining tariffs in the electricity sector; and preferential and discriminatory access in the electricity sector, and access to the gas network negotiated by third parties. See the Press Release IP/08/855 at http://europa.eu/rapid/press-release_IP-08-855_en.htm?locale=en

768

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

system operators on a definitive basis, as required by Article 7 of the Directive, and by failing to comply with obligations concerning the rules for exemptions for major new gas infrastructure in Article 22(3)(d), (a) and (4) of the Directive. Namely, the Directive required all exemption decisions to be published and notified to the Commission and set an obligation, in case of interconnectors, to consult with the other Member States before any exemption decision was taken. According to the Court the general principles of Belgian law concerning the publication of measures, pursuant to which all measures which affect a large number of persons must be published, did not ensure the correct and complete transposition of the publication requirement. As regards consultation with the Member States concerned in the case of an interconnector, and the notification of exemption decisions to the Commission, there were no rules setting out those requirements in the national law, which led to a further violation of the Directive. In April and June 2011 the Commission sent letters of formal notice to Belgium for failure to comply with the judgements in cases C-474/08 and C-475/08, respectively. Belgium adopted amendments to its legislation in early 2012 in the context of transposing the Third Package, and the procedures for non-compliance with the judgements were closed in 2012. Belgium thus avoided referral to Court under Article 260(2) TFEU with proposal to the Court to impose financial penalties.

15.48

3.2.1.5 Case C-274/08 Commission v. Sweden The Court ruled on 29 October 2009 that Sweden had violated the Electricity Directive’s requirements as regard unbundling of distribution system operators and tariff setting. Sweden had failed to set out the necessary measures in its national law to ensure the functional division between distribution and production interests in a vertically integrated undertaking, as Article 15(2)(b) and (c) of the Directive require. Moreover, Sweden had violated the Directive by not giving the NRA the task, set in Article 23(2)(a) of the Directive, of approving, in advance, at least the methodologies used to calculate or establish the terms and conditions for access to national networks, including transmission and distribution tariffs. Sweden argued that its legislation contained the methodologies required by that Directive, together with the possibility of correction a posteri‑ ori by the NRA of the results for the tariffs obtained. The Court however agreed with the Commission that Sweden could not merely apply a system in which review of the tariff methodology was carried out a posteriori, even if that review was as effective as a system of prior review, because the Directive expressly pro769

15.49

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

vided for prior approval and did not allow the Member States to apply a different system (paragraph 34).

15.50

The Court also did not agree with the argument of Sweden that in order to comply with Article 23(2)(a) of the Directive, it was sufficient to provide for a national regulatory system under which only the guidelines on the basis of which the network tariffs will later be applied must be approved in advance. The Court underlined that the Directive required a level of predictability of the tariffs sufficient to guarantee that the necessary investments in the networks are carried out in a manner allowing the investments to ensure the viability of the electricity transmission and distribution networks (paragraphs 29 and 38). The legislative framework referred to by Sweden contained only general principles and criteria which the network tariffs must meet. It therefore did not contain any methodology allowing operators to predict, even approximately, the applicable tariffs and did not meet the requirement for predictability of tariffs under the Directive (paragraphs 39-41). Sweden complied with the judgement by amending its legislation in early 2010.

3.2.1.6 Case C-264/09 Commission v. Slovak Republic 15.51

On 14 May 2009 the Commission decided to refer Slovakia to the Court of Justice for failure to respect the requirements for non-discriminatory third party access to the transmission system under the Electricity Directive.1026

15.52

The Commission argued that the Slovakian TSO was giving preferential access to some market participants for the cross-border interconnectors with Poland and Hungary. Before joining the EU, Slovakia had concluded an intergovernmental agreement on investments protection with Switzerland. In 1997 a Swiss company (ATEL) and the Slovak state-owned TSO concluded a private commercial contract, under which ATEL paid over half of the construction costs of an electricity transmission line in return for priority access to it for 16 years. The Commission considered that granting such a priority access violated Articles 9(e) and 20(1) of the Electricity Directive.

15.53

In its judgement of 15 September 2011 the Court concluded that the preferential rights of ATEL constituted an investment under the investment agreement (paragraphs 32-37) and continued to discuss whether the agreement imposed an obligation on Slovakia covered by Article 351(1) TFEU (paragraph 40). Under the latter rule the rights and obligations arising from an intergovernmental 1026 Press Release IP/09/181 at http://europa.eu/rapid/press-release_IP-09-181_en.htm?locale=en

770

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

agreement between a Member State and a third country, concluded before the date of accession of the Member State to the EU, are not affected by the Treaties. In this respect the Court analysed if a termination of the commercial contract would lead to a breach of the investments protection agreement by Slovakia (paragraph 38) and answered positively, based on three sets of considerations (paragraphs 45-50). Firstly, the Court noted that the commercial contract at issue did not contain a denunciation clause. Secondly, according to the Court, a termination of the commercial contract, in so far as would have the consequence of depriving ATEL of the remuneration provided by the contract in return for its financial contribution to the construction of the transmission line, would impact adversely on ATEL’s rights and would have the same effect as an expropriation within the meaning of the investment protection agreement. Thirdly, the Court discussed that Slovakia could not modify the terms or effects of the commercial contract by its legislation or deprive that contract of legal effects (since Slovakia was not a party to the contract and the contract was to be construed pursuant to Austrian and not Slovak law). Slovak legislation declaring contracts providing for privileged access to the transmission system invalid and inapplicable would not alter the fact that SEPS would remain bound by the contract. Therefore, according to the Court, the only way for the Slovak Republic to comply with its obligation in the case would be to enact legislation which targets SEPS and prevents it from implementing that contract. According to the Court this would be tantamount to an indirect expropriation of ATEL’s right , in violation of the investment protection agreement. On this basis the Court concluded that ATEL’s right to preferential access under the commercial contract was an investment protected by the investment agreement and thus, under Article 351(1) TFEU, it could not be affected by the provisions of the Treaty (even if the preferential access would violate the Electricity Directive). The Court put a lot of emphasis on the particular circumstances in the case and therefore the conclusions reached cannot be seen as automatically transposable to other contracts. It should also be noted that the ruling cannot be considered to affect the obligation of Member States, as established under Article 351(2) TFEU, to take all appropriate steps to eliminate any incompatibilities of their pre-accession agreements with EU law. In fact, the Court did not discuss the role of Article 351(2) TFEU in the case.

15.54

3.2.1.7 Infringements initiated in 2009 In June 2009 the Commission launched a considerable number of infringement procedures concerning the implementation of the Second Package Electricity 771

15.55

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

and Gas Regulations. In total, 46 infringement procedures were opened against 25 Member States through letters of formal notice. The key violations of the Regulations concerned:1027 –

lack of information provided by electricity and gas TSOs, obstructing effective access of supply companies to networks;

–

inadequacy of network capacity allocation systems to optimise network use for electricity and gas transmission;

–

lack of coordination and cooperation across borders by electricity TSOs and national authorities, necessary in order to better allocate network capacity on cross-border interconnections so that use of the existing electricity grid is optimised on a regional and EU level;

–

failure by TSOs to make available to the market the maximum capacity in order to optimise opportunities for market entrance and competition. This concerned in particular short-term capacity that is otherwise left unused, and capacity for reverse flows (backhaul capacity);

–

lack of effective enforcement action by the competent authorities in Member States in case of violations of the Regulations, including the absence of effective systems of penalties.

15.56

All Member States received letters of formal notice for not complying with the Gas Regulation, with the exception of Estonia, Latvia, Lithuania and Finland, due to derogations they enjoyed, and Malta and Cyprus, due to lack of gas transmission network in place and lack of use of gas. All Member States also received letters of formal notice for not complying with the Electricity Regulation, except for Malta and Cyprus, due to lack of an electricity interconnection to any other Member State.

15.57

For some Member States, as part of this infringement package, the Commission also raised issues about non-compliance with the Electricity and Gas Directives. This concerned in particular the availability of alternative dispute resolution mechanisms and regulated prices for non-household customers. The letters of formal notice sent to Belgium, the Czech Republic, Germany, Poland, Romania and Slovenia raised failure to put in place adequate procedures for dealing with 1027 See Emmanuel Cabau in Christopher Jones, EU Energy Law, Volume I, The Intrenal Energy Market, Third edition, paragraphs 15.20-15.22.

772

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

consumer complaints as required by the Directives. The letter of formal notice sent to Greece, Poland, Portugal, Romania and Lithuania concerned regulated gas and/or electricity prices for non-households customers in violation of the Directives.1028 Following the replies of the Member States, the Commission decided to close 11 cases. In June 2010, the Commission sent reasoned opinions to 20 Member States, leaving 35 infringement cases open.

15.58

3.2.2 Follow-up on the actions under the Third Energy Package 3.2.2.1 Introduction While the above comprehensive infringement action urged many Member States to comply with EU law, compliance was still not in place in some cases at the time of entry into application of the Third Package and the repeal of the Second Package, i.e. on 3 March 2011.

15.59

In cases where the violations were still not remedied, the Commission continued to pursue the cases under the Third Energy Package provided that the Member States’ obligations remained the same.

15.60

3.2.2.2 Non-compliance with the Second Package Directives 3.2.2.2.1 Price regulation for non-household customers In 2011-2014 the Commission followed-up on a number of pending cases concerning regulated gas and electricity prices for non-household customers. Although many of the procedures have led the Member States to phase out non-household price regulation, the situation was still not fully satisfactory. In assessing the situation the Commission took into account the judgment of the Court of Justice in case C-265/08 Federutility1029 delivered in a reference for preliminary ruling made by an Italian court.

1028 See Emmanuel Cabau in Christopher Jones, EU Energy Law, Volume I, The Intrenal Energy Market, Third edition, paragraphs 15.18. 1029 Case C-265/08, Federutility and others v Autorità per l’energia elettrica e il gas.

773

15.61

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

3.2.2.2.2 Case C-265/08 Federutility 15.62

The judgment of 20 April 2010 addresses the compatibility of regulated prices with the Gas Directive,1030 in particular, with Article 3(1), in conjunction with Article 3(2) therein. The Court stressed that Article 37(1)(c) of the Gas Directive provides that Member States have to enable customers to buy natural gas from the supplier of their choice as from 1 July 2007. According to the Court the Gas Directive requires that, as from 1 July 2007, the price for the supply of natural gas is determined solely by the operation of supply and demand. This requirement follows from the very purpose and the general scheme of the Directive, which is designed progressively to achieve a total liberalisation of the market for natural gas in the context of which all suppliers may freely deliver their products to all consumers (paragraph 18). To this end, Article 3(1) of the Gas Directive requires Member States to ensure, on the basis of their institutional organisation and with due regard to the principle of subsidiarity, that natural gas undertakings are operated in accordance with the principles of the Directive with a view to achieve, amongst others, a “[competitive] market in natural gas”. In such a context, regulated prices for the supply of gas, that is, prices set by State intervention, as opposed to being determined solely by supply and demand, are measures which “by their very nature” constitute an obstacle to achieving an operational internal gas market (paragraph 35), and thus obstruct the objective of the Gas Directive.

15.63

The Court noted that Article 3(2) of the Directive permits Member States to impose “public service obligations” on undertakings operating in the gas sector, which may in particular concern the “price of supply”. The purpose of this provision is, inter alia, to ensure that, in the context of market liberalisation, the protection of final consumers is ensured (paragraph 20). By way of Article 3(2), the Directive allows Member States to assess whether it is necessary, in the general economic interest, to impose on certain undertakings public service obligations in order to reconcile the interests of consumer protection and market liberalisation (paragraph 32).

15.64

However, the Court considered that while state intervention in the gas price is not in violation of EU law per se, it would be compatible with the Gas Directive only provided that a number of conditions are met. Namely, the State intervention in the price must: i) be justified in the general economic interest; ii) meet 1030 While it concerns the Second Package Gas Directive, the ruling is equally relevant in the context of the Third Package Electricity and Gas Directives which contain provisions that are essentially identical to those discussed by the Court.

774

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

the principle of proportionality, and iii) meet all the other requirements enlisted in Article 3(2) concerning public service obligations (be clearly defined, transparent, non-discriminatory, verifiable, and guarantee equal access for EU companies to consumers). As regards compliance with the principle of proportionality, the ruling clarifies that several requirements have to be met cumulatively. The measure of state intervention in the price must: i) be limited in duration to what is strictly necessary in order to achieve its objective, in order not to render the measure permanent; ii) not go beyond what is necessary to achieve the objective pursued in the general economic interest, and iii) be proportionate as regards its scope ratione personae and, in particular its beneficiaries (the circle of beneficiaries of regulated prices must be limited to what is necessary to ensure the objective pursued, e.g. consumer protection).

15.65

The Commission continued to pursue the pending infringements on price regulation for non-households customers where it considered that the requirements of the Directives, taking into consideration the Federutility judgement, were still not complied with on national level.

15.66

3.2.2.2.3 Reasoned opinions in 2011-2012 In April and May 2011 the Commission addressed reasoned opinions to Poland (as regards gas), Italy (as regards electricity), Romania (as regards both gas and electricity)1031 and Portugal (as regards gas)1032 challenging their price-regulation systems. An additional reasoned opinion to France followed in May 2012 concerning gas prices.1033

15.67

3.2.2.2.4 Case-36/14 Commission v. Poland In 2013 compliance was still not in place in France and Poland. France initiated legislative changes to phrase out the regulated prices at issue in the case, which, once adopted in 2014, allowed for the termination of the procedure. In June 2013 the Commission decided to refer to Court the case against Poland,1034 as no legislative changes were taking place.

1031 1032 1033 1034

Press Release IP/11/414 at http://europa.eu/rapid/press-release_IP-11-414_en.htm?locale=en Press Release IP/11/590 at http://europa.eu/rapid/press-release_IP-11-590_en.htm?locale=FR Press Release IP/12/542 at http://europa.eu/rapid/press-release_IP-12-542_en.htm?locale=en Press Release IP/13/580 at http://europa.eu/rapid/press-release_IP-13-580_en.htm

775

15.68

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

15.69

The Polish Energy Law foresaw a duty of all licensed energy undertakings to submit their gas prices to the energy regulator for prior approval. The requirement applied to all gas suppliers (i.e. both to the dominant incumbent PGNiG and to others) and as regards all customers alike. The Commission alleged that the Polish system of gas regulated prices as regards non-household customers violated the Gas Directive (i.e. Second Gas Directive 2003/55/EC and, after its repeal in 2011, the Third Gas Directive 2009/73/EC) as it failed to meet the criteria for price regulation set out by the Court in case C-265/08 Federutility.

15.70

In its ruling of 10 September 2015 the Court upheld all of the Commission’s arguments as to why the national system at issue did not comply with the Gas Directive. In particular, the Court confirmed that the national system of approval by the regulator of the prices for the supply of natural gas constituted a regulation of the prices in the form of a public service obligation (“PSO”) under Article 3(2) of Third Gas Directive. The Court, relying on its Federutility jurisprudence, stressed that pursuant to the Gas Directive, after 2007 (the date of market opening for all customers) such price regulation is allowed only under strict conditions. Namely, the regulation should pursue an aim in the general economic interest (e.g. consumer protection), be clearly defined, transparent, non-discriminatory, verifiable, guarantee equal access for EU companies to consumers (i.e. the conditions in Article 3(2) Gas Directive) and meet the principle of proportionality.

15.71

In assessing the proportionality of the national measure, the Court concluded that the Polish system was not limited in time, did not distinguish between different customer groups according to their situation, and applied to all energy suppliers, without distinction. It was thus disproportionate in respect of the alleged aim of consumer protection.

3.2.2.3 Non-compliance with the Second Package Regulations 15.72

In 2011-2014 the Commission also followed-up on the infringement cases concerning violations of the Second Package Regulations, where no compliance was still in place.

3.2.2.3.1 C-198/12 Commission v. Bulgaria 15.73

In November 2011 the Commission took a decision to refer to the Court of Justice the cases against Bulgaria and Romania for violations of the Gas Regu-

776

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

lation.1035 The Commission considered that the Bulgarian TSO was not complying with its obligation to make available the maximum capacity to market participants, as it did not provide at least virtual reverse flow capacity. In the case against Romania the same issue was at stake; in addition, some transparency obligations under the Gas Regulation were not complied with.1036 The issue in case C-198/12 Commission v. Bulgaria was whether the Gas Regulation, when obliging the TSO to make “available the maximum capacity” to market participants, also obliges the TSO to make available the capacity in the reverse flow direction – physical, or, when this is not possible, at least on a virtual basis (virtual reverse flow or “backhaul capacity”) – as argued by the Commission.

15.74

Virtual reverse flows are a commercial transaction whereby no investment in the Member States, while at the same time offering substantial benefits as regards market integration and security of supply. In the case of virtual reverse flow the gas is not actually moving in the direction opposite to the main gas flow direction (i.e. the counter-flow direction), but the gas flow requested in the counter -flow direction is subtracted from the gas flowing in the main flow direction, so “netting” is taking place. Virtual reverse flow capacities are therefore always interruptible, as they can in the absence of physical reverse flow be used only if gas is actually flowing in the main direction.

15.75

The Commission supported that inclusion of reverse flow capacity is essential to use the network to its maximum capacity and thus the obligation to allow virtual reverse flows is an inherent part of the obligation to offer the maximum capacity to the market, as set in Article 16 of the Gas Regulation (EC) No 715/2009. It argued that virtual reverse flows allow for extra capacity bookings in the main gas flow direction and for “leaving gas behind” in a country which is not the original destination of a specific contract, enabling market players to arbitrage away price differences. Since backhaul capacity enables the increase of gas transmission services offered without incurring additional costs, providing virtual reverse flows would be in compliance with the requirement for “efficient network operation” in Article 16(1) of the Regulation. The Commission considered that such an interpretation of Article 16(1) was supported by the obligation to offer services on a non-discriminatory basis to all network users, set out in Article 14(1)(a) of the Regulation, and the obligation to provide both firm

15.76

1035 Press Release IP/11/1437 at http://europa.eu/rapid/press-release_IP-11-1437_en.htm 1036 Romania brought its legislation and practice in line with EU law before the Commission submitted the application to Court which allowed for the closure of the procedure.

777

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

and interruptible third-party access services, set out in Article 14(1)(b) therein. Bulgaria questioned the admissibility of the action arguing inconsistencies between the reasoned opinion and the application to Court. On the substance, it claimed that an obligation to provide virtual reverse flows was not inherent in the obligation to make available the maximum capacity anddid not arise under the Regulation.

15.77

In its ruling of 5 June 2014 the Court did not question the admissibility of the Commission’s action and found that the Commission’s statements of complaints in the pre-litigation stage had been consistent and had not resulted in extending the subject matter of the proceedings.

15.78

As regards the substance, the Court concluded that an obligation to enable virtual reverse flows could not be deducted from the literal interpretation of the Gas Regulation as none of the provisions of the Regulation expressly established it. The Court then interpreted the meaning of the term “maximum capacity” in Article 16 of the Regulation (paragraphs 36-40, 43-46, 49-50), considering the wording of Articles 14 and 16 of the Regulation and the definitions of the terms “capacity” and “transport”, in Article 2 therein. On this basis the Court concluded that the term “capacity” in Article 16(1) covers only “physical capacity” and excludes any “virtual transmission capacity” (paragraphs 41, 42, 47, 48 and 52). Thus while the Court underlined as a starting point that no implied meaning could be attributed to a provision in the case of a “clear and precise meaning of the EU act”, it did not seem to consider such a “clear and precise wording” to be in place in the case at hand and engaged in an interpretation of the phrase “maximum capacity”, ultimately concluding that its menaing was limited to physical capacity. The Court used historical interpretation (and referred to the lack of support for the Commission’s interpretation in the travaux préparatoires). It did not engage in a teleological interpretation, in the light of the aims and purpose of the Regulation.

15.79

An interesting aspect of the case was the argument of Bulgaria that certain agreements concluded with the former USSR before the accession of Bulgaria to the European Union prevented it from providing virtual reverse flow gas transmission services. The Commission argued in this respect that if this was the case, Bulgaria was required, pursuant to Article 351(2) TFEU to take all appropriate steps to eliminate such incompatibilities with EU law. Given the conclusion that the obligation at dispute did not arise under the Gas Regulation, the Court did not discuss the question of the impact of the pre-accession agreements with a third country in the case. In light of this conclusion the Court also did not ad778

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

dress the alternative argument of Bulgaria that it was already compliant with the obligation at dispute.

3.2.2.3.2 Cases against the United Kingdom and Ireland In January 2012 the Commission also decided to refer the United Kingdom and Ireland to the Court for outstanding violations of the Gas Regulations.1037

15.80

The Commission considered that the maximum interconnection capacity was not offered in the UK and Ireland as the pipeline connecting Northern Ireland and Ireland was not open to the market, meaning that gas companies in Ireland could not directly trade gas with Northern Ireland or vice versa. Deficiencies were also in pace as regards the pipeline connecting Scotland to Northern Ireland, e.g. short-term services were not available. The two countries brought their legislation and practice in line with EU law before the Commission submitted the applications to Court which allowed for the closure of the procedures in 2013.

15.81

At present none of the cases launched under the Second Energy Package is ongoing.

15.82

4.

Other implementation tools

While formal legal action via infringements procedures is important to ensure that violations of EU law are remedied, this is not the sole instrument for implementation and other tools play an important role as well.

15.83

4.1 Contacts between the Commission and the Member States Given that the EU internal electricity and gas market legislation is both technically and legally complex, contacts between the Member States and the Commission remain important to prevent problems or find resolutions at an early stage. Thus the Commission has been available to discuss measures and technical solutions with the national authorities on an on-going basis since the adoption of the acquis. This also includes advice on draft legislation which the national authorities plan to adopt in view of properly implementing and applying EU law. In order to facilitate the implementation of the Third Energy Package, the Commission also issued several implementation notes and staff working 1037 Press Release IP/12/52 at http://europa.eu/rapid/press-release_IP-12-52_en.htm?locale=en

779

15.84

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

documents, providing guidance to the national authorities and stakeholders concerned as to how to implement the EU rules.

4.2 Guidance by the Court in preliminary rulings 15.85

Another important implementation tool is the guidance given by the Court of Justice on the interpretation and application of the acquis. This takes place not only in the context of infringement cases but also in judgements delivered in references for preliminary ruling, made by national courts under Article 267 TFEU. Some of the main judgements of this type relating to the Second and Third Energy Package, which have been delivered since 2010 and have not been already discussed in this Chapter, are outlined below. The rulings concerning the Second Package are equally relevant in the context of the Third Package as long as the latter contains analogical (i.e. identical or reinforced) provisions to those discussed by the Court.

4.2.1 Case C-242/10 Enel Produzione 15.86

This was a reference for a preliminary ruling concerning the compatibility between the internal market legislation for electricity and the Italian regime for electricity pricing on the dispatching market, which obliged installations essential to the operation of the electricity system to submit bids in accordance with predetermined conditions, leading to lower prices. Italy argued that the regime aimed to ensure lower consumer prices and security of supply.

15.87

In its judgment of 21 December 2011 the Court concluded that the national legislation imposed a public service obligation under Article 3(2) of the Second Electricity Directive 2003/54/EC on the undertakings owning generating installations. The Court discussed the compliance of the State intervention with all the requirements for public service obligations, enlisted in Article 3(2) of the Directive, as well as the requirement for proportionality, already discussed by the Court in C-265/08 Federutility (see point 3.2.2.2.2 above). It was concluded that legislation of the kind could be compatible with the internal market legislation for electricity, provided that the principle of proportionality is met. The Court provided some guidance on the scope of the proportionality requirement, which is for the national Court to apply: it was stressed that public service obligations should be appropriate for securing the objective pursued (paragraphs 55 and 60) and must not go beyond what is necessary in order to attain the objective, including as regards the circle of operators the intervention applies to and its duration: the intervention must be limited in duration to the 780

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

length of time that is strictly necessary for attaining the objectives (paragraph 75). The Court also underlined the importance of Member States complying with their obligations to notify public service obligations. The Electricity Directive requires the Member States to inform the Commission of all measures adopted to fulfil public service obligations and of their possible effect on national and international competition, whether or not such measures require derogation from the Directive; the Member States are also obliged to inform the Commission every two years of any changes to such measures. The Court stressed that while the absence of notification is not sufficient in itself to demonstrate that the legislation at issue does not constitute a public service obligation, the notification makes it possible to check whether a Member State sought to impose such an obligation (paragraphs 39).

15.88

Similarly to the earlier Federutility ruling, the judgment confirms that when imposing public service obligations on undertakings in the electricity sector in the general economic interest, Member States have to observe a number of conditions, including a strict proportionality test with several elements.

15.89

4.2.2 Cases C-105/12 to C-107/12 – Essent e.a. The referring Dutch Court asked the Court of Justice to clarify whether national rules which require that the transfer of the system of shares in a system operator could take place only between public bodies is compatible with EU law in view of Article 345 TFEU which provides that the Treaties do not affect the system of ownership in the Member States. The reference further raised the questions whether a system whereby the Netherlands had chosen to apply not simply legal and functional unbundling for distribution system operators (required under Directives 2009/54/EC and 2009/72/EC) but a stricter regime of full ownership unbundling of the system operators would be compatible with EU law.

15.90

The Dutch legislation at issue (adopted in transposition of the Second Energy Package) prohibited i) a private investor from acquiring or owning shares or interests in the capital of an electricity or gas distribution system operator in the Netherlands (the “privatisation prohibition”), ii) ownership or control links between, on the one hand, companies which are members of the same group as an operator of such distribution systems and, on the other, companies which are members of the same group as an undertaking which generates/produces, supplies or trades in electricity or gas in the Netherlands (the “group prohibi-

15.91

781

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

tion”), and iii) engagement by such an operator and by the group of which it is a member in transactions or activities which may adversely affect the operation of the system concerned (the “prohibition on secondary activities”).

15.92

The reference for preliminary ruling sought clarification as to whether the three prohibitions were compatible with the TFEU provisions on free movement of capital and Member States systems of property ownership, taking note also of secondary EU energy legislation.

15.93

The Court held that the privatisation prohibition fell within the scope of Article 345 TFEU, which is an expression of the principle of the neutrality of the Treaties in relation to the rules in Member States governing the system of property ownership and under which Member States may legitimately pursue an objective of establishing or maintaining a body of rules relating to the public ownership of certain undertakings. Nonetheless, the Court noted that Article 345 TFEU does not mean that rules governing the system of property ownership current in the Member States are not subject to the fundamental rules of the Treaties, which include inter alia, the prohibition of discrimination, freedom of establishment and the free movement of capital. The Court concluded that, given its effects, the privatisation prohibition constituted a restriction on the free movement of capital. However, the reasons underlying the choice of the rules of property ownership adopted by the national legislation were factors which could be taken into consideration as overriding reasons in the public interest capable of justifying the restrictions. It was for the referring court to conduct this examination.

15.94

As regards the group prohibition and the prohibition of secondary activities, the Court held that those also constituted restrictions on the free movement of capital. In considering whether there was a justification for the restrictions, the Court found that the objectives of combating cross-subsidisation in the broad sense, including exchange of strategic information, in order to achieve transparency in the electricity and gas markets, and to prevent distortions of competition (the ultimate aim being to protect consumers), served to ensure undistorted competition on the markets for the generation/production, supply and trade of electricity and gas. The objective of combating cross-subsidisation furthermore sought to guarantee adequate investment in the electricity and gas distribution systems (designed to ensure, inter alia, security of energy supply). The Court consequently concluded that the objectives which the national law pursued could in principle be considered as overriding reasons in the public interest that could justify the restrictions on free movement of capital. 782

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

The Court stated however that the restrictions at issue must be appropriate to the objectives pursued, and must not go beyond what is necessary to attain these objectives. It was for the national court to ascertain if these requirements were met. The ruling clarifies that in transposing the unbundling requirements for distribution system operators in the EU energy acquis, national legislation could impose stricter rules than those envisaged on EU level, provided that they could be considered to serve overriding objectives in the general economic interest (such as combating cross-subsidisation in a broad sense, undistorted competition on the electricity and gas markets, etc.) and provided that they are necessary and proportionate for achieving the objectives pursued.

15.95

4.2.3 Case C-92/11 RWE Vertrieb AG The reference for preliminary ruling originated from a dispute between RWE Vertrieb AG (RWE) and a consumer organisation, the Verbraucherzentrale Nordrhein-Westfalen e.V., representing 25 (household) consumers, which were supplied with natural gas by RWE. In 2003-2005 RWE carried out unilaterally several price increases. The customers claimed that those were illegal, as they were carried out based on contact clauses they considered not transparent.

15.96

In assessing the transparency of the clauses, the Bundesgerichtshof decided that it is necessary to obtain guidance from the Court on the interpretation of the Unfair Contract Terms Directive 93/13/EEC and the Second Gas Directive 2003/55/EC. The national court referred two questions to the Court of Justice, one concerning the applicability of the Unfair Contract Terms Directive and one concerning the issue whether the transparency requirements of the two Directives would be met even in cases (as the one at issue) where the contacts do not explicitly state the possibility for price increase by the supplier, but he had nevertheless given notice to the customer before carrying such out and the customer has had the right to withdraw from the contract.

15.97

In its ruling of March 2013 the Court considered that contract clauses of the type must be subject to review for unfairness if the statutory provisions they reproduce are applicable only to another category of contracts, i.e. the Unfair Contract Terms Directive applied. As regards the possible unfairness of the clauses, the Court found that in the context of contracts of indefinite duration such as contracts for the supply of gas, the supplying undertaking has a legitimate interest in altering the charges for its service. However, a standard term allowing such a unilateral alteration must satisfy the requirements of good faith, balance and transparency. The Court pointed out that ultimately it is for the

15.98

783

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

national court to determine in each individual case whether these requirements are met. In making that assessment the national court must take into account the following criteria: i)

The contract must set out in a transparent fashion the reasons for and method of the variation of the charges, so that the consumer can foresee, on the basis of clear, intelligible criteria, the alterations that may be made to them.

ii)

The lack of information on this point before the contract is concluded cannot, in principle, be compensated for by the mere fact that consumers will, during the performance of the contract, be informed in good time of a variation of the charges and of their right to terminate the contract if they do not accept it.

iii) The right of termination conferred for the consumer must actually be capable of being exercised in the specific circumstances. That will not be the case if, for reasons connected with the termination procedure or market conditions, the consumer has no real possibility of changing supplier.

15.99

RWE argued that if the clauses were found invalid as a result of an interpretation given in the ruling, millions of euros would need to be paid as reimbursement and compensation to concerned consumers. RWE and the German authorities sought limitation of the application of the ruling in time. However, the Court dismissed the request to limit the temporal effects of its judgment in order to limit its financial consequences. The interpretation of EU law given by the Court thus applies not only to changes to prices that take place after the ruling, but to all changes that have taken place since the coming into force of the provisions of the two Directives interpreted by the judgment. The Court stressed nevertheless that the financial consequences for gas supply undertakings in Germany which have concluded special contracts with consumers cannot be determined on the sole basis of the interpretation of EU law given by the judgment and it is for the national court to determine in the light of that interpretation whether a particular contractual term is actually unfair in the circumstances of the particular case.

4.2.4 Cases C-359/11 and C-400/11 Schulz & Egbringhoff 15.100

These joined cases concerned disputes in Germany between customers and their energy suppliers, whereby the suppliers carried out price increases in a unilateral manner and in doing so, did not inform the customers about the reasons for 784

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

the increases. The customers believed that they should have been informed and claimed that since this was not the case, the price increases were unlawful and void. Thus similarly to RWE, the cases also related to the question whether - under the Second Package Electricity and Gas Directives – energy suppliers are obliged to inform their customers about the reasons for increases of electricity/gas prices. However, while the RWE judgement related to consumers who entered into the supply contract on the basis of freedom of contract (so-called “Sonder-­vertragskunden”), cases C-359/11 and C-400/11 related to supply contracts based on German legislation providing for a universal service obligation at general standard-rate conditions (so-called “Tarifkunden”).

15.101

On 23 October 2014 the Court ruled that under the energy Directives customers who are covered by a universal supply obligation must be informed, with adequate notice before any adjustment enters into effect, of the reasons and preconditions for that adjustment and its scope. By not providing for such information, the German legislation at issue in the cases failed to comply with the Electricity and Gas Directives. Similarly to the RWE ruling, the Court did not limit the temporal effects of its judgment.

15.102

4.2.5 Case C-510/13 E.ON Földgáz Trade Zrt This reference for preliminary ruling from a Hungarian court originated from the following situation. The Hungarian national regulatory authority approved by a decision a network code prepared by the Hungarian TSO under which the TSO was to decide on network users’ request to book cross-border transmission capacity of more than one year duration. Given that there was available capacity, the TSO had to provide the bookings in the order in which the requests were launched. Later on the TSO was confronted with 4 such requests from E.ON for the entry point of the HAG interconnector which exceeded considerably the available capacity. The TSO asked the regulator to take a decision on this and the regulator did so by instructing the TSO to handle the request in a way that was less favourable to E.On than the original regime in the network code. The NRA decision also revoked the provisions of the network code on the earlier regime.

15.103

E.ON wanted to challenge the NRA decision before national courts in Hungary but could not do so due to lack of locus standi. Under Hungarian law it was necessary to have a legal interest for an appeal before a court, that is, the legal

15.104

785

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

situation of the applicant should be directly affected by the contested decision. This was not the case (e.g. no contractual relationship which would have been affected by the request of E.ON existed) and E.ON had only an economic interest which was insufficient under national law. E.ON argued it would have such a right to challenge the NRA decision before the national court under EU law. The referring court raised several questions concerning the issues which Directive applied to the national case where the appeal of the NRA decision was sought (the Second or the Third Package), the rules on complaint handling by the regulator and the rules and on judicial appeal of regulator’s decisions. In particular, the questions related to the interpretation of Article 22(5) and (6) of the Second Gas Directive 2003/55/EC (on appeal of regulator’s decisions on complaints against system operators  and complaints concerning regulator’s decisions on methodologies), Article 41(11) and (12) of the Third Gas Directive 2009/73/EC (equivalent to Article 22(5) and (6) of Directive 2003/55/EC) and the new Article 41(17) of the Third Gas Directive 2009/73/EC, requiring any “party affected by a decision of the regulatory authority” to be able to appeal that decision to a body independent of the parties involved and any government. The main issue was who is to be considered as an “affected party” for the purpose of the latter rule. The ruling was delivered on 19 March 2015.

15.105

As a starting point the Court considered that the Third Gas Directive 2009/73/ EC was not applicable to the case since the NRA decision at issue was adopted before its transposition deadline had expired. The Court considered that the relevant date to decide on the applicability was the date of adoption of the decision. The Court accordingly did not discuss Article 41(17) of Directive 2009/73/ EC on the substance and only noted that the provision applies to situations in which the regulatory authority has adopted a decision which infringes the rights of a party (paragraphs 32-35).

15.106

Since the Third Gas Directive was found not applicable, the Court examined whether E.ON could argue only under the Second Gas Directive 2003/55/EC a right to a judicial appeal of the NRA decision.

15.107

The Court noted that although there were no specific rules in the Second Gas Directive conferring on operators a right to apply to the court for legal review of NRA decisions, the Second Gas Regulation (EC) No 1775/2005, applicable ratione temporis to the facts of the case, provides harmonised rules concerning access of market operators to the gas network. One of the aims of the Regulation was to provide harmonised rules on capacity allocation mechanisms and congestion management procedures. Article 5 in particular set the principles 786

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

that the TSO has to respect in implementing those mechanisms and procedures, in order to ensure that access to the transmission network takes place in a nondiscriminatory and transparent manner (paragraphs 39-42). It also followed from the Regulation that where a NRA adopts a decision which amends network code’s rules relating to capacity allocation and congestion management by the network manager, the NRA is required to ensure observance of the principles laid down in Article 5 and the Annex of the Regulation (paragraph 44). The Court then examined whether the Regulation conferred rights on E.ON which the NRA was required to respect when adopting a decision amending the regulatory requirement imposed on the TSO as regards access to the network. As a holder of a gas transmission license E.ON was a “network user” within the meaning of Article 2(1)(11) of the Regulation and given the wording of that definition, the existence of a concluded contact with the TSO was irrelevant as the term covers all customers and potential customers of a TSO (paragraph 45). Article 5 and the Annex of the Regulation contained protective measures adopted in the interest of users wishing to gain access to the network and thus capable of conferring rights on them. Therefore E.ON was the holder of certain rights under the Regulation, which could be potentially infringed by a NRA decision that amended the rules of a network code concerning capacity allocation and congestion management (paragraph 48). In his regard the Court drew an analogy with its case-law in the telecommunication sector which dealt with the question who is an affected party by decisions of the telecommunications regulator.1038

15.108

Hungary had to guarantee the rights E.ON enjoyed, in accordance with the principle of procedural autonomy, but in respect of the principle of effective judicial protection under Article 47 of the Charter of Fundamental rights (paragraph 49).

15.109

On this basis the Court concluded that it followed from the Gas Regulation (Article 5 and the Annex), read along with Article 47 of the Charter, that E.ON

15.110

1038 See paragraph 34 referring to C-426/05 Tele2 Telecommunication where the Court interpreted the term “affected party” in Article 4 of Directive 2002/21/EC. The provisions on appeal of NRA decisions in this Directive are similarly worded to Article 41(17) of Directive 2009/73/EC. The Court concluded in C-426/05 that the provisions of the EU Directives on the appeal of decisions of national regulators which were at issue aimed to protect the rights which users and undertakings derived from EU legal order. On this basis the Court analysed if the parties which sought to appeal a NRA decision derived rights from the EU legal order, and in particular from the Directives under interpretation, and whether those rights could be affected by the NRA decision, even though it was not addressed to them. If these criteria were met, the Court considered that parties which were not addressees of the decision were to be considered “affected” by it. The CJEU concluded that the requirements could be met if the rights of the applicant were “potentially affected” by the decision.

787

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

as an operator should have the possibility to appeal before a court or tribunal a NRA decision relating to the gas network code (para 51).

15.111

Thus although the Court found the Third Gas Directive not applicable and assessed the case under the Second Package rules only, it finally reached an outcome which could have followed had the Court considered Article 41(17) of the Third Gas Directive applicable and had it concluded that E.ON was an “affected party” under that provision.

4.2.6 Case C-121/15 ANODE 15.112

This reference for a preliminary ruling from the Conseil d’État originated from a national dispute whereby the National Association of energy supply companies (ANODE) challenged the rules on regulated prices for households and small undertakings in the French Energy Code. Under these provisions, as from 1 January 2016 all household customers and undertakings which as final customers consume less than 30 000 kwh/year can be supplied at regulated prices. Pursuant to the French legislation the incumbent supplier GDF and, for the parts of the territory which they serve, local distribution companies and, for certain customers, Total Energie Gaz, were required to offer gas to final customers at regulated prices and supply the customers that have chosen these prices. However, all suppliers, including those offering at regulated prices, could also supply at non-regulated prices. ANODE argued that this regime violated the Gas Directive 2009/73/EC.

15.113

The Conseil d’État asked the CJEU to determine whether imposing regulated gas prices on certain operators, while not prohibiting them or other suppliers from offering lower prices, posed a barrier to a competitive gas market contrary to the Gas Directive 2009/73/EC, as well as to specify the criteria in the light of which the compatibility of such price regulation with that Directive, including as regards the costs which such regulated prices should reflect, was to be assessed.

15.114

In its judgment of 7 September 2016 the Court recalled, referring to its earlier case-law on the matter, that the Gas Directive 2009/73/EC required that the price of supply of natural gas must be fixed exclusively by the play of supply and demand and that a public measure of intervention in gas sale prices is a measure which by its very nature constitutes an obstacle to the internal market. The Court considered that the tariffs established pursuant to the French legislation were regulated prices which were not the result of a free determination based on supply and demand. Accordingly, the Court concluded that the 788

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

French regulation at issue was by its very nature an obstacle to the achievement of a competitive gas market, as referred to in Article 3(1) of Directive 2009/73/ EC (paragraphs 25- 33). The Court further noted that this obstacle may none the less be accepted within the framework on Directive 2009/73/EC pursuant to Article 3(2) therein, dealing with public service obligations, if the three conditions identified in the Federutility judgement are met. Namely, the intervention i) must pursue an objective of general economic interest, ii) must comply with the principle of proportionality, and iii) must lay down public service obligations that are clearly defined, transparent, non-discriminatory and verifiable, guaranteeing equal access of EU gas undertakings to consumers.

15.115

As regards the first condition, the Court underlined that the interpretation of the general economic interest must take into account not only Article 106 TFEU, specifically mentioned in Article 3(2) of the Directive, but also Article 14 TFEU, Protocol (No26) on services of general interest, annexed to the Treaties, and Article 36 of the Charter of Fundamental Rights of the European Union, on access to services of general economic interest, and noted the wide discretion that Member States have, while respecting EU law, in providing and organising services of general economic interest and defining their scope.

15.116

Against this background, the Court acknowledged that Member States may impose public service obligations relating to the price of supply of natural gas in order to ensure security of supply and “territorial cohesion”, even if the latter objective was not specifically mentioned in Article 3(2) of the Gas Directive 2007/73/EC. In this respect the Court concluded the list of issues which may be subject to public service obligations in that provision was non-exhaustive (paragraph 50).

15.117

While the Court considered that it was for the national court to assess the proportionality of the measure and its non-discriminatory nature, it provided some guidance on the matter. In particular, it noted that fixing a maximum duration for the tariffs does not constitute a time limit on the duration of the obligation to offer regulated prices, as it only concerns a review of the level of the tariffs and not of the necessary of the public intervention in the prices as such (paragraphs 61-62). The Court further stressed that the necessity requirement, as a part of the proportionality assessment, meant in principle that the component of the gas price in which intervention was necessary must be identified; thus while determining the prices based on taking the costs into consideration was not pre-

15.118

789

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

cluded, the national court had to assess whether the method of intervention did not go beyond what was necessary for achieving the objective (paragraph 66). The Court finally observed that Article 3(2) of the Gas Directive 2009/73/ EC allowed public service obligations to be imposed generally on undertakings operating in the gas sector and not on certain undertakings specifically and that in accordance with Article 3(1) of the Directive, no discrimination between undertakings as regards their rights and obligations should occur. Thus the system of designating undertakings responsible for public service obligations may not exclude a priori any of the undertakings operating in the gas distribution sector (paragraph 71).

4.2.7 Case C-347/16 Balgarska energiyna borsa AD (BEB) 15.119

In this case the dispute before the referring court concerned the issue whether the refusal of the Bulgarian energy regulator to grant a licence for carrying out the activities of a TSO was compatible with EU law, in particular EU electricity and competition rules. The Bulgarian energy regulator had taken this decision in the light of Article 43(1) of the Bulgarian Energy Act, which only allowed the issuance of one license for the transmission of electricity in Bulgaria. It had refused to grant a license to the applicant “Bulgarska Energiina Borsa” (BEB) on the ground that the Electricity System Operator EAD (ESO) – the single entity operating as a TSO in Bulgaria  – had already been granted such a license. At the same time, there were doubts in the national proceedings, whether the certification and designation of ESO as a TSO was complaint with certain requirements of the Electricity Directive 2009/72/EC.

15.120

The national Court referred several questions to the CJEU. Three of them in essence concerned the interpretation of the rules in Article 9(1)(b), (c) and (d) of Directive 2009/72/EC (which set out requirements for ownership unbundling of TSO), in conjunction with recital 12 therein. The other two questions concerned the issue whether Directive 2009/72/EC and other EU electricity legislation allow a Member State to limit the number of holders of electricity transmission licenses for a particular territory and whether a national legislation pursuant to which only one electricity transmission license is granted within national territory restricts competition within the meaning of Articles 101 and 102 TFEU.

15.121

In its judgement of 26 October 2017 the Court noted as regards the first issue that ESO has been certified and designated as an unbundled TSO in accordance with the independent transmission system operator (ITO) unbundling model. 790

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

Article 9(8)(b) of the Electricity Directive 2009/72/EC allows the Member States to choose to install such an unbundling model, provided that the conditions envisaged in that provisions are met (i.e. on 3 September 2009 the transmission system belongs to a vertically integrated undertaking). In that case the Member State could apply the rules on the ITO unbundling model set out in Chapter V of the Directive and not those of the ownership unbundling model set out in Article 9(1) therein. Accordingly, the certification of ESO, being subject to the requirements of the ITO model in the Directive, was not subject to the rules in Article 9(1)(b) to (d). The questions relating to the interpretation of the latter provision were thus found inadmissible.

15.122

As regards the issue that the Bulgarian legislation reserved to the holder of the single electricity transmission license the possibility to be certified and designated as a TSO in Bulgaria, the Court noted that, the Directive 2009/72/EC and Regulation No 714/2009 did not contain any rules on the grant of licenses for electricity transmission in the territory of the Member States. Pursuant to Article 10(2) Directive 2009/72/EC undertakings which own an electricity transmission system and have been certified by the national regulator as compliant with the unbundling requirements of the Directive are to be approved and designated as TSO by the Member States. However, in the circumstances at hand, there was only one electricity transmission system in Bulgaria and that system, which belonged to a vertically integrated undertakings on 3 September 2009, had since become the property of ESO, so there was nothing to show that the application of BEB in the main proceedings fell within the scope of Article 10(2) of Directive 2009/73/EC. Accordingly, the limitation of the number of holders of electricity transmission licenses for a particular territory at issue was not precluded by the Directive.

15.123

4.2.8 Joined cases C-262/17, C-263/17 and C-273/17 Solvay Chemica Italia In this case the CJEU was requested to interpret for the first time Article 28 of the Electricity Directive 2009/72/EC concerning ‘’closed distribution systems’’, i.e. systems which, distribute electricity within a geographically confined industrial, commercial or shared services site, and, in addition, serve users with integrated operations or an integrated production process, or distribute electricity primarily to the owner or operator of the system or their related undertakings. In accordance with Article 28(2) of the said Directive, the operators of such systems are eligible for exemptions from certain obligations provided for by that directive. Namely, Member States may exempt the distribution system 791

15.124

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

operator of a closed distribution system from the obligation under Article 25(5) of the Directive to procure the energy it uses to cover energy losses and reserve capacity in its system according to transparent, non-discriminatory and market based procedures, and the requirement under Article 32(1) that tariffs, or the methodologies underlying their calculation, are approved by the NRA prior to their entry into force in accordance with Article 37.

15.125

The first question essentially sought a clarification of the scope of Article 28, by asking whether a system created and operated by a private entity, to which a limited number of production and consumption units are connected, and which in turn is connected to the public network, must be regarded as a ‘’distribution system’’ within the meaning of Directive 2009/72/EC. The rest of the questions concerned the issues whether the operators of closed distribution systems are required to provide third party access to their system, whether they could be exempted from other obligations, in addition to those specifically referred to in Article 28 of the Directive, and whether users of closed distribution systems may be subject to the rules applicable to the users of the public network as regards dispatching charges.

15.126

In its ruling of 28 November 2018 the Court clarified that systems such as those at issue which clearly serve to transport electricity at high-voltage, mediumvoltage or low-voltage, which is intended to be delivered to final customers constitute distribution systems, falling within the scope of Directive 2009/72/EC. The circumstance that the system was set up originally as a self-generation system or that it was created before Directive 2009/72/EC entered into force were irrelevant in this regard and did not prevent such a qualification. The Court further held that a closed distribution system could be released by the respective Member State only from the obligations refer to in Article 28(2) of the Directive. While other exemptions envisaged for in the Directive could be applicable to such systems, provided that they meet the requirements envisaged by the Directive in that regard, the Member State however cannot include the said systems into a separate category of distribution systems with the aim to make available to them an exemption, which the Directive does not envisage. The Court further concluded that the operators of closed distribution systems are required to provide third-party access as a closed distribution system could not be exempted from the third party access obligation set out in Article 32, paragraph 1 of the Directive. Regarding the issue whether the Directive precludes the application of dispatching charges to users of the closed distribution system calculated in relation to electricity fed into, or taken from the closed distribution system (not solely in relation to electricity fed into, or taken from the public network), the 792

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

Court underlined that the principle of equal treatment is a general principle of EU law, which requires that comparable situations must not be treated differently and different situations must not be treated in the same way unless such treatment is objectively justified. In comparing the situation of users of closed distribution systems and other users of the public network, the Court noted that while the former are connected to the public network and could use dispatching services, they use mainly the electricity produced in the closed distribution system and use the public network only exceptionally (then the production within the closed distribution network is not enough to satisfy the needs of its users). Accordingly, apart from such exceptional cases it is the operator of the closed distribution system and not the operator of the public network which is obliged to ensure the balance between production and consumption within the system. The Court accordingly concluded that the Directive would preclude the application of dispatching charges to users of the closed distribution system calculated in relation to the electricity exchanged with the system by each user at his point of connection to the closed distribution system, provided that it is established by the referring court that users of the closed distribution system are not in the same situation as those of the public network and that the provider of the dispatching service for the public network incurs only limited expenses as regards those users of the closed distribution network.

4.2.9 Case C‑305/17 FENS spol. s r.o. Slovak legislation had introduced a specific pecuniary charge levied solely on electricity generated in the Slovak Republic, and applied for the export of the electricity from the territory of the Slovak Republic, regardless of whether the export takes place to Member States of the European Union or to third countries. The Court of Justice was asked to assess whether such a national rule is a charge having an equivalent effect to a customs duty and therefore prohibited by the provisions on the free movement of goods and more precisely, by Articles 28 and 30 TFEU.

15.127

In its judgement of 6 December 2018 the Court considered that the compatibility of the charge with EU law should be examined by reference to primary EU law rather than to Directive 2003/54/EC since the latter did not constitute an exhaustive harmonisation (including Article 11, paragraph 7 of the Directive requiring rules adopted by transmission system operators for balancing the electricity system to be objective, transparent and non-discriminatory).

15.128

793

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

15.129

The Court concluded that the charge at issue constituted a charge having an equivalent effect to customs duties, within the meaning of Article 28 TFEU based on the following considerations. In this respect, it first reiterated, in accordance with its earlier case-law, that customs duties are prohibited regardless of the purpose for which they are introduced and the destination of the revenue from them. The aim of imposing the charge at issue was therefore irrelevant. Secondly, the Court underlined that electricity is a good and that the charge at issue, being calculated on the basis of the transmitted kw/h, was charged on that good. Next, the Court noted that the charge was levied only on electricity produced in Slovakia and exported later on, that is to say, it was levied due to the fact that the electricity was crossing the Slovak border. While the Slovak Government had submitted that the charge at issue should be considered as internal taxation but that it is in no way discriminatory since it applied in the same way to electricity exported from and electricity consumed in Slovakia in accordance with objective criteria irrespective of whether the good crossed a frontier, the Court underlined that the electricity exported from the Slovak Republic and the one consumed within its borders were not charged at the same commercial stage. The Court further considered that it has not been demonstrated with the materials in the case that the charge would represent a payment for a service actually rendered to an economic operator, of an amount in proportion to that service (and would thus not constitute a charge having an equivalent effect).

15.130

The Court considered that the conclusion that the charge at issue constituted a charge having an equivalent effect to customs duties, within the meaning of Article 28 TFEU, applied as regards both the electricity exported to other Member States and the electricity exported to third countries. The charge, as long as it was imposed on exports to other Member States, fell within the scope of application of Articles 28 and 30 TFEU and as long as it was imposed on exports to third countries fell within the scope of application of Article 28 TFEU. The Court underlined the exclusive competence of the Union in the areas of the customs union and common commercial policy, and noted that the common commercial policy would be seriously undermined if the Member States were authorised unilaterally to impose charges having equivalent effect to customs duties on exports from third countries. The CJEU accordingly concluded that the Member States have no competence which would allow them to unilaterally introduce charges having an equivalent effect to customs duties as regards exports to third countries (paragraph 51). Stressing that the prohibition in Article 28 TFEU has a general and absolute nature and the exceptions in Article 36 TFEU could not be applied by analogy to customs duties and charged with equivalent effect, the CJEU concluded that the charge at issue constituted a charge having an equiva794

Chapter 15 Implementation of the Third Internal Energy Market Package Yona Marinova

lent effect to customs duties, which could not be subject to a justification, and was precluded by Articles 28 and 30 TFEU (paragraph 57-58).

5.

Concluding remarks

An integrated EU-wide energy system where energy flows freely across borders, based on competition and the best possible use of resources, is at the core of the Energy Union Project.1039 Full implementation and strict enforcement of the energy legislation is an essential element of achieving the Energy Union. Efforts in this respect should remain a matter of principal importance both for the Member States and the Commission.

1039 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank: A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy (COM/2015/080 final).

795

15.131

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

Chapter 16 The internal energy market1040 and neighbouring countries Revised and updated by William-James Kettlewell and Christopher Jones

1.

Introduction

While further steps can still be taken to bring the EU internal energy market to completion and adapt it to enable the EU to face the climate emergency, its integration has already brought tangible benefits to both consumers and investors. Furthermore, it has also already proven that, by using a mix of carbon market, compulsory targets for specific technologies and other push-pull incentives, it is capable of great transformation in a short amount of time. The set of rules for the EU’s internal energy market have thus become a benchmark for a number of EU partners in its neighbourhood that aspire to benefit from linking their energy markets with that of the EU and that are committed to respecting their Paris-commitments.

16.1

The EU accession process has traditionally been an important driver of energy sector reforms in countries wishing to join the EU, while others have often looked to EU rules as an inspiration for establishing well-functioning regulatory frameworks based on open and transparent market principles.

16.2

The Commission Communication on security of energy supply and international cooperation1041 states that the “EU external energy policy is crucial to complete the internal energy market” and calls for a comprehensive but differentiated approach towards market integration and “expanding links between the European

16.3

1040 Opinions expressed in this chapter are those of the author and do not necessarily reflect the position of the European Commission. 1041 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011DC0539&from=EN

797

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

energy network and neighbouring countries and creating a wider regulatory area, beneficial for all”. This is to be achieved through closer cooperation on an international, regional, and bilateral level. This approach has been confirmed, though made more flexible, by the Commission in its 2015 Communication “Review of the European Neighbourhood Policy” 1042 stating that “the public consultation has demonstrated that while the offer of a closer relationship with the EU for those countries which have undertaken governance reforms has encouraged change in some countries, current practice and policy has been regarded by other partners as too prescriptive” and that “the new ENP will seek to deploy the available instru‑ ments and resources in a more coherent and flexible manner”.

2.

The internal energy market and EU accession

16.4

EU enlargement continues to play a crucial role in expanding EU energy legislation into the neighbouring countries. In order to join the Union, candidate countries are required to adopt the EU’s acquis – the body of all current EU rules – and Chapter  15 of the acquis (Energy) currently includes rules and ­policies on security of supply, competition and state aid (including in the coal sector), internal energy market, promotion of renewable energy sources, energy efficiency, nuclear energy and safety, and radiation protection. The energy ­chapter also contains the requirement of accession to the Energy Charter Treaty and related protocols.

16.5

Transposition of the acquis is not negotiable. In the accession process, candidate countries and the EU agrees on the ways and timing of such legal alignment through adoption and implementation, but not substance. The process may also include transitional arrangements, which allow for gradual phasing in of EU legislation in order to allow time for adaptation.

16.6

Following Croatia’s accession on 1 July 2013, there are currently no designated accession countries. At present, six countries have candidate status: Albania, Montenegro, North Macedonia, Serbia, and Turkey. Iceland is no longer in this list despite negotiations with Iceland starting in July 2010 because of its formal request to no longer be regarded as a candidate country in March 2015, following a government change in the aftermath of the 2013 general election.

1042 https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/neighbourhood/pdf/key-documents/151118_joint-communication_review-of-the-enp_en.pdf

798

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

Accession negotiations were opened with Turkey in October 2005.1043 However, until Turkey agrees to apply the Additional Protocol of the Ankara Association Agreement to Cyprus, eight negotiation chapters will not be open and no chapter will be provisionally closed. Furthermore given the drastic deterioration of the rule of law in Turkey (most notably in the aftermath of the July 2016 attempted coup), the accession process with Turkey is currently de facto frozen. The energy chapter has yet to open for negotiations and the 2019 Commission Staff Working Document on Turkey notes, on the Energy Chapter,1044 that “Turkey is moderately prepared in this chapter. Good progress has been made on security of supply, renewable energy and energy efficiency”. The progress on security of supply was mainly due to the completion of the first phase of the Trans-Anatolian Pipeline Project (TANAP). The Commission’s recommendations to Turkey on Energy were to (i) “adopt legislation in line with the Euratom acquis”, (ii) “ deepen gas market reform by setting up a legally binding plan and a timetable for the unbundling of activities and establishing transparent, costreflective and non-discriminatory pricing in the gas sector” and (iii) “roll out the implementation of the national energy efficiency action plan”.

16.7

In February 2018, the Commission adopted a new ‘Western Balkans Strategy’,1045 stating that Montenegro and Serbia were considered ‘frontrunners’ that could join the EU as early as 2025. However, in practice, by the end of 2019, Montenegro and Serbia had respectively opened 32 and 28 of the 35 chapters (including the energy one) and Montenegro had closed three of them while Serbia had closed only two. Accession negotiations were opened with Montenegro in June 2012 and the energy chapter was open for negotiations in December 2015. For Montenegro, the section on the Energy Chapter of the 2019 Commission Staff Working document1046 indicates that “Montenegro has reached a good level of preparation in this area. Some progress was made in the reporting period, espe‑ cially on further legislative alignment related to renewable energy”. The Commission’s recommendations to Montenegro on Energy were, in essence, to (i) “create or join a functioning day-ahead market and couple with neighbouring markets, including Italy”, (ii) “move to market-based support schemes for renew‑ able energy production” and (iii) “adopt the Law on security of supply1047 of oil products and set up the stockholding body for the mandatory oil stocks”.

16.8

1043 After that Turkey had applied for membership in 1987 and was declared a candidate country in 1999. 1044 https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/20190529-turkey-report.pdf 1045 https://ec.europa.eu/commission/sites/beta-political/files/communication-credible-enlargement-perspective-western-balkans_en.pdf 1046 https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/20190529-montenegro-report.pdf 1047 This law has been in preparation in Montenegro since 2016 and concerns the constitution of stocks of oil products in order to be able to withstand geopolitical shocks.

799

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

16.9

The latest accession negotiations were opened with Serbia, in January 2014. For Serbia, the Commission Staff Working document1048 indicates that “Serbia is moderately prepared in this field. Limited progress was made in a number of areas. However, as regards energy market reforms in particular, the shortcom‑ ings have not been properly addressed.” The Commission’s recommendations to Serbia on Energy were, in essence to (i) “ fully unbundle and certify [its gas providers] and develop competition in the gas market”, (ii) “ fully implement the connectivity reform measures” and (iii) “promote investment in energy efficiency including through establishing a sustainable financing system”.

16.10

Negotiations have yet to open with North Macedonia1049 and Albania, the other two Western Balkan candidate countries, despite consistent positive recommendations by the Commissions for many years.

3.

Energy Community Treaty

16.11

The year 2020 marks the fifteenth year anniversary of the Energy Community. The Energy Community Treaty was signed in October 2005 and entered into force in July 2006. The European Union is a Party to the Treaty, along with nine other Contracting Parties: Albania, Bosnia and Herzegovina, Georgia, Kosovo, North Macedonia, Moldova, Montenegro, Serbia and Ukraine. Three other countries, Armenia, Turkey and Norway, participate as Observers.

16.12

The Energy Community’s aims to “extend the EU internal energy market rules and principles to countries in South East Europe, the Black Sea region and beyond on the basis of a legally binding framework”.1050 The mission of the Energy Community is to:1051 –

“Establish a stable regulatory and market framework capable of attracting investment in power generation and networks;

–

Create an integrated energy market allowing for cross-border energy trade and integration with the EU market;

1048 https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/20190529-serbia-report.pdf 1049 In the case of North Macedonia, Greece took issue with its previous use of the name ‘Macedonia’, which blocked the accession discussion. 1050 https://www.energy-community.org/aboutus/whoweare.html 1051 Ibid.

800

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

–

Enhance the security of supply to ensure stable and continuous energy sup‑ ply that is essential for economic development and social stability;

–

Improve the environmental situation in relation with energy supply in the region and foster the use of renewable energy and energy efficiency; and

–

Develop competition at regional level and exploit economies of scale”.

The Energy Community’s common legal framework is based on the EU’s energy acquis and includes the Second and the Third Energy Package in gas and electricity (but, at the time of writing, not the Recast Electricity Directive and Regulation nor any legislative acts adopted by the EU in this respect post 2017), three Network Codes (on demand connection, generators connection and grid connections), five environmental directives, as well as legislation relating to renewable energy sources, energy efficiency, oil stocks, statistics, as well as some provisions of the EU Treaties relating to competition policy, antitrust and state aid. See the table below.

16.13

Each Contracting Party has the obligation to implement the acquis. Article 25 of the Treaty states that ‘the Energy Community may take Measures to imple‑ ment amendments to the acquis […], in line with the evolution of the European Community law.’

16.14

Table. EU (main) legislation applicable in the Energy Community Contracting Parties.1052 Electricity

Directive 2009/72/EC of 13 July 2009 concerning common rules for the internal market in electricity. Regulation (EC) 714/2009 of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity. Commission Regulation (EU) 2016/1388 of 17 August 2016 establishing a network code on demand connection. Regulation (EU) 2016/631 of 14 April 2016 establishing a network code on requirements for grid connection of generators. Regulation (EU) 2016/1447 of 26 august 2016 establishing a network code on requirements for grid connection of high voltage direct current systems and direct current-connected power park modules.

1052 The full list of applicable legislation and regulations can be found here: https://www.energy-community. org/legal/acquis.html

801

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell Gas

Directive 2009/73/EC of 13 July 2009 concerning common rules for the internal market in natural gas. Regulation (EC) 715/2009 of 13 July 2009 on conditions for access to the natural gas transmission networks.

Security of Supply

Directive 2005/89/EC of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment. Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply.

Oil

Directive 2009/119/EC of 14 September 2009 imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products.

Infrastructure

Regulation (EU) 347/2013 on guidelines for trans-European energy infrastructure public and private projects on the environment, as amended by Directive 2014/52/EU.

Environment

Directive 2011/92/EU of 13 December 2011 on the assessment of the effects of certain. Directive (EU) 2016/802 of 11 May 2016 relating to a reduction in the sulphur content of certain liquid fuels. Directive 2001/80/EC of 23 October 2001 on the limitation of emissions of certain pollutants into the air from large combustion plants. Directive 2010/75/EU of 24 November 2010 on industrial emissions (integrated pollution prevention and control). Directive 79/409/EEC of 2 April 1979 on the conservation of wild birds. Directive 2004/35/EC of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage, as amended by Directive 2006/21/EC, Directive 2003/31/EC and Directive 2013/30/EU. Directive 2001/42/EC of 27 June 2001 on the assessment.

Renewable Energy

Directive 2009/28/EC of 23 April 2009 on the promotion of the use of energy from renewable sources.

Energy Efficiency

Directive 2012/27/EU of 25 October 2012 on energy efficiency. Directive 2010/31/EU of 19 May 2010 on the energy performance of buildings. Directive 2010/30/EU of 19 May 2010 on the indication by labelling and standard product information of the consumption of energy and other resources by energy-related products.

Statistics

Regulation (EC) 1099/2008 of 22 October 2008 on energy statistics. Regulation (EU) 2016/1952 of 26 October 2016 on European statistics on natural gas and electricity prices.

802

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

Article 29 of the Treaty requires that the Contracting Parties ‘adopt security of supply statements describing in particular diversity of supply, technological secu‑ rity, and geographic origin of imported fuels’. These statements, updated every two years, are to be communicated to the Secretariat (see below) and are made available to any Contracting Party. The Secretariat may provide guidance and assistance in its preparation.

16.15

The key bodies of the Energy Community are the Ministerial Council, the Permanent High Level Group, the Regulatory Board, the Fora and the Secretariat.

16.16

Title  VII of the Treaty sets out the provisions establishing the dispute settlement mechanism. Binding decisions settling disputes (or regarding breaches by a Party of its obligations) are taken by the Ministerial Council with either a simple or two-thirds majority, or by unanimity. Article 92 states that a Party, the Secretariat or the Regulatory Board may bring a dispute for resolution by the Ministerial Council in case of serious and persistent breach by a Party of its obligations under this Treaty. However, it should be noted that the infringement mechanism, whereby the Secretariat brings action against a Party for failing to implement the acquis, is limited in terms of effective enforcement mechanism. No fines or other binding actions can be brought against an infringing Party, although its voting rights in the Ministerial Council can be suspended based on a unanimous decision of the Contracting Parties.

16.17

Article 100 deals with Treaty revision and accession matters. It states that the Ministerial Council may by unanimity ‘agree on the accession to the Energy Com‑ munity of a new Party’.

16.18

The Energy Community Secretariat publishes acquis implementation reports annually.

16.19

A reflection on the future of the Energy Community has been ongoing. In 2013, the Ministerial Council mandated a High Level Reflection Group led by Professor Jerzy Buzek to undertake an independent assessment of the adequacy of the institutional setup and working methods of the Treaty. The Group completed its work and, in May 2014, published a report containing a number of proposals relating to possible reform relating to the legal perspective, investments, geographical scope and institutional setup at three levels (requiring no modification of the Treaty, requiring Treaty modifications by simple decision of the Ministerial Council, and full revision of the Treaty). These proposals have been assessed from the point of view of legal, financial and political feasibility, and

16.20

803

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

submitted to a public consultation with the view of adoption of measures by the Ministerial Council in autumn 2015. However, despite positive support by the Secretariat as soon as 20161053 and the yearly mentions during ministerial meetings (usually with commitments for progress during the next calendar year), the recommended amendments of the Treaty have merely been under consideration – without any actual implementation – since the original 2015 report by the High Level Reflection Group.

4.

The European Economic Area, Norway and Switzerland

4.1 The European Economic Area and Norway 16.21

The 1994 Agreement on the European Economic Area (EEA) allows Iceland, Liechtenstein and Norway, three of the four members of EFTA, to fully participate in EU’s Internal Market on the basis of EU acquis. EU acts with EEA relevance are continuously incorporated into the EEA Agreement by way of EEA Joint Committee Decisions. Provisions and arrangements concerning energy are contained in Annex IV. The Annex1054 also provides for a number of derogations, such as an exemption for Iceland from the unbundling requirements for distribution system operators, and qualification of Norway as an emergent market within the meaning of Article  2 (31) of Directive  2003/55/EC (this latter derogation lapsed in April 2014). The EEA Agreement with its annexes and protocols is also part of the EU acquis. A heavily adapted version of the Third Energy Package directives and regulations were adopted into the EEA Agreement by a Joint Committee Decision of May 2017 and now will apply in Iceland, Liechtenstein and Norway.1055 The Recast electricity Directive and Regulation are, at the time of writing, under the scrutiny of the EEA EFTA.

16.22

While Norway participates in the Council of European Energy Regulators (the “CEER” – a voluntary association of EU regulators), it is currently not a member of the Agency for the Cooperation of Energy Regulators (ACER).

1053 See the original Secretariat report https://energy-community.org/dam/jcr:fad57005-a80a-4a00-8ffb-12adddbbe866/PHLG032016_Treaty_Changes.pdf, the Secretariat presentation at the 14th Ministerial Council https://www.energy-community.org/dam/jcr:a36385bc-4b9a-47ac-b222-e58a616db95a/MC102016_ ECS_future_Treaty.pdf and the Conclusion of the Ministerial Council https://www.energy-community. org/dam/jcr:5d1081a1-fb42-478b-a543-6fde938a5b49/MC102016_Conclusions.pdf 1054 http://www.efta.int/media/documents/legal-texts/eea/the-eea-agreement/Annexes%20to%20the%20 Agreement/annex4.pdf 1055 https://www.efta.int/EEA/news/EEA-Joint-Committee-adopts-Third-Energy-Package-502509

804

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

The European Energy Security Strategy,1056 adopted by the European Commission in May 2014, called for ‘a reinforced partnership with Norway’, and called to ‘support the development and further expansion of gas supply infrastructure with Norway’ as a key area for joint action by the Commission and Member States. This led notably to the organisation of three additional EU-Norway Energy Conferences in September 2014, February 2016 and 2019 as well as a special EU-Norway conference on the topic of Carbon Capture and Storage in September 2019.1057

16.23

4.2 Switzerland Switzerland, the fourth Member of EFTA, is not part of EEA. Instead, it has pursued a bilateral approach with the EU in the energy sector. Switzerland’s electricity system is already deeply linked with the EU power grid (via its neighbouring EU Member States) and EU-Swiss cross-border flows account for a significant portion of EU cross-border flows. Swiss energy companies are active on the EU internal energy market and the Swiss TSO Swissgrid AG is a member of the European Network of Transmission System Operators for Electricity (ENTSO-E), yet, to date, no comprehensive energy agreement has been put in place between the EU and Switzerland, and the Third Energy Package rules and related legislation do not extend to Switzerland.

16.24

The negotiations on an Electricity Agreement between the EU and Switzerland intended to set up mutually acceptable electricity rules, aimed at full integration of electricity markets, have been ongoing since 2007.

16.25

In its 2011 Communication on security of energy supply and international cooperation,1058 the European Commission stated that ‘current negotiations of an agreement aimed at full integration of electricity markets should be given priority, and consideration should also be given to extending these negotiations to other areas, such as renewables and natural gas’. In 2014, after seven years of negotiations between the EU and Switzerland to achieve such integration, a verbal consensus had been achieved regarding many of the issues on the table.

16.26

1056 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0330&from=EN 1057 https://ec.europa.eu/energy/en/topics/international-cooperation/key-partner-countries-and-regions/norway 1058 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011DC0539&from=EN

805

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

16.27

However, negotiations were halted in 2014 when the Swiss population voted to limit immigration from all EU countries, a decision which was in direct opposition to the Agreement on the Free Movement of People (“AFMP”) signed in 1999.1059 This strained EU-Swiss diplomatic relationships and Switzerland was excluded from participating in the intraday, day-ahead, and balancing market coupling mechanisms of the EU. Although Switzerland implemented an AFMP-compatible version of the immigration and EU-Swiss relationships have warmed up since them, the negotiations on the electricity agreement have still not concluded as further negotiations on all open EU-Swiss matters became conditional on the institutional framework negotiations.

5.

Energy in Global International Instruments – The Energy Charter Treaty

16.28

The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects were signed in 1994 and came into force in 1998 following ratification by members. The Treaty was developed on the basis of a 1991 political Energy Charter declaration intended to promote energy cooperation. To date, fifty-six countries have signed the treaty1060 (including Russia, which on 17 April 2018, officially confirmed their intention not to be considered as Signatories to the Energy Charter Treaty) and fifty-one have ratified it. The EU is also a contracting party. Forty-two countries and thirteen international organisations have observer status at the Energy Charter Conference – the political decision-making body. The purpose of the Energy Charter Treaty is to establish a legal framework in order to promote long-term energy cooperation. It consists of a set of legally binding rules in the areas of investment, trade and transit, energy efficiency and dispute resolution.1061

16.29

In the area of investment, ‘the Treaty ensures the protection of foreign energy in‑ vestments based on the principle of non-discrimination. By accepting the Treaty, a state takes on the obligation to extend national treatment, or most-favoured nation treatment (whichever is more favourable), to nationals and legal entities of other Signatory states who have invested in its energy sector. The Treaty thus carries the equivalent legal force of a unified network of bilateral investment pro‑ tection treaties.’ Investment protection provisions of the Treaty continue to ap1059 https://www.eda.admin.ch/dea/en/home/bilaterale-abkommen/ueberblick/bilaterale-abkommen-1/personenfreizuegigkeit.html 1060 Including Russia, which on 17 April 2018, officially confirmed their intention not to be considered as Signatories to the Energy Charter Treaty, as announced in 2009. 1061 https://www.energycharter.org/fileadmin/DocumentsMedia/Legal/ECTC-en.pdf

806

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

ply for a period of twenty years even in the case a Contracting Party withdraws from the Treaty. The Treaty’s energy trade and transit provisions extend WTO rules and practice also to the Contracting Parties, which are not WTO members. Article 7 of the Treaty obliges the Contracting Parties to ‘take the necessary measures to facilitate the Transit of Energy Materials and Products consistent with the principle of free‑ dom of transit and without distinction as to the origin, destination or ownership of such Energy Materials and Products or discrimination as to pricing on the basis of such distinctions, and without imposing any unreasonable delays, restrictions or charges.’ The Article also bans any transit flow interruptions or reductions ‘prior to the conclusion of the dispute resolution procedures’, which are also set out.

16.30

The Treaty provides a number of dispute settlement mechanisms: Article  26 contains provisions on the settlement of disputes between investors and host countries in the case of an alleged breach of an obligation under the Treaty’s investment promotion and protection provisions; Article  27 sets out provisions on settlement of Treaty application or interpretation disputes between Contracting Parties; the transit dispute resolution procedures are spelled out in Article 7; and a dispute resolution mechanism as per Article 29 and Annex D relating to disputes between Contracting Parties regarding compliance with trade provisions of the Treaty, provided at least one is not a WTO member. For disputes on competition and environmental issues, the Treaty provides consultation mechanisms.

16.31

In the area of energy efficiency, the Energy Charter Treaty Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) focuses on promotion of energy efficiency policies and appropriate legal and regulatory frameworks.

16.32

Differently from the EU energy acquis, which is compatible with the Energy Charter Treaty, the Treaty does not oblige any Contracting Party to introduce mandatory third party access.

16.33

In 2009, the Energy Charter Modernisation Process started in order to address the relevance of the Treaty, which led to the adoption, in 2012, of the Energy Charter Consolidation, Expansion and Outreach Policy (CONEXO).

16.34

807

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

16.35

An ‘updated’ Energy Charter – the International Energy Charter, was adopted by the International Energy Charter during the Ministerial Conference in May 2015 in The Hague. The document is ‘ is a declaration of political intention aim‑ ing at strengthening energy cooperation’ between the ninety signatory states1062 and ‘which does not bear any legally binding obligation or financial commitment’

6.

Regional Agreements

6.1 The Mediterranean Area 16.36

The EU and Southern and Eastern Mediterranean countries have cooperated over the years in various formats, such as the Barcelona Process, the Neighbourhood Policy and the Union for the Mediterranean.

16.37

The Barcelona Declaration adopted at the Euro-Mediterranean Conference in November 1995 stressed ‘the pivotal role of the energy sector in the economic Euro-Mediterranean partnership’ and initiated the process of strengthening cooperation and intensifying dialogue in the field of energy.

16.38

In December 2007, the EU and Mediterranean partner countries launched the new Euro-Mediterranean energy partnership by endorsing a Ministerial Declaration and the 2008-2013 Priority Action Plan for Euro-Mediterranean cooperation in the field of energy. The Plan contains three main action areas: ‘firstly, to ensure the improved harmonisation of energy markets and legislations and to pursue the integration of energy markets in the Euro-Mediterranean region; secondly, to promote sustainable development in the energy sector; and thirdly, develop initiatives of common interest in key areas, such as infrastructure exten‑ sion, investment financing and research and development’. It also includes a list of infrastructure projects of common interest in the region.

16.39

The Commission stressed the growing importance of the Mediterranean region in EU energy supplies in its 2011 Communication on security of energy supply and international cooperation entitled “The EU Energy Policy: Engaging with Partners beyond Our Borders” and called for greater engagement in the region’s energy infrastructure development. The Commission also proposed the following key follow up actions:

1062 https://www.energycharter.org/process/international-energy-charter-2015/overview/

808

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

–

‘promote cooperation on renewable energy projects with the Southern Med‑ iterranean countries, notably in the framework of the Mediterranean Solar Plan, with the launching of pilot solar plant projects in 2011-2012.’ 1063

–

‘propose to partners a regional EU-Southern Mediterranean Energy Part‑ nership initially focused on electricity and renewable energy market devel‑ opment in these countries by 2020.’ 1064

–

‘create a forum with interested partners in the Mediterranean for actively promoting the highest offshore oil and gas safety standards in the region.’ 1065

The Commission European Energy Security Strategy Communication1066 of May 2014 stated that the ‘EU should engage in intensified political and trade dialogue with Northern African and Eastern Mediterranean partners, in par‑ ticular with a view to creating a Mediterranean gas hub in the South of Europe’. This was accompanied, in the same year, by two ministerial conferences that gave a boost to the Euro-Mediterranean energy cooperation. The Malta Conference held in July 2014 focused on the “Security of gas supply: the role of gas developments in the Mediterranean region”. The Rome Conference, “Building a Euro-Mediterranean energy bridge: the strategic importance of Euromed gas and electricity networks in the context of energy security”, held in November 2014, developed the concept of the Mediterranean Gas Hub. The conference also addressed the need for enforcing commonly agreed offshore safety and security rules applying to exploration and extraction of hydrocarbons in the region, and the establishment of integrated regional and sub-regional electricity markets in order to improve energy security, as well as further promotion of renewables and energy efficiency in the region. Finally, the conference called for the establishment, in the context of the Union for the Mediterranean process, of three high-level dialogue platforms: the Euro-Mediterranean Platform on Gas, the Euro-Mediterranean Platform on Regional Electricity Market, and the Euro-Mediterranean Platform on Renewable Energy and Energy Efficiency.

16.40

In 2015, the Commission announced a review of the European Neighbourhood Policy1067 due to the evolution of the geopolitical context in most countries of both the eastern and southern regions (including the rise of terrorism, the refu-

16.41

1063 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011DC0539&from=EN 1064 Ibid. 1065 Ibid. 1066 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0330&from=EN 1067 https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/neighbourhood/pdf/key-documents/151118_joint-communication_review-of-the-enp_en.pdf

809

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

gee crisis and increase military activity of Russia). In this Communication, the Commission reaffirmed that “the Union for the Mediterranean can play an en‑ hanced role in supporting cooperation between southern neighbours”. In addition to advancing existing goal, the Commission also added that “ initiatives such as (…) completing the Southern Gas Corridor and making best use of the new energy discoveries while assessing and preventing potential risks are important to achieving pan-European energy security”. Although not explicitly mentioned, the “new energy discoveries” likely refers to the discovery of the Zohr gas field, the largest offshore natural gas field discovered in 2015 and located in the Egyptian sector of the Mediterranean Sea.

16.42

On the basis of this new strategy, and in order to (i) create a ‘Mediterranean gas hub in the South of Europe’ and (ii) to ‘help diversify its energy suppliers and routes’, the EU also engaged in more specific energy-related dialogue – and agreements – at a political level with North African and Eastern Mediterranean partners, in particular with Algeria and Egypt.

16.43

Algeria is one of the biggest suppliers of gas to the EU and has a big potential in terms of renewable energy and for energy efficiency gains, which the EU supports as part of its climate leadership agenda. It is thus unsurprising that the EU established, in 2015, a ‘strategic partnership on energy’1068 which covers cooperation on (i) natural gas, (ii) on renewable energy and energy efficiency and (iii) energy market integration. It involves an annual ‘high-level’ meeting and the continued work of a Working Group that prepares high-level meetings and coordinates the work several ‘Expert groups’ (on gas, electricity…).

16.44

Regarding Egypt, its “ important and growing role in energy production and tran‑ sit in the Euro-Mediterranean energy market”, notably after the aforementioned discovery of the Zhor gas fields, lead the EU to aim at deeper energy cooperation over the past decade which, in turn, led to the conclusion, in April 2018, of the new ‘Memorandum of Understanding on a strategic energy partnership’,1069 updating their 2008 Memorandum of Understanding on Energy. This new MoU focuses on six areas: “1. Further assistance to the development of the Oil and Gas Sector; 2. Continued support to the Electricity Sector Reforms; 3. Development of the Energy Hub; 4. Further assistance with joint measures and projects in the field of Renewable Energy; 5. Additional support on Energy Efficiency strategies, policies and measures; across various sectors; 6. Cooperation in the technological, scientific and industrial areas across the energy field”. 1068 https://ec.europa.eu/energy/sites/ener/files/documents/dialogue.pdf 1069 https://ec.europa.eu/energy/sites/ener/files/documents/eu-egypt_mou.pdf

810

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

In the future, it is likely that the new European Green Deal, championed by the von der Leyen Commission, will lead to a readjustment of the European Neighbourhood Policy in order to ensure that European support can lead Mediterranean countries to act on their Paris commitments, the majority of which are conditional on external financial support.1070

6.2 Eastern Partnership Established in 2009, the Eastern Partnership is a joint EU initiative with Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine that seeks to promote closer cooperation between the EU and its Eastern European partner countries. The specific case of Ukraine is discussed further under Section 6.3.2.

16.45

In the energy sector, the partnership promotes sector reform and aims to strengthen energy security and to support partner countries on their way towards a low-carbon economy. The Partnership’s bilateral dimension promotes closer EU – Partner Country relations, while the multilateral strand provides a platform to engage on energy security and decarbonisation (Platform 3 of the Partnership). In the energy sector, cooperation mainly seeks to accelerate the harmonisation of partners’ energy policies with EU acquis, improve interconnections, and promote market integration and cooperation in order to securing sustainable energy supply in the region. The EU4Energy programme, introduced in 2016, aims at improving “the quality of energy data and statistics, shape regional policy-making discussions, strengthen legislative and regulatory frameworks and improve access to information in the partner countries”. For 2018–2019, Platform 3 focused on “finding ways to stimulate the construction of missing infrastructure links, bring partner countries’ energy-related rules more in line with EU rules, promote energy efficiency and renewable energy as well as nuclear safety and work on conventional and unconventional oil and gas resources in the safest and most efficient way”.

16.46

6.3 Bilateral Relationships and Agreements As a rule, EU bilateral agreements with third countries contain energy-related provisions. Energy cooperation and regulatory approximation is also foreseen in a number of memoranda of understanding or energy cooperation agreements between the EU and third countries. Two examples – Russia and Ukraine – will be discussed in more detail below. 1070 https://bruegel.org/wp-content/uploads/2018/10/PB201804-bullet.pdf

811

16.47

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

6.3.1 Russia 16.48

The long-standing EU-Russia energy relationship is one of mutual interdependence. The 1994 Partnership and Cooperation Agreement (“PCA” – in force since 1997) forms the current basis of EU-Russia cooperation, with Article 65 containing provisions on energy (see below).

16.49

At the 6th EU-Russia Summit in October 2000, the EU and Russia decided to establish ‘on a regular basis, an Energy Dialogue which will enable progress to be made in the definition of an EU-Russia energy partnership and arrangements for it’.1071 The Dialogue is intended to ‘provide an opportunity to raise all the questions of common interest relating to the sector, including the introduction of cooperation on energy saving, rationalisation of production and transport infra‑ structures, European investment possibilities, and relations between producer and consumer countries’.

16.50

The main instruments of the EU-Russia Energy Dialogue are the Permanent Partnership Council (PPC), the Thematic Groups (on energy markets and strategies, electricity, nuclear energy, energy efficiency and innovation), and the EURussia Gas Advisory Council. The EU-Russia Energy Roadmap 2050, signed on 22 March 2013, provides a framework for future cooperation and outlines a horizon until the year 2050.

16.51

While the assessment of the EU-Russia Energy Dialogue may vary, one of its key outcomes was the agreement, in 2009, on the establishment of an Early Warning Mechanism (updated in 2011),1072 which provides a framework for overcoming emergency situations in the energy sector. 1994 EU-Russia Partnership and Cooperation Agreement – Article 65 Energy “1. Cooperation shall take place within the principles of the market economy and the European Energy Charter, against a background of the progressive integration of the energy markets in Europe. 2. The cooperation shall include among others the followings areas:

1071 http://ec.europa.eu/energy/sites/ener/files/documents/2011_eu-russia_energy_relations.pdf 1072 http://ec.europa.eu/energy/sites/ener/files/documents/20110224_memorandum_0.pdf

812

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell – improvement of the quality and security of energy supply, in an economic and environmentally sound manner, – formulation of energy policy, – improvement in management and regulation of the energy sector in line with a market economy, – the introduction of a range of institutional, legal, fiscal and other conditions necessary to encourage increased energy trade and investment, – promotion of energy saving and energy efficiency, – modernization of energy infrastructure including interconnection of gas supply and electricity networks, – the environmental impact of energy production, supply and consumption, in order to prevent or minimize the environmental damage resulting from these activities, – improvement of energy technologies in supply and end use across the range of energy types, – management and technical training in the energy sector.”

Negotiations on a new EU-Russia Agreement to replace the PCA were launched in 2008, with the intention to also include substantive, legally binding commitments in energy. The Commission Communication on security of energy supply and international cooperation entitled “The EU Energy Policy: Engaging with Partners beyond Our Borders” stated that the New Agreement would ‘need to address crucial topics like access to energy resources, networks and export markets, investment protection, reciprocity, crisis prevention and cooperation, level playing field, and pricing of energy resources’.1073

16.52

In response to the crisis in Ukraine, the EU Heads of State or Government in March 6, 2014, in its statement on Ukraine, announced the suspension of bilateral talks with the Russian Federation on the New Agreement.1074 The EU also imposed a set of restrictive measures vis-à-vis the Russian Federation, including

16.53

1073 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011DC0539&from=EN 1074 https://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/141372.pdf

813

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

those targeting the energy sector.1075 The energy dialogue with Russia has therefore been on hold since 2014 and remains on hold to this day “pending positive developments in the resolution of the Ukraine crisis and implementation of the Minsk Agreements”. The only segment of this dialogue framework that remains operational is the “the technical work-stream on internal market issues under the previous EU-Russia Gas Advisory Council (GAC WS2)”.

16.54

Of course, this general suspension of the energy dialogue did not prevent: –

ad-hoc discussions on urgent issues between EU officials and their Russian counterpart;

–

any activation of the Early Warning mechanism, which remains in full force; and

–

EU discussions with the Russian Federation in the context of the trilateral talks on gas transit through the Ukraine, which were held between July 2018 and December 2019 and led to the renewable of a gas transit contract between Russia and Naftogaz.1076

6.3.2 Ukraine 16.55

On 1 December 2005, the EU and Ukraine signed a Memorandum of Understanding (MoU) on cooperation in the field of energy.1077 The MoU established a roadmap for nuclear safety of operating Ukrainian nuclear power plants, a roadmap for the integration of electricity and gas markets, a roadmap for enhancing the security of energy supplies and the transit of hydrocarbons, and a roadmap for enhancing effectiveness, safety and environmental standards in the coal sector. The Ukraine has since joined the Energy Community.

16.56

Some progress was achieved on the roadmaps and, in March 2009, a joint declaration was signed at the EU-Ukraine International Investment Conference on the Modernisation of Ukraine’s Gas Transit System, whereby Ukraine’s government committed to develop a Gas Sector Reform Programme with the view of implementing gas sector reforms in 2010-11 on the basis of EU legislation.

1075 http://eeas.europa.eu/cfsp/sanctions/docs/measures_en.pdf 1076 https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_19_6869 1077 https://ec.europa.eu/energy/sites/ener/files/documents/2010_ukraine_mou.pdf

814

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

Ukraine obtained Energy Community observer status in 2006 and joined the Energy Community in 2011, thereby committing to align its legislation with the EU Third Energy Package. Intensified cooperation with Ukraine accelerated with progress on the negotiations of EU-Ukraine Association Agreement (referred hereinafter as the “Agreement”). After signing the political provisions of the EU-Ukraine Association agreement on 21 March 2014, the EU and Ukraine signed the economic part of the agreement on 27 June 2014. The Agreement finally entered into force on September 1, 2017, although the parts on economic and sectoral cooperation – including notably energy, environment, and climate action – had provisionally applied since November 1, 2014, and the Deep and Comprehensive Free Trade Area applied provisionally since January 1, 2016.

16.57

Energy provisions are contained in Title IV and V of the Agreement. Title IV on trade and trade-related matters includes Chapter 11 on trade-related energy. Provisions include matters of domestic regulated prices, prohibition of dual pricing and customs duties and qualitative restrictions, as well as provisions relating to transit, transport, cooperation on infrastructure, and prohibition of unauthorised taking of energy goods transited or transported through the Parties’ area. The chapter also includes measures seeking to minimise the risk of interruption of transit and transport of energy goods, and stipulates a requirement of an independent regulatory authority for electricity and gas. It also references the Energy Community Treaty (“ECT”) – in case of a conflict between the Association Agreement and ECT, the ECT shall prevail. The chapter also contains provisions relating to access to, and exercise of the activities of prospecting, exploring for and producing hydrocarbons.

16.58

Chapter 1 of Title 1 of the EU-Ukraine Association Agreement contains provisions on energy cooperation, including on nuclear issues. The Agreement establishes an ‘Early Warning Mechanism’ with the objective of setting out practical measures aimed at preventing and rapidly reacting to an emergency situation or to a threat of an emergency situation. It foresees an early evaluation of potential risks and problems related to the supply and demand of natural gas, oil or electricity and the prevention and rapid reaction in case of an emergency situation or a threat of an emergency situation.’1078

16.59

1078 http://eeas.europa.eu/ukraine/pdf/10_ua_annexes_to_title_v_economic_and_sector_cooperation_ en.pdf

815

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

16.60

Annex  XXVII to Chapter  1 of the Association Agreement relates to gradual approximation of Ukraine’s legislation to the EU legislation in electricity, gas, oil, prospection and exploration of hydrocarbons, energy efficiency and nuclear field within the stipulated timeframes.

16.61

Ukraine is a country of key importance to EU’s security of supply, in particular since over 50% of Russian gas supplies to the EU currently transits through Ukraine1079 and its varied progress in aligning its energy legislation with the EU acquis has been a consideration for many years, with the particular focus on the security of gas transit via Ukraine at the moment. The current geopolitical situation poses both a challenge and an opportunity in this respect.

16.62

Therefore, in order to foster even greater cooperation and alignment in the field of energy, the EU and Ukraine signed, in November 2016, a new Memorandum of Understanding on ‘a strategic energy partnership’,1080 updating their 2005 memorandum of understanding on energy. The objective “remains the full inte‑ gration of energy markets of the EU and Ukraine for the benefit of consumers and with a view to strengthening mutual energy security and environmental sustain‑ ability”. In accordance with this memorandum, the parties now prepare a joint annual work plan to facilitate its implementation and achieve its objectives.1081

7. 16.63

Bilateral agreements of EU Member States with third countries

The Commission Communication on security of energy supply and international cooperation1082 noted that ‘bilateral agreements of Member States with third countries have a significant impact on the development of energy infra‑ structure and energy supply to the EU. They must be in full compliance with EU legislation’. The Communication further proposed setting up an information exchange mechanism on intergovernmental agreements between Member States and third countries in the field of energy.

1079 https://ec.europa.eu/energy/en/topics/international-cooperation/key-partner-countries-and-regions/ neighbourhood-east 1080 https://ec.europa.eu/energy/sites/ener/files/documents/mou_strategic_energy_partnership_en_signed. pdf 1081 https://ec.europa.eu/energy/sites/ener/files/documents/annual_work_plan_final_2017_.pdf and https:// ec.europa.eu/energy/sites/ener/files/documents/annual_work_plan_2018_final.pdf. 1082 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011DC0539&from=EN

816

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

Following the proposal of the Commission, Decision No 994/2012/EU of the European Parliament and of the Council of 25 October 20121083 established an information exchange mechanism with regard to intergovernmental agreements (“IGAs”) between Member States and third countries in the field of energy in order to optimise the functioning of the internal market. This Decision was considered to be “useful for receiving information on existing IGAs and for identify‑ ing problems posed by them in terms of their compatibility with EU law” but “not sufficient to solve such incompatibilities”.

16.64

The Decision required that Member States submit to the European Commission all existing and newly ratified IGAs, and allowed Member States to inform the Commission of the objectives and provisions of new IGAs and IGA amendments negotiated with third countries. The Commission had the responsibility to advise Member States on ways to avoid incompatibility of IGAs under negotiation with Union law and Member States could request Commission assistance in IGA negotiations. The Decision also required that Member States make available the IGA document to each other – in full or in summary. However, Decision No 994/2012/EU proved ineffective in terms of ensuring compliance of intergovernmental agreements with Union law in essence because it relied on the assessment of IGA after they were already concluded by the Member States with a third country. Yet, such ex-post assessments do “not fully exploit the potential for ensuring compliance” of IGA with Union law. In particular, “the positions of the signatories have already been fixed, which creates political pressure not to change any aspect of the agreement”.

16.65

This Decision1084 was therefore replaced, in April 2017, by Decision (EU) 2017/684 on establishing an information exchange mechanism with regard to intergovernmental agreements and non-binding instruments between Member States and third countries in the field of energy which improved on the previous one a number of points.

16.66

Firstly, it requires that Member States inform the Commission of their intent to enter into negotiations with regard to new IGAs or amendments to existing IGAs as soon as possible and keep the Commission regularly informed during the negotiation process.

16.67

1083 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32012D0994&from=EN 1084 https://eur-lex.europa.eu/eli/dec/2017/684/oj

817

Chapter 16 The internal energy market and neighbouring countries Erlendas Grigorovic, updated by William-James Kettlewell

16.68

Secondly, ex-ante assessments have been systematized to some extent. Where discussions are about oil and gas, any draft IGA should be notified to the Commission for a prior (ex-ante) assessment. However, EU countries can make their own assessment of the legal compatibility of agreements with EU law at the draft IGA stage where the negotiations concern electricity and must only notify the draft IGA to the Commission where it has not been able to come to a firm conclusion on this compatibility question.

16.69

Lastly, once a draft IGA has been notified, the procedure is the same for electricity and gas: the Commission has 5 weeks (a deadline which can be extended with the consent of the Member State(s)) to inform the Member State(s) concerned of any doubts it has about compatibility of the draft IGA with EU law. Then “where the Commission informs the Member State (…) that it has doubts, it shall provide [it] with its opinion on the compatibility with Union law (…) within 12 weeks”. Before finalising an IGA (or amendment thereof ), the Member State(s) concerned must take ‘utmost account’ of the Commission’s opinion on the compatibility of the agreement with EU law (if any).

16.70

Whilst the new Decision has undoubtedly improved most aspects of the previous one regarding transparency of IGAs and their negotiation, one important flaw remains in that it still does not cover agreements with or between commercial entities.

818

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

Chapter 17 Import Gas Pipelines under the Third Energy Package

1.

Introduction

The European Union (“EU”) has to import most of the natural gas it consumes from third countries. In energy terms, above 75% of the available energy produced from natural gas in the EU has been imported in both 2017 and 2018,1085 mainly from Russia and Norway. Importation levels are also projected to increase in the coming decades, due notably to the winding down of the Dutch Groningen gas fields,1086 as gas production within the EU decreases faster than the (admittedly decreasing) internal gas consumption.1087 European dependence on gas exports from a limited number of third countries has for a long time been seen as a problem by the EU from a geopolitical and energy security perspective.1088 Promoting alternative import sources has therefore been the focus of the EU for many years. As a result, diversifying the EU’s gas sources, notably through supporting projects aiming at increasing the levels of LNG imported (mostly from Algeria and the United States), has been an official EU strategy at least since 2016.1089 1085 According to Eurostat, see https://ec.europa.eu/eurostat/statistics-explained/pdfscache/10590.pdf. 1086 See the Roadmap on the EU-Russia Energy Cooperation until 2050, spec. p. 12, https://ec.europa.eu/energy/sites/ener/files/documents/2013_03_eu_russia_roadmap_2050_signed.pdf. 1087 According to the same Eurostat supply statistics as above, EU natural gas production continued its decreasing trend, falling by 8.1% in 2018 compared with 2017 whereas, in 2018, gross inland consumption of natural gas in the EU decreased by only 2.4% compared with 2017. 1088 See the Commission’s green paper which states, already in 2006: “Our import dependency is rising. Unless we can make domestic energy more competitive, in the next 20 to 30 years around 70% of the Union’s ener‑ gy requirements, compared to 50% today, will be met by imported products – some from regions threatened by insecurity. Reserves are concentrated in a few countries. Today, roughly half of the EU’s gas consumption comes from only three countries (Russia, Norway, Algeria). On current trends, gas imports would increase to 80% over the next 25 years” and that “Europe’s energy policy should have three main objectives: (...) Security of supply: tackling the EU’s rising dependence on imported energy.” https://europa.eu/documents/comm/ green_papers/pdf/com2006_105_en.pdf. 1089 See, for example, the 2016 EU strategy for liquefied natural gas and gas storage, https://eur-lex.europa.eu/

819

17.1

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

17.2

In the context of the legal and public debate concerning Nord Stream 21090 that took place in 2016-2017,1091 the legal services of the Commission and of the Council concluded that the Gas Directive1092 did not apply to gas pipelines to and from third countries. The Commission considered this to be “ detrimental to the functioning of the internal energy market and the security of supply in the Union”, and tabled a proposal aimed at ensuring the applicability of the Gas Directive to such gas pipelines. In parallel, it requested a mandate from the Council to negotiate an agreement between the EU (and relevant Member States) and Russia regarding the management of the Nord Stream 2 pipeline. The context behind the inception and adoption of these amendments – as well as the legal challenge against them – are further developed hereunder in Section 2.

17.3

The resulting amendments to the Gas Directive, which took more than two years to be adopted, provide significantly more leverage to the Commission to influence the legal and political fate of some new import gas pipelines than what was previously the case, as detailed under Section 3.

17.4

However, as will be shown in Section 4, it is debatable whether these amendments will actually have a positive impact – or even a noticeable impact – on most import gas pipelines or on the internal gas market.

2.

The inception and possible demise of the amendments to the Gas Directive

2.1 The Gas Directive as an instrument for shaping the gas ­importation landscape 17.5

Given the importance of gas imports to the EU, it is unsurprising that the EU’s Third Energy Package, including the Gas Directive, the TEN-E Regulation1093 and funds from the Connecting Europe Facility, have already been used by the Commission to shape the EU’s importation landscape. As developed in other legal-content/EN/TXT/?uri=COM%3A2016%3A49%3AFIN. 1090 ‘Nord Stream 2’ is the name given to the Gazprom-led project to double the capacity of the Nord Stream underwater pipelines delivering natural gas from Russia to Germany. 1091 See, for example, the objection letter (https://www.reuters.com/article/uk-eu-energy-nordstream/eu-leaders-sign-letter-objecting-to-nord-stream-2-gas-link-idUKKCN0WI1YV) sent by eight Member States to the European Commission and the reaction (https://www.reuters.com/article/uk-eu-energy-nordstream/ eu-leaders-sign-letter-objecting-to-nord-stream-2-gas-link-idUKKCN0WI1YV) of its then President JeanClaude Juncker. 1092 Directive 2009/73/EC. 1093 Regulation 347/2013.

820

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

chapters of this book, the Gas Directive requires that third parties be granted non-discriminatory access to all gas transmission infrastructures, through a regulated and transparent system of tariffs. The competitive nature of the gas market is further secured through unbundling obligations.

17.6

The Gas Directive therefore bars gas producers from owning pipelines in the EU. On this basis (among others), the Commission has already objected, in December 2014, to ‘South Stream’, a pipeline which would have brought Russian gas to South-East Europe via Bulgaria (hence avoiding Ukraine but including a large portion of the pipeline inside the EU).1094 These objections were later cited by Gazprom as the reason the project was abandoned.1095

17.7

2.2 The inapplicability of the Gas Directive to import gas pipelines However, arguments related to gas companies’ ownership of pipelines based on the Gas Directive were more difficult to make in the case of Nord Stream 2 as this pipeline is built offshore and arrives directly into Germany through the Baltic Sea.

17.8

Given that the Gas Directive was designed to advance the EU’s internal market, it is mostly silent on the complex issues surrounding its applicability to infrastructure – such as pipelines – linking the EU with third countries (called, in this chapter, “import gas pipeline(s)”). Prior import gas pipelines were usually managed under the framework of international agreements, with different applicable legal regimes that do not always envisage the primacy of EU law. Alternatively, such pipelines arrive from third countries that already comply, in substance, with EU energy laws by virtue of being a member of the European Economic Area (e.g., Norway) or the Energy Community (including various countries in south-eastern Europe, among which Ukraine and Moldova).1096 In particular, precedents such as the Nord Stream 1, Green Stream and MEDGAZ pipelines suggested that undersea pipelines were not treated as part of the internal market since the Third Energy Package was not applied to them.1097

17.9

1094 See the Parliament’s brief on the Nord Stream 2 pipeline, spec. p. 2. https://www.europarl.europa.eu/RegData/etudes/ATAG/2017/608629/EPRS_ATA(2017)608629_EN.pdf. 1095 See the Russian and Gazprom declarations reported in this Euractiv article. https://www.euractiv.com/section/global-europe/news/russia-says-south-stream-project-is-over/ 1096 See the Parliament’s brief on the amendments to the Gas Directive, spec. pp. 3-4. https://www.europarl. europa.eu/RegData/etudes/BRIE/2018/614673/EPRS_BRI(2018)614673_EN.pdf 1097 Although the Green Stream pipeline (commissioned in 2004) was planned and constructed when “the third energy package, and in most cases the second energy package did not exist”, see this political and legal analysis of the Nord Stream 2 project: https://www.vocaleurope.eu/nord-stream-2-legal-matter-became-part-softpowers-aspect/#_edn12.

821

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

17.10

In March 2017, both the European Commission’s legal service and the German regulator formally took the position that Nord Stream 2 should be considered to fall outside the scope of the Gas Directive.1098

17.11

The Commission’s Legal Service’s analysis notably hinged on the point that “As a transmission line which crosses a border for the sole purpose of connecting the national transmission systems of Russia and Germany, Nord Stream II possesses in principle the material characteristics of an ‘ interconnector’ as defined by Arti‑ cle 2, point 17, of the Gas Directive. However, by defining an interconnector as « a transmission line which crosses of spans a border between Member States for the sole purpose of connecting the national transmission systems of those Member States”, that provisions excludes a transmission line which crosses a border be‑ tween a Member States and a third country”.1099

17.12

The Commission’s analysis1100 that formed part of its latter proposal reaffirmed this interpretation in the following terms: “The rules set out in the Gas Directive and the Gas Regulation apply to “transmission systems” and to “transmission system operators”. Certain provisions, notably the possibility to grant partial exemptions from the requirements of the Gas Directive, apply specifically to ‘ interconnectors’. It follows from the definition of the term ‘ interconnector’ that (…) transmission lines connecting Member States with third countries do not fall under the definition of ‘ interconnector’ in the Gas Directive. As a result,(…) the rules set out in the Gas Directive governing the key aspects of third-party access, unbundling and tariff regulation do not expressly provide for their application to gas pipelines connecting a Member State with a third country. (…) In the absence of such specific rules, the applicability of third party access, unbundling and tariff regulation requirements to pipelines to and from third countries could not be ascertained and it has been concluded that the Union legislator, when adopting the Gas Directive, has not ex‑ pressly foreseen its application to pipelines crossing an external border of the Union”.

17.13

As a consequence, the EU had limited tools to influence the Nord Stream 2 project or any subsequent import gas pipeline – especially by sea – in a manner that would ensure its conformity with the EU’s energy security strategy. It was therefore deemed “urgent to revise EU legislation on cross-border gas infrastruc‑ ture with third countries”. 1098 See the Commission’s Legal Service’s internal note, available at https://euractiv.com/wp-content/uploads/ sites/2/2017/03/Commission-on-Nord-Stream-2.pdf 1099 The emphasis is not added, see the Commission’s Legal Service’s internal note p. 2. 1100 See the Commission Staff Working Document: Assessing the amendments to Directive 2009/73/EC setting out rules for gas pipelines connecting the European Union with third countries, SWD(2017) 368 final, https://euractiv.com/wp-content/uploads/sites/2/2017/03/Commission-on-Nord-Stream-2.pdf

822

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

2.3 The Commission’s proposal In November 2017, the Commission adopted a proposal for amending the Gas Directive to extend its scope to interconnectors with third countries.

17.14

The proposal was not accompanied by a full impact assessment as the Commission argued that the amendments were “targeted in nature” and would only “reflect the practice of applying core principles of the regulatory framework set out in the Gas Directive in relation to third countries.” 1101 The Parliament nonetheless considered that this decision could, in fact, more “reflect the sudden urgency attached to a legislative proposal that was not foreseen either in the Commission’s energy union strategy (February 2015) or in subsequent updates on the state of energy union (November  2015, February  2017). The legislative proposal was first mentioned in Commission President Juncker’s 2017 State of the Union letter of intent to the Parliament and Council (September 2017). It was subsequently included as a new initiative in the Commission’s 2018 work programme, where it was presented as a measure to complete the energy union that would include an impact assessment”.1102

17.15

In parallel, the Commission requested a Council mandate to open negotiations with Russia on the question of the regulatory framework applicable to the operation of Nord Stream 2, a request that was never granted by the Council. The Council’s legal service concluded1103 that “the decision whether or not to negoci‑ ate the envisaged agreement is not related to a legal need deriving from [the no‑ tion of legal void] but instead a matter of political choice (…)” and, hence, that the Commission’s justification for requesting this mandate was unfounded in law. However the same legal advice states that “The current absence of an actual conflict of laws does not exclude in principle a potential future conflict of laws. Should the EU and the Russia Federation apply conflicting legal regimes within their respective jurisdictions over the pipeline, this could indeed create a need to sort out any ensuing contradiction.”

17.16

2.4 The institutional negotiations and political compromise It took more than two years of negotiations to adopt Directive  2019/692 amending the Gas Directive. Technically speaking, most of that time was spent 1101 See the Parliament’s brief on the amendments to the Gas Directive, spec. p. 5, https://www.europarl.europa. eu/RegData/etudes/BRIE/2018/614673/EPRS_BRI(2018)614673_EN.pdf. 1102 Ibid. 1103 In its 2017 Opinion  12590/17, http://www.politico.eu/wp-content/uploads/2017/09/SPOLITICO17092812480.pdf.

823

17.17

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

in arguments and analyses over complex legal points, such as the compatibility of the Commission’s proposal with the United Nations’s Convention on the Law of the Sea, as well as other issues relating to the legal basis, allocation of competences, etc. However, the real negotiations was between Member States supporting Nord Stream 2 – with Germany at the forefront1104 – that tried to find a blocking minority and opponents of the projects that were mostly in favour of the Commission’s proposal.1105 An agreement was nonetheless reached, in February 2019, when it became clear that France was going to support the amendments.

17.18

The resulting compromise led, in essence, to restricting the scope of the amendments from the Commission’s original proposal and limit EU involvement in the enforcement and application of the amended Gas Directive’s rules, in the following ways: –

the applicability of the amended Gas Directive would be limited to the territory and the territorial sea of the Member State where the first interconnection point with its network is located (article 2 (17), as amended);

–

the primary responsibility for upholding the application of EU rules on pipelines with third countries falling on that Member State (article 14 § 1 and 34 § 4, as amended);

–

only a consultative role was granted to neighbouring Member States through which the pipeline passes or those whose gas markets may be affected by its operation (article 34 § 4 and 36 § 3, as amended);

–

existing agreements with third countries are maintained in force unless (and until) they are superseded by new or revised agreements (Article 49b); and

–

Member States can be empowered to negotiate agreements with third countries provided that the negotiations comply with defined grounds and are notified to the Commission.

1104 In addition to Germany, Member States opposed to the Commission’s proposal were understood to include Austria, the Netherlands, and Belgium, see K. Yafimava, op. cit. spec. p. 1. 1105 In fact, several Member States welcomed the Commission’s initiative and expressed the view that Nord Stream 2 ‘could jeopardise one of the energy union goals, namely diversifying supply sources and routes, and therefore endanger the EU’s energy security’, see the Parliament’s brief on the amendments to the Gas Directive, spec. p. 4, https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/614673/EPRS_ BRI(2018)614673_EN.pdf

824

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

Beside the Council, the proposal was supported by the European Economic and Social Committee, the Committee of Regions and by the European Parliament,1106 whose impact on the final text was, in the end, minimal.

17.19

2.5 The reaction against Directive 2019/692 Given the clear link between the amending Directive’s inception and Nord Stream 2, it is unsurprising that Nord Stream 2 AG (the consortium in charge of the project) decided to seek legal remedies in front of the courts in order to have it annulled or, at least, to ensure that it does not apply to the project.

17.20

To this end, Nord Stream  2 AG requested the said Directive’s annulment in front of the European Court of Justice,1107 on 26 July 2019, on the basis of an alleged infringement of the EU law principles of equal treatment and proportionality, arguing that “The amended Gas Directive breaches fundamental EU legal principles, such as non-discrimination. It is obviously a « lex Nord Stream 2 ». That is why Nord Stream 2 has brought an action for annulment”.1108 Nord Stream 2 AG believes that “This would lead to the cancellation of Directive (EU) 2019/692 as the amendment was clearly designed and adopted for the purpose of disadvantaging and discouraging the Nord Stream 2 Pipeline”.

17.21

In parallel,1109 Nord Stream 2 AG also filed a notice requesting an arbitration tribunal to determine whether the adoption of Directive 2019/692 by the EU should be considered as a breach of its obligations under the Energy Charter Treaty, in particular with respect to the EU’s obligations not to take discriminatory action and to guarantee fair and equitable treatment for investors.

17.22

From a purely legal perspective, one of Nord Stream 2’s main arguments relates to the fact that derogations from the Gas Directive under the new Article 49a only apply for ‘completed’ pipelines (see hereunder section 3.3.2)1110 whereas, at the same time, Nord Stream 2 AG could not apply for an exemption under Article 36 of the Gas Directive since its investment decision was made years ago.1111

17.23

1106 Ibid. 1107 See the Nord Stream 2 press release, https://www.nord-stream2.com/media-info/news-events/nordstream-2-calls-on-court-of-justice-of-the-european-union-to-annul-discriminatory-measures-133/ 1108 This was argued by Sebastian Saas, Nord Stream 2’s chief lobbyist, see this Euractiv article: https://www. euractiv.com/section/energy/news/nord-stream-2-takes-unusual-legal-step-against-the-commission/ 1109 In fact, a few weeks later, on September 26, 2019. 1110 See this leaked letter from Nord Stream 2 AG to the European Commission. https://www.euractiv.com/ wp-content/uploads/sites/2/2019/07/Letter-by-Nord-Stream.pdf 1111 See also this Euractiv article on this argument: https://www.euractiv.com/section/energy/news/nordstream-2-seeks-arbitration-in-dispute-with-eu-commission/

825

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

However, regardless of these procedures, the Nord Stream  2 project will first have to follow a compliance path – one way or another, see Section 4 – with the amended Gas Directive’s requirements. Indeed, on the one hand, arbitration procedures under the Energy Charter Treaty can involve settlements in the billions of dollars1112 but often take years to reach their conclusion and, on the other hand, based on historical experience, actions for annulment in front of the ECJ have an average duration of 20 months.1113

3.

Analysis of the amendments to the Gas Directive

17.24

This section discusses the different aspects of Directive 2019/692, with a particular focus on detailing the extended scope of the Gas Directive and the possible derogations and alternatives legal regimes applicable to import gas pipelines. Subsection  3.1 describes the new domain of applicability of the Third Energy Package for gas and of the Gas Networks Codes and examines which new pipelines are now covered by their scope. Of course, the mere fact that these instruments are legally applicable to any particular pipeline to or from a third country does not automatically entail that the latter shall be subject to all the requirements of ownership unbundling, third-party access, compulsory use of regulated and transparent tariffs and all the other cornerstones of these texts.

17.25

Firstly, these pipelines could still be subject to an alternative – and potentially less stringent – regulatory regime because (i) they qualify as upstream gas pipelines (section 3.2.1), or (ii) because Member States were allowed to opt for a less stringent unbundling model (section 3.2.2) or, lastly (iii) because the operation of the pipeline is – or will be – covered by an international agreement (section 3.2.3).

17.26

Secondly, it could be granted a derogation by a Member State, either because it would not have been built without it (section 3.3.1), or because it has been completed prior to the entry force of Directive 2019/692 and there is an ‘objective reason’ to do so (section 3.3.2).

1112 See this Competition Policy International article: https://www.competitionpolicyinternational.com/eunord-stream-2-seeks-arbitration-in-ec-dispute/ 1113 On May 20, 2020, the General Court of the European Union has declared that the actions brought by Nord Stream AG and Nord Stream 2 AG against Directive 2019/692 are inadmissible, stating that “The operators of the Nord Stream 1 and Nord Stream 2 pipelines are not, in any event, directly concerned by that direc‑ tive”. The cases’ references are T-526/19 and T-530/19. The press release can be found here: https://curia. europa.eu/jcms/upload/docs/application/pdf/2020-05/cp200062en.pdf

826

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

3.1 Import Gas Pipeline under the Gas Directive, Regulation and Network Codes The primary objective of these amendments, i.e., the extension of the applicability of the Gas Directive to import pipelines is achieved through a modification of the definition of an ‘interconnector’. As explained above, it was this definition that had the consequence that “transmission lines connecting Member States with third countries [did] not fall under the definition of ‘ interconnector’ in the Gas Directive”. Article 2 (17) of the Gas Directive is thus amended as follows: “‘ interconnector’ means a transmission line which crosses or spans a border between Member States for the purpose of connecting the national transmission system of those Member States or a transmission line between a Member State and a third country up to the territory of the Member States or the territorial sea of that Member State”.1114

17.27

This change in the definition is sufficient to make the requirements of the Gas Directive applicable to these transmission lines to and from Member States and third countries (at least up to the territory of the Member States or the territorial sea of that Member State). Furthermore, since Article 2 (2) of the Gas Regulation imports (basically) all the Gas Directive’s definitions that are “relevant for the applicable of this Regulation”, the entire Gas Regulation is also applicable to the same parts of import gas pipelines.

17.28

Note that the precise wording of this definition entails that there could be sections of interconnectors with third countries that are inside EU jurisdiction, such as inside the territorial waters of a Member State, but that still are not subject to the Gas Directive. Indeed, the part of the definition that provides “up to (…) the territorial sea of that Member States” is at the centre of the political compromise achieved in the Council and ensures that “As regards offshore gas transmission lines, [the Gas Directive is only] applicable in the territorial sea of the Member State where the first interconnection point with the Member States’ network is located” (as specifically stated in Recital 9).

17.29

This approach has significant legal and political implications. For instance, to continue with the Nord Stream 2 example, it was contemplated before the adoption of Directive 2019/692 that one of its sections could have been located inside Danish territorial waters.1115 This wording entails that, even in such a sce-

17.30

1114 See Article 1 (1) of Directive 2019/692, the bold italic is added. 1115 In the end, the Danish authorities have granted the permit inside the Danish exclusive economic zone but not inside its territorial waters. See Nord Stream 2’s press release: https://www.nord-stream2.com/permit-

827

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

nario, this section in Danish territorial water would not be subject to the Gas Directive.

17.31

This approach also entails that only the national regulatory authority (“NRA”) “of the Member State where the first interconnection point with the Member States’ network is located” has authority over offshore import gas pipeline. This is also reflected under Article 41 (1) (c), as amended, where only this NRA is charged to “cooperate with the relevant authorities of the third country, after consulting the regulatory authorities of other Member States concerned, aiming at, as regards this infrastructure, consistent application of this Directive in the territory of the Member States.” 1116

17.32

The question of the applicability of Network Codes1117 is slightly more subtle.

17.33

Indeed, all Network Codes import the definitions of the Gas Regulation (itself importing those of the Gas Directive). Furthermore, three out of four of them provide that they “shall apply to interconnection points”, with the definition of an ‘interconnection point’ referring to that of an ‘interconnector’ as follows “‘ inter‑ connection point’ means a physical or virtual point connecting adjacent entry-exit systems or connecting an entry-exit system with an interconnector, in so far as these points are subject to booking procedures by network users”. Thus, a point connecting an entry-exit system through an import gas pipeline would also qualify as an interconnection point. On this basis, one could argue, as some already have,1118 ting-denmark/danish-permitting-process/ 1116 However, Article 42, as amended, greatly diminishes this ‘monopoly’ of cooperation with the authorities of third countries by the NRA of the Member State with the first connection point by providing that “Regu‑ latory authorities, or where appropriate other competent authorities, may consult and cooperate with the relevant authorities of third countries in relation to the operation of gas infrastructure to and from third countries with a view to ensuring, as regards the infrastructure concerned, that this Directive is applied consistently in the territory and territorial sea of a Member State.” Therefore, regarding the operation of gas infrastructure, all NRAs can cooperate with authorities of third countries but, in theory, for everything else, only the above-mentioned NRA is charged to do so. 1117 By “Network Code”, it is meant the following regulations: Commission Regulation (EU) 2015/703, Commission Regulation (EU) 2017/459, Commission Decision 2012/490/EU, Commission Regulation (EU) 2017/460 and Commission Regulation (EU) No 312/2014. 1118 For example, Arthur. D. Little, in their February 2019 report “Fourth revision of the proposed amendment of the Gas Directive – further muddying the waters,” criticized the amendments resulting from the political compromise notably because “The unenforceability of the Network Codes as a result of the definition of pipelines connecting with third countries as « interconnectors » remains unresolved stating that “The problem arises from the fact that pipelines from third countries in the original amendment are redefined as interconnectors. Previously, interconnectors were defined as pipelines between Member States, connecting one transmission system with others, and often operable in both directions. Interconnectors serve the purpose of facilitating gas flows between markets, not just exports from one country to another.” See their report at https://www.adlittle.com/en/fourth-revision-proposed-amendment-gas-directive

828

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

that at least three out of four Network Codes would also automatically be applicable to import gas pipelines. However, these same three Network Codes provide that they “may also apply to entry points from and exit points to third countries, subject to the decision of the relevant national regulatory authority”. Furthermore, Recital 13 of Directive 2019/692 clarifies that “Commission Regulation (EU) 2015/703, Com‑ mission Regulation (EU) 2017/459, Commission Decision  2012/490/EU, as well as Chapters III, V, VI and IX, and Article 28 of Commission Regulation (EU) 2017/460 apply to entry points from and exit points to third countries, sub‑ ject to the relevant decisions of the relevant national regulatory authority, whereas Commission Regulation (EU) No 312/2014 applies exclusively to balancing zones within the borders of the Union”.

17.34

It is therefore clear that the said Network Codes would apply to import gas pipelines only if the NRA has already decided – or decides – that they should apply even to all interconnection points of pipelines to and from third countries. The scope of Network Codes seems thus, in substance, unaffected by the Gas Directive’s amendments.

17.35

The applicability of Network Codes to import gas pipelines should also be considered in parallel with the impact of Directive 2019/692 on technical agreements between European transmission systems operators (“TSOs”) and third countries’ TSOs (or other relevant entities).

17.36

As specifically provided for in the new Article 48a, the amendment to the Gas Directive “ does not affect the freedom of [TSOs] or other economic operators to maintain in force or to conclude technical agreements on issues concerning the operation of transmission lines between a Member State and a third country, insofar as those agreements are compatible with Union law and relevant decisions of the national regulatory authorities of the Member States concerned”. Given the scope of applicability of the Network Codes, it is thus clear that such technical agreements can cover the same issues as the former, as long as the NRA has not rendered the Network Codes applicable to interconnection points of pipelines to and from third countries. In this respect as well, the amendments do not seem to involve substantial changes.

17.37

829

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

3.2 Alternative regulatory regimes applicable to some import gas pipelines 3.2.1 Upstream pipeline networks to and from third countries 17.38

Given the new definition of ‘interconnector’, and contrary to what is the case between Member States, it is clear that all “transmission lines” to and from third countries qualify as interconnectors (up to the territorial limits detailed here above) even if their purpose is not to connect “transmission systems”.

17.39

However, the definition of ‘transmission’ used by the Gas Directive excludes both (i) pipelines used for distribution purposes and (ii) upstream pipeline networks.1119 Although a pipeline to or from a third country would hardly be for distribution purposes,1120 it could qualify as an upstream pipeline network. Upstream pipeline networks are subject to a lighter regulatory regime – the design of which is entrusted to the Member States, save for a few core principles – because they are not considered to be part of any transmission system (which is what triggers most of the requirements of the Gas Directive). Therefore, a pipeline to and from a third country would still be exempted from most requirements of the Gas Directive if it qualifies as an upstream pipeline network.

17.40

Under article 2 (2) of the Gas Directive, an upstream pipeline network is defined as “any pipeline or network of pipelines operated and/or constructed as part of an oil or gas production project, or used to convey natural gas from one or more such projects to a processing plant or terminal or final coastal landing terminal”.

17.41

Given that the aim of Directive 2019/692 is that pipelines to and from third countries fall under the scope of the Gas Directive, one could assume that this definition would apply consistently to all such pipelines. However, this does not seem to have been the European legislator’s intent. Indeed, on the one hand, Recital 5 of Directive 2019/692 starts by explaining that “Pipelines connecting a third-country oil or gas production project to a processing plant or to a final coast‑ al landing terminal within a Member State should be considered to be upstream pipeline networks”, which is entirely consistent with the above definition (that encompasses ‘any pipeline’). However, on the other hand, that same Recital con1119 The definition of ‘transmission’ is, in fact, very specific and is worded as follows “the transport of natural gas through a network, which mainly contains high-pressure pipelines, other than an upstream pipeline network and other than the part of high-pressure pipelines primarily used in the context of local distribution of natural gas, with a view to its delivery to customers, but not including supply”» (bold italic added). 1120 Although such an event is theoretically not totally impossible, the analysis of cases where this could happen is beyond the scope of this chapter.

830

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

tinues by stating that “Pipelines connecting an oil or gas production project in a Member State to a processing plant or to a final coastal landing terminal within a third country should not be considered to be upstream pipeline networks for the purpose of this Directive, since such Pipelines are unlikely to have a significant impact on the internal energy market.” On this basis, it seems that Directive 2019/692 aimed at creating some asymmetry between pipelines departing from the EU to third countries and those departing from third countries to the EU.

17.42

This is also reflected under the new paragraph 4 of Article 34. This article provides for a dispute resolution mechanism relating to upstream pipelines networks, foreseeing, among others, the applicability of the “ dispute-settlement ar‑ rangements for the Member State having jurisdiction over the upstream pipeline network which refuses access” as well as the need for various consultations among Member States or between them and third countries where relevant. However, this new paragraph, in considering third countries, only focuses on the cases where the “upstream pipeline network originates from a third country” and does not address the question of cross-border cooperation or dispute resolution for upstream pipeline networks from the EU to third countries.

17.43

Nevertheless, despite the statement in Recital 5 and the wording of article 34 §  4, Directive  2019/692 does not actually amend the definition of upstream pipeline networks nor does it actually provide in any other Article that upstream pipeline networks from the EU to third countries do not qualify as such or should fall outside the scope of the Gas Directive.

17.44

Therefore, there does not seem to be a sufficient textual basis to prevent a pipeline from the EU to a third country that fit the definition of an ‘upstream pipeline network’ from qualifying as such, despite the clear intent of the EU’s legislator.

17.45

Furthermore, given the definition of ‘interconnector’ and of ‘transmission’, it seems that the only alternative to qualifying pipelines from the EU to third countries that fit the definition of an upstream pipeline network as such, would be to qualify them as interconnectors, hence making all the requirements of the Gas Directive fully applicable to them (at least within the territorial scope of this definition). This would seem to go against the European legislator’s intent even more strongly, since Recital 5 of Directive 2019/692 seems to be implicitly stating that such pipeline should, in fact, simply fall outside the scope of the Gas

17.46

831

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

Directive because they “are unlikely to have a significant impact on the internal energy market.”

17.47

Therefore, any pipeline that fits the definition of an upstream pipeline network – both from a third country to the EU and from the EU to a third country – qualifies as such and, hence, does not qualify as an interconnector. It is thus exempted from the requirements foreseen by the Gas Directive and only subject to the lighter regulatory regime under national law, as provided for under Article 34.

3.2.2 Extension of the ISO and ITO options for import gas pipelines 17.48

As explained in Section  1.4 of Chapter  4, the Gas Directive allows Member States to choose between three different models of unbundling for TSOs: (1) the ownership unbundling model, (2) the independent system operator (“ISO”) model, and (3) the independent transmission operator (“ITO”) model. The latter two are slightly less stringent in terms of pure unbundling between transmission, production and supply than ownership unbundling.

17.49

However, prior to the adoption of amending Directive, the non-ownership unbundling options were only available to Member States if, at the date of entry into force of the Gas Directive – i.e., 3 September 2009 – the company owning a given transmission asset was vertically integrated. However, such an approach would be unjustified for import gas pipelines since they were previously not subject to the Gas Directive.

17.50

Therefore, as explained by Recital 4: “to take account of the lack of specific Union rules applicable to gas transmission lines to and from third countries before the date of entry into force of [Directive 2019/692], (…) the relevant date for the application of unbundling models other than ownership unbundling should be adapted for gas transmission lines to and from third countries.” This was implemented by amending Article 9 §§ 8 and 9 as well as Article 14 § 1 in that direction.

3.2.3 Transmission lines under a specific intergovernmental agreement 17.51

Directive  2019/692 provides, under article  49b, for specific scenarios under which a pipeline to or from a third country could be subject to a regulatory regime foreseen by an intergovernmental agreement (“IGA”) instead of those of the Gas Directive. 832

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

Article 49b foresees essentially two cases where an IGA could apply to an interconnector: (i)

when an IGA already applies to a pipeline between a Member State and a third country, in which case the Directive automatically allows this IGA to continue to apply, until the amendment thereof or the conclusion of a new agreement, but without any time limit; and

(ii)

when a Member State intends to conclude a new IGA that would apply to one or more specific pipelines, in which case a so-called empowerment procedure must be followed.

Since this empowerment procedure is rather elaborate, article  49b is worth quoting verbatim: Article 49b of the amended Gas Directive “1.  Without prejudice to other obligations under Union law, and to the allocation of competence between the Union and the Member States, existing agreements between a Member State and a third country on the operation of a transmission line or an upstream pipeline network may be maintained in force until the entry into force of a subsequent agreement between the Union and the same third country or until the procedure under paragraphs 2 to 15 of this Article applies. 2.  Without prejudice to the allocation of competence between the Union and the Member States, where a Member State intends to enter into negotiations with a third country in order to amend, extend, adapt, renew or conclude an agreement on the operation of a transmission line with a third country concerning matters falling, entirely or partly, within the scope of this Directive, it shall notify the Commission of its intention in writing.

Such a notification shall include the relevant documentation and an indication of the provisions to be addressed in the negotiations or to be renegotiated, the objectives of the negotiations and any other relevant information, and shall be transmitted to the Commission at least five months before the intended start of the negotiations.

3.  Further to any notification pursuant to paragraph 2, the Commission shall authorise the Member State concerned to enter into formal negotiations with a 833

17.52

17.53

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell third country for the part which may affect Union common rules unless it considers that the opening of such negotiations would: (a) be in conflict with Union law other than the incompatibilities arising from the allocation of competence between the Union and the Member States; (b) be detrimental to the functioning of the internal market in natural gas, competition or security of supply in a Member State or in the Union; (c) undermine the objectives of pending negotiations of intergovernmental agreements by the Union with a third country; (d) be discriminatory. 4. When carrying out the assessment under paragraph  3, the Commission shall take into account whether the intended agreement concerns a transmission line or an upstream pipeline that contributes to the diversification of natural gas supplies and suppliers by means of new natural gas sources. 5.  Within 90 days of receipt of the notification referred to in paragraph  2, the Commission shall adopt a decision authorising or refusing to authorise a Member State to enter into negotiations in order to amend, extend, adapt, renew or conclude an agreement with a third country. Where additional information is needed to adopt a decision, the 90-day period shall run from the date of receipt of such additional information. 6. In the event that the Commission adopts a decision refusing to authorise a Member State to enter into negotiations in order to amend, extend, adapt, renew or conclude an agreement with a third country, it shall inform the Member State concerned accordingly and shall give the reasons therefor. 7. Decisions authorising or refusing to authorise a Member State to enter into negotiations in order to amend, extend, adapt, renew or conclude an agreement with a third country shall be adopted, by means of implementing acts, in accordance with the procedure referred to in Article 51(2). 8. The Commission may provide guidance and may request the inclusion of particular clauses in the agreement envisaged, in order to ensure compatibility with Union law in accordance with Decision (EU) 2017/684 of the European Parliament and of the Council.

834

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell 9. The Commission shall be kept informed of the progress and results of the negotiations to amend, extend, adapt, renew or to conclude an agreement throughout the different stages of such negotiations and may request to participate in such negotiations between the Member State and the third country in accordance with Decision (EU) 2017/684. 10. The Commission shall inform the European Parliament and the Council of the decisions adopted pursuant to paragraph 5. 11. Before signing an agreement with a third country, the Member State concerned shall notify the Commission of the outcome of negotiations and shall transmit the text of the negotiated agreement to the Commission. 12. Upon notification pursuant to paragraph 11, the Commission shall assess the negotiated agreement pursuant to paragraph 3. Where the Commission finds that the negotiations have resulted in an agreement which complies with paragraph 3, it shall authorise the Member State to sign and conclude the agreement. 13. Within 90 days of receipt of the notification referred to in paragraph 11, the Commission shall adopt a decision authorising or refusing to authorise a Member State to sign and conclude the agreement with a third country. Where additional information is needed to adopt a decision, the 90-day period shall run from the date of receipt of such additional information. 14. Where the Commission adopts a decision pursuant to paragraph 13, authorising a Member State to sign and conclude the agreement with a third country, the Member State concerned shall notify the Commission of the conclusion and entry into force of the agreement, and of any subsequent changes to the status of that agreement. 15. In the event that the Commission adopts a decision refusing to authorise a Member State to sign and conclude the agreement with a third country pursuant to paragraph 13, it shall inform the Member State concerned accordingly and shall give the reasons therefor.”

Thus, all IGAs that are in force at the time of entry into force of Directive 2019/692 can be maintained even if they deviate from the amended Gas Directive’s regulatory regime. This is therefore another way that a pipeline to or from a third country could be subject to a lighter regime than the Gas Directive. It is not entirely clear whether the regulatory regime of such an IGA replaces the entire regime of the Gas Directive or whether only the areas covered by the 835

17.54

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

IGA would replace those of the Gas Directive. For example, if an IGA covers the details of the operations of a particular pipeline (e.g., the tariffs, the publication thereof, the access regime, …) but is silent on the question of its ownership, would this pipeline then have to comply with unbundling requirements or should the silence of the IGA entail that the Parties intended that no unbundling requirements should apply? It is submitted that it makes more sense, from a practical perspective, that the pipeline’s regulatory regime should be considered as a whole, rather than as a collection of the individual sub-regimes covered by the Gas Directive (third party access, transparency, regulated tariffs, unbundling rules, …).

17.55

Contrary to existing IGAs, newly concluded IGAs must comply with EU law, including the Gas Directive, even if the conclusion of these IGAs has complied with the empowerment procedure. Although Recital  111121 of Directive 2019/692 is ambiguous and could lead one to believe the contrary, the text of Article 49b § 3 and § 12 leaves no doubt that any new IGA that would not comply with the Gas Directive as amended – and hence that would provide for a lighter or alternative regulatory regime on the section of the interconnector subject to the Gas Directive – could not be authorised by the Commission.

17.56

This automatic recognition of previous IGAs and the empowerment of Member States to conclude new IGAs is a result of the compromise reached among the Member States in the Council and goes against (i) the Commission’s initial intentions1122 and (ii) the normal attribution of competences between the Commission and Member States. Indeed, the negotiation of such IGAs would ordinarily belong to the exclusive competence of the Commission. Therefore, 1121 This Recital states: “with regard to agreements or parts of agreements with third countries which may affect common rules of the Union, a coherent and transparent procedure should be established by which to author‑ ise a Member State, upon its request, to amend, extend, adapt, renew or conclude an agreement with a third country on the operation of a transmission line or an upstream pipeline network between the Member State and a third country”. 1122 The Commission’s proposal contained no such provision. Furthermore, the Commission Staff Working Document Assessing the amendments to Directive  2009/73/EC setting out rules for gas pipelines connecting the European Union with third countries (SWD/2017/0368 final, https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=SWD:2017:0368:FIN), foresaw the following: « In order to provide for a single and coherent framework, the conclusion of an intergovernmental agreement with the third country is a possible solution. Such an agreement could either specifically cover a given project, or generally agree on the framework for all projects between the contracting parties. An agreement between the Union and the third country would, depending on its content, prevail over the Gas Directive as well as the Gas Regulation. If the international agreement is concluded between a Member State and the third country and if this agreement is incompatible with the Gas Directive and/or Gas Regulation, the Member States concerned must thus take all appropriate steps to eliminate the incompatibilities between Union law and the agreement in question (Articles 351 (2) TFEU and 4 (3) TEU). This means that the Member State must renegotiate or terminate the agreement where appropriate. »

836

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

the main advantage of this procedure for the Member State is not to allow them to deviate from the Gas Directive’s requirements but that they are authorised to conclude an IGA even where it would directly affect a pipeline regulated under EU law. Nonetheless, the control of the Commission on the conclusion of these IGAs is, logically, much higher than what is foreseen by Decision 2017/684 on the conclusion by Member States of IGAs in the field of energy (see section 7 of Chapter 16). Most of the steps of the empowerment procedure are fairly straightforward and do not deserve specific commentary. However, the specific balance of power between the Commission and Member States deserves attention. Although the empowerment procedure is designed to place Member States in the ‘driver’s seat’ of negotiations (i.e., they are the one to initiate them, to lead them and to conclude them or not, at their discretion), the Commission is nonetheless granted significant oversight and influence over them since it (i) can block the start of the negotiations on specific grounds set out in Article 49b and explained below, (ii) has the right to request the inclusion of specific clauses in the IGA to ensure its compatibility with Union law, (iii) has the right to be informed, (iv) has the right to participate as an observer (within the limit set forth by Decision 2017/684), and (v) can deny Member States the right to sign the IGA on the aforementioned specific grounds.

17.57

These specific grounds on which the Commission is allowed to deny the Member States’ right to negotiate or sign an IGA are outlined under the third paragraph of Article 49b. In essence, the Commission’s powers are limited to cases where the IGA – or the mere opening of negotiations – would:

17.58

(a)

be in conflict with Union law (except the rules on competence);

(b)

have a detrimental effect on the internal market;

(c)

undermine pending EU negotiations with a third country; or

(d)

be discriminatory.

All these grounds are broad and, therefore, leave a significant margin of appreciation to the Commission.

17.59

Ground (a) clarifies that IGAs concluded through the empowerment procedure are not allowed to deviate from the Gas Directive.

17.60

837

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

17.61

Since the IGA being negotiated cannot be in conflict with the Gas Directive, this means in practice that Member States’ margin of discretion during the negotiation of such an IGA is rather limited. As was commented on elsewhere,1123 it seems that, by deciding to amend the Gas Directive in this manner, the EU has made it significantly harder for itself and its Member States to negotiate agreements on the operation of the whole of an import gas pipeline which would be compliant with EU law principles (as opposed to specific EU law provisions) and where the EU and the third country’s concerns could both be taken into account.

17.62

Ground (b) and (c) do not give rise to specific comments.

17.63

Ground (d), however, is less clear. For an IGA to be “ discriminatory”, it seems that it would have to aim to provide more favourable conditions to a third country or to a specific pipeline than to others. This would logically prevent – or at least make it significantly more difficult – for a Member State to enter into negotiations with a third country to conclude an IGA on a specific pipeline when it has already granted a derogation from the provisions of the Gas Directive (see hereunder section 3.3) to any other pipeline,1124 since new IGAs are not allowed to deviate from the Gas Directive’s rules. It thus seems likely, given the vagueness of this ground, that its precise boundaries will be determined by the Courts, should it ever be used by the Commission.

3.3 Exemption for Import Gas Pipelines 17.64

Where none of the alternative regulatory regimes discussed in section 3.2 apply to an import gas pipeline, there are two ways that it can nonetheless be exempted from certain (or most) of the requirements of the Gas Directive by a Member State.

3.3.1 Exemption for investment purposes 17.65

The first such exemption possibility has already been addressed in Section 3.4 of Chapter 11 and concerns the exemption under Article 36 for major new gas infrastructures that enhances competition in gas supply and for which an exemption is required to justify their construction. 1123 See K. Yafimava, op. cit. spec. p. 8. 1124 Accord: Arthur. D. Little, “Fourth revision of the proposed amendment of the Gas Directive” further muddying the waters, February 2019, spec. p. 9. See https://www.adlittle.com/sites/default/files/reports/adl_ nord_stream_gas_directive.pdf

838

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

Since import gas pipelines qualify as ‘interconnectors’ (at least up to the territory of the Member States or up to the territorial waters of the Member States where the first interconnection point is located), and given that interconnectors are explicitly mentioned as one of the types of ‘major new gas infrastructure’ that can be granted an exemption, it seems clear that it is within the power of NRAs to grant (or reject) requests for exemption for the sections of import gas pipelines that are under their authority. Provided such import gas pipelines fulfil the criteria laid down by Article 36, and subject to both the relevant NRA’s and the Commission’s approval, these import gas pipelines can be exempted from the unbundling, third-party access and regulated tariffs rules.

17.66

This exemption mechanism is not novel, but Directive 2019/692 amends1125 it as follows: (i) one of the criteria under which an exemption can be granted is changed and (ii) the procedure according to which the NRA can grant exemptions is modified. It is noteworthy that these amendments to Article 36 are applicable to all new major gas infrastructures and not just import gas pipelines.

17.67

With regard to the amended exemption criterion, the Gas Directive originally stated that the exemption “must not be detrimental to competition or the effective functioning of the internal market in natural gas, or the effective functioning of the regulated system to which the infrastructure is connected”. As amended, the scope of this criterion has changed and now requires that the exemption “not be detrimental to competition in relevant markets which are likely to be affected by the investment, to the effective functioning of the Union’s internal market in natural gas, the efficient functioning of the concerned regulated sys‑ tems, or to security of supply of natural gas within the Union”.1126

17.68

With regard to the procedure, before an NRA is allowed to grant an exemption, it is now required to consult the relevant authorities of third countries and to consult and obtain the approval of the NRAs of all Member States whose market will likely be affected. This is provided for by paragraphs 3 and 4 of Article 36, in the following terms:

17.69

Article 36 (3) and (4) of the amended Gas Directive “3. The regulatory authority referred to in Chapter VIII may, on a case-by-case basis, decide on the exemption referred to in paragraphs 1 and 2. Before the adoption 1125 These amendments are not discussed in Chapter 11 of this book. 1126 Bold italics are added to emphasize the change from the previous wording.

839

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell of the decision on the exemption, the national regulatory authority, or where appropriate another competent authority of that Member State, shall consult: (a) the national regulatory authorities of the Member States the markets of which are likely to be affected by the new infrastructure; and (b) the relevant authorities of the third countries, where the infrastructure in question is connected with the Union network under the jurisdiction of a Member State, and originates from or ends in one or more third countries.

Where the third-country authorities consulted do not respond to the consultation within a reasonable time frame or within a set deadline not exceeding three months, the national regulatory authority concerned may adopt the necessary decision.’

4. Where all the regulatory authorities concerned agree on the request for exemption within six months of the date on which it was received by the last of the regulatory authorities, they shall inform the Agency of their decision. Where the infrastructure concerned is a transmission line between a Member State and a third country, before the adoption of the decision on the exemption, the national regulatory authority, or where appropriate another competent authority of the Member State where the first interconnection point with the Member States’ network is located, may consult the relevant authority of that third country with a view to ensuring, as regards the infrastructure concerned, that this Directive is applied consistently in the territory and, where applicable, in the territorial sea of that Member State. Where the third country authority consulted does not respond to the consultation within a reasonable time or within a set deadline not exceeding three months, the national regulatory authority concerned may adopt the necessary decision.”

17.70

The biggest change compared to the previous version of Article 36 §§ 3 and 4 is that NRAs whose market is considered likely to be affected by the new infrastructures (and not the exemption itself ) must be consulted and agree to the exemption, rather than only those of Member States in which the infrastructure is located, as was the case before the amendment. This amendment may thus give rise to disagreements between different NRAs when a major gas infrastructure is politicized, such as for Nord Stream 2. The consequence of a lack of consensus among NRAs remains the same: ACER will be charged with deciding on the exemption.

840

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

The text is unclear as to who is to decide which markets are ‘ likely to be affected’ by the new infrastructure. Article 36, paragraph 3, first and second sentences seem to indicate that it is the NRA to which the exemption request was submitted that consults other NRAs and, therefore, that it is also in charge of assessing which markets are likely to be affected. However, once again, this may give rise to disputes between NRAs, most notably if the ‘lead NRA’ refuses to consult another NRA that considers that its market is affected. Furthermore, a procedural point is not addressed by the amendments: should ACER be entrusted with the exemption decision pursuant to Article 36, § 4, third sentence, (a) if all consulted NRAs agree on an exemption but another NRA that wasn’t consulted considers that its market will ‘likely be affected’ and disagrees with the exemption? Although such cases could seem convoluted and unlikely to occur, they could arise in politically sensitive circumstances.1127

17.71

3.3.2 Exemption for prior completion (‘grandfather clause’) The second way an import gas pipeline can be exempted from most of the main requirements of the Gas Directive is by being completed before 23 May 2019 and being granted a derogation, for ‘objective reasons’ by a Member State. This derogation is provided for under Article 49a of the amended Gas Directive as follows: Article 49a of the amended Gas Directive “1. In respect of gas transmission lines between a Member State and a third country completed before 23 May 2019, the Member State where the first connection point of such a transmission line with a Member State’s network is located may decide to derogate from Articles 9, 10, 11 and 32 and Article 41(6), (8) and (10) for the sections of such gas transmission line located in its territory and territorial sea, for objective reasons such as to enable the recovery of the investment made or for reasons of security of supply, provided that the derogation would not be detrimental to competition on or the effective functioning of the internal market in natural gas, or to security of supply in the Union.

1127 In the case of Nord Stream 2, the German NRA – that received the exemption request submitted by Nord Stream 2 AG – has accepted to include the Polish NRA (PGNiG) in the procedure examining whether to grant Nord Stream  2 the exemption. See the announcement by S&P Global: https://www.spglobal. com/platts/en/market-insights/latest-news/natural-gas/031920-polands-pgnig-joins-procedure-on-nordstream-2-legal-exemption-request

841

17.72

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell



The derogation shall be limited in time up to 20 years based on objective justification, renewable if justified and may be subject to conditions which contribute to the achievement of the above conditions. Such derogations shall not apply to transmission lines between a Member State and a third country which has the obligation to transpose this Directive and which effectively implements this Directive in its legal order under an agreement concluded with the Union.

2. Where the transmission line concerned is located in the territory of more than one Member State, the Member State in the territory of which the first connection point with the Member States’ network is located shall decide whether to grant a derogation for that transmission line after consulting all the Member States concerned.

Upon request by the Member States concerned, the Commission may decide to act as an observer in the consultation between the Member State in the territory of which the first connection point is located and the third country concerning the consistent application of this Directive in the territory and territorial sea of the Member State where the first interconnection point is located, including the granting of derogations for such transmission lines.

3. Decisions pursuant to paragraphs  1 and 2 shall be adopted by 24 May 2020. Member States shall notify any such decisions to the Commission and shall publish them.”

17.73

This Article establishes a type of ‘grandfather clause’. Previously completed import gas pipelines can be exempted – for a limited, but substantial and renewable period of time – from unbundling rules, third-party access and regulated tariffs if there is an ‘objective reason’ to do so and if such exemption is not contrary to the objectives of Directive 2019/692 (i.e., competition, security of supply and the good functioning of the internal market). As per the third sentence of the first paragraph of this Article, this derogation cannot be applied to pipelines to and from the EU and countries that are Members of the EEA or of the Energy Community, since these countries already have to comply with the Gas Directive and it would be illogical to suddenly allow them not to comply with it in the future.

17.74

Besides reasons relating to ‘security of supply’ and the ‘recovery of an investment’, neither the text of Article 49a, nor the Recitals provide any clear guidelines as to what should be viewed as an ‘objective reason’. The list is presumably not exhaustive, given the use of the words “such as”. 842

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

Recital 4 states that these derogations have been established in order to “take ac‑ count of the lack of specific Union rules applicable to Gas transmission lines to and from third countries before the date of entry into force of [Directive 2019/692]”. This would seem to give some credence to the notion that, so long as the applicability of the Gas Directive to a pre-existing pipeline causes a detriment of some significance to the latter, such detriment could be considered as an ‘objective reason’ to grant a derogation. However, such an interpretation would entail that a great number of existing pipelines could potentially qualify for a derogation.

17.75

It is also noteworthy that one of the two reasons cited as a valid ‘objective reason’, relates to ‘security of supply’. This logically means that, where the applicability of the Gas Directive to existing import gas pipelines would threaten either (i) the delivery of gas to the EU or (ii) the diversity thereof, a derogation can be granted. This is a wide criterion, which could theoretically apply in basically all cases.1128

17.76

Given the vagueness of the boundaries limiting the use of Article  49a, it is noteworthy that the only automatic Commission involvement takes the form of a notification by the Member State granting the exemption. Moreover, the Member State concerned takes this decision alone and must only consult other Member States whose territory is traversed by the pipeline. Lastly, it seems that the Commission can only rely on the infringement procedure as a remedy if it believes that Article 49a was misapplied. When one considers the degree of involvement and control granted to the Commission in the context of the empowerment procedure, the comparison between Article 49a and 49b becomes rather striking. Similarly, (i) the loose criteria with respect to the granting of a derogation, (ii) the relative absence of required cooperation between Member States, (iii) the low level of involvement of the Commission in the derogation procedure, and (iv) the possibility for (in theory) infinite renewals of this derogation, contrast strongly with the rigorous criteria and procedure laid down under Article 36, the only provision applicable to future import gas pipelines.

17.77

The wording of this derogation regarding the ‘completion status’ of an import gas pipeline is also unhelpfully vague as to whether pipelines currently under construction can benefit from Article 49a. In particular, given the new material scope of the Gas Directive, one must consider which part of the pipeline must be “completed before 23 May 2019” for this derogation to be applicable: is it the part on which the Gas Directive now applies, or rather the entirety of

17.78

1128 Accord: Arthur. D. Little, op. cit., spec. p. 7. See their report: https://www.adlittle.com/sites/default/files/ reports/adl_nord_stream_gas_directive.pdf

843

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

the pipeline? Although some authors seem to consider that “completed” should obviously mean “entirely completed”,1129 others, including the German Parliament, argued that, on the contrary, the circumstances of each individual case should be taken into account to determine whether a particular pipeline was ‘completed’.1130 This question can – and most likely, will – have significant consequences on import gas pipelines under construction at the time of adoption of Directive 2019/692 including, of course, Nord Stream 2.1131

4. 17.79

Consequences in practice

This section analyses the practical consequences of the adoption of Directive 2019/692 on import gas pipelines to and from various third countries (section 4.1) and the possible compliance paths for those pipelines whose legal regime has been – or will be –, in fact, affected because of it (section 4.2).

4.1 Pipelines will be affected according to their entry point in the EU 17.80

Although neither Directive 2019/692 nor the Gas Directive differentiate between third countries, the actual effect of the Gas Directive’s extended scope will vary depending on each third country’s proximity to the EU’s legal framework for energy.

17.81

In particular, countries that are members of the EEA and of the Energy Community have already been under the obligation to implement (slightly modified versions of ) the Gas Directive and Regulation (and the Network Codes) into their 1129 See K. Yafimava, op. cit. spec. p. 5, footnote 32. 1130 See the “Recommendation and report of the Committee on Economic and Monetary Affairs (9th Committee) on the federal government’s draft law” – Printed matter 19/13443, 19/14285, 19/14495 No. 2 – Draft law amending the Energy Economics Act transposing Directive (EU) 2019/692 of the European Parliament and the Council on common rules for the internal gas market, German Bundestag publication, 6 November 2019, http://dipbt.bundestag.de/dip21/btd/19/148/1914878.pdf. Academics analysing this statement by the Parliament did not suggest that the Parliament’s interpretation is without merit. See S. Pirani, J. Sharples, K. Yafimava, V. Yermakow, “Implications of the Russia-Ukraine gas transit deal for alternative pipeline routes and the Ukrainian and European markets”, Oxford Institute for Energy Studies, March 2020, spec. pp. 5 and 6. 1131 On May 15, 2020, the German NRA (the Bundesnetzagentur) has rejected the application of Nord Stream 2 AG for derogation from the Gas Directive and Regulation’s regime for the section of the Nord Stream 2 pipeline located in the German territory, on the grounds that it was not completed before 23 May 2019. According to the ruling, the responsible ruling chamber of the Bundesnetzagentur understands the term “com‑ pletion” in a constructional and technical sense rather than in an economical or financial sense. The press release can be found at https://www.bundesnetzagentur.de/SharedDocs/Pressemitteilungen/EN/2020 /20200515_NordStream2.html. The decision itself can be found at https://www.bundesnetzagentur.de/ DE/Service-Funktionen/Beschlusskammern/1_GZ/BK7-GZ/2020/BK7-20-0004/BK7-20-0004_Beschluss_EN_download.pdf ?__blob=publicationFile&v=3

844

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

national laws for years. For the Energy Community, the version of the Gas Directive to be implemented has explicitly broadened the scope of the definition of ‘interconnector’ to include pipelines between Contracting Parties.1132 The same holds true with EEA Member States.1133 Therefore, pipelines between a non-EU country and a Member State already qualified as an ‘interconnector’ prior to the amendment of when the said third country is a member of either the Energy Community or the EEA.1134 Furthermore, the implementation reports by the Energy Community Secretariat confirm that most members of the Energy Community are, in substance, compliant with the Gas Directive’s requirements.1135 Therefore, any import gas pipeline arriving in the EU by – or departing from the EU to – (i) Albania, (ii) Bosnia and Herzegovina, (iii) Georgia, (iv) Kosovo, (v) Lichtenstein,1136 (vi) Moldova, (vii) Montenegro, (viii) North Macedonia, (ix) Norway, (x) Serbia, and (xi) Ukraine, would have been subject to the requirements of the Gas Directive prior to the adoption of Directive 2019/692 and will therefore, in practice, likely not be affected at all by its adoption.

17.82

Considering the gas transmission network to and from the EU at the time of writing,1137 import gas pipelines entering the EU from Russia, Belarus, Morocco, Algeria, Tunisia, Libya, Israel and Turkey – where the Gas Directive does not apply – could be affected by its extended scope.1138 After the end of the Brexit transition period, pipelines from the UK could also be affected, depending on the agreement reached between the UK and the EU.

17.83

Among those concerned pipelines, pursuant to Article 49b (1), all pipelines covered by an IGA relating to their operation would still be covered by this IGA

17.84

1132 See the Energy Community’s Legal Framework 2018, 4th edition (including the Gas Directive with the adaptations made by Ministerial Council Decision 2011/02/MC-EnC), p. 171, www.energy-community. org › dam › ECS_LF4_2018 1133 This result from the so-called horizontal adaptation of EU concepts. See Annex IV to the EFTA treaty that states: “When the acts referred to in this Annex contain notions or refer to procedures which are specific to the Community legal order (& ) Protocol 1 on horizontal adaptations shall apply” and Protocol 1 that provides: “Whenever the acts referred to contain references to nationals of EC Member States, the references shall for the purposes of the Agreement be understood to be also references to nationals of EFTA States.” 1134 Except for Iceland and, with respect to unbundling rules, Lichtenstein. 1135 See the Secretariat’s implementation report, or the individual summaries on gas for Contracting Parties, https://www.energy-community.org/implementation/IR2019.html and https://www.energy-community. org/implementation/IR2019.html, respectively. 1136 Except for Article 9 (on unbundling requirements) which does not apply in Liechtenstein. 1137 See the map published by ENTSO-G and Gas Infrastructure Europe for 2018 2019, https://www.gie.eu/ download/maps/2019/ENTSOG_GIE_SYSDEV_2018-2019_1600x1200_FULL_062_clean_website.pdf 1138 However, in practice this will be the case mostly (or only) for pipelines coming to the EU by sea. Indeed, gas coming by land, in practice, flows through one EU and one non-EU pipeline interconnected at the border.

845

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

until its expiry or its renewal, extension, amendment, or the conclusion of a new IGA. Although, as explained above, it is unclear whether IGAs that are silent on some of the requirements of the Gas Directive should fully exclude the applicability of such requirements, the existence of an IGA will surely lessen the impact of the adoption of Directive 2019/692.

4.2 Compliance path – and practical consequences – for affected pipelines 17.85

There are several ways that a pipeline covered by the extension of the Gas Directive (and not – or only partly – covered by an IGA) can become compliant with it.

17.86

The first, most obvious and least disruptive way is, of course, for the import gas pipeline operating company (the “IPOC”) to apply for – and obtain – one of the two possible exemptions available.

17.87

For IPOCs of completed pipelines (such as Green Stream, MEDGAZ or Nord Stream I), this would mean applying for a derogation under Article 49a. They would need, however, to justify their request by providing an ‘objective reason’, a criterion that (i) is likely to be interpreted differently and with different levels of severity by different Member States, and that (ii) will depend on the circumstances specific to each pipeline.

17.88

For IPOCs of pipelines that are being planned (such as EastMed1139), since Article 49a is not available, this means applying for an exemption under Article 36 and convincing the NRA(s) of the Member State(s) concerned that their project meets the amended criteria.

17.89

Lastly, for IPOCs of pipelines that are far advanced in their completion but not fully completed, a situation that seems to only apply to Nord Stream 2 AG, both options – or neither – are arguably applicable.

17.90

If submitting an exemption or derogation request is not contemplated – or if such request is denied – the IPOC has to consider how to comply with the requirements of the Gas Directive and, in particular, if there is any practical way to apply it only to the portion of the pipeline that is subject to it. Below, this question is analysed only with respect to the key requirements of the Gas Di1139 See, for a brief introduction to the EastMed project: https://www.nsenergybusiness.com/projects/easternmediterranean-pipeline-project/

846

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

rective: third-party access rules, transparency and regulated tariffs requirements and unbundling rules.

4.2.1 Unbundling rules Unbundling requirements are likely to be those that would entail the most disruption, as they would require changes to any existing pipeline’s ownership or operatorship.

17.91

For any future interconnector pipeline to be constructed, the section of that interconnector subject to the Gas Directive (the “Relevant Section”) would have to be owned by an entity totally independent from the producers or suppliers of the gas going through the interconnector.

17.92

However, for existing pipelines, IPOCs would qualify, at the date of entry into force of Directive  2019/692, as vertically integrated undertakings (otherwise unbundling rules would already be complied with). Therefore, Member States could choose not to impose ownership unbundling but, instead, opt for an ISO or ITO unbundling model (see section 3.2.2). Hence, ownership of the Relevant Section would not necessarily have to change hands but would inevitably have to be operated in an independent fashion.

17.93

In such cases (and hence only for existing pipelines), the following scenarios are available for ensuring compliance with unbundling requirements (if necessary):

17.94

–

the ownership (or operatorship) of the entire interconnector could be transferred to an (existing or newly created) transportation subsidiary of one of the gas exporters/importers involved in the business of production or supply; or

–

the operatorship could be transferred to one of the existing TSOs of the Member States (or to a newly established TSO) in respect of the Relevant Section only, while maintaining the ownership of the entire pipeline and operatorship with respect to the rest of the pipelines with its original owner (both pipeline operators would then have to coordinate to ensure the smooth operation of the entire pipeline).

The choice between these will therefore depend on commercial and practical considerations which will depend on the circumstances specific to each pipeline. Of course, these scenarios would result in the creation of a new TSO (or, respec847

17.95

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

tively, in an additional task for an existing TSO). This would thus lead to the start of the certification procedure1140 of this new TSO by the NRA under Articles 10 and 111141 of the Gas Directive (or respectively, to the reassessment1142 of the said certification under the same Articles).

17.96

One important factor to take into account is therefore whether the new TSO under certification (or the existing TSO under reassessment) would be allowed to operate the interconnector. At least in the latter case, there are precedents of TSOs under reassessment operating interconnectors, notably in Poland with respect to the Yamal pipeline,1143 and arguments could be made for letting a TSO under certification operating in the same way.

17.97

However, in both cases, this would ultimately be a decision for the NRA.

4.2.2 Third Party Access requirements 17.98

The practical impact of third-party access requirements will depend on whether the third country also has similar third party access requirements on the entry (respectively exit) of the interconnector.

17.99

If this is not the case, i.e., for most import gas pipelines,1144 the IPOC still can – and must – offer capacity in at least the Relevant Section of the pipeline to any third party that would be interested. However, since no third party has the right to input (respectively withdraw) gas on the other side of the pipeline, no third party would be able to accept such an offer. The practical consequences of the amendments would therefore be close to none.

17.100

However, should any third party have (or be granted) the right to input (respectively withdraw) gas, then third-party access requirements would oblige the newly appointed TSO of the interconnector (or of the Relevant Section thereof ) to accept this transit. This would have an actual impact only if (i) there 1140 See Article 10 (1) of the Gas Directive. 1141 This certification is meant to ensure that the certification of foreign TSOs “will not put at risk the security of energy supply of the member state or the Community” (Article 11 (5)(b)). It is noteworthy that, where the NRA has issued a certification under the form of an alternative unbundling model (but that is not an ISO nor an ITO) and which is supposed to guarantee ‘more effective independence’, the Commission has the power to decide on certification (see the gas Regulation, Art. 33). In other circumstances, the NRA has the final say in on this certification issue, without prejudice the Commission’s right to adopt an opinion 1142 See Article 10 (3) of the Gas Directive. 1143 See K. Yafimava, op. cit. spec. p. 4. 1144 For example, the biggest exporters outside the EEA, Russia, Libya and Algeria, all have state monopolies on gas exports.

848

Chapter 17 Import Gas Pipelines under the Third Energy Package William-James Kettlewell

would be more than one supplier in an exporting market connected to the EU, (ii) these actors want access to spare capacity of an interconnector, and (iii) these actors are technically able and authorised under local law to make such exports.

4.2.3 Regulated Tariffs Under Article 41 (6), (a) and (c), the newly appointed TSO would be required: –

to have transmission tariffs approved by the NRA and publicly available; and

–

to have the method for determining the terms and conditions for access to its interconnector – including the procedures for the allocation of capacity and congestion management (if any) – approved by the NRA and publicly available.

17.101

As indicated for third-party access, given that, for the vast majority of import gas pipelines, there is only one potential gas shipper, the practical consequences of this information being public would be close to none.

17.102

Furthermore, these tariffs and methods would arguably only be required for the Relevant Section of the interconnector and, therefore, the majority of the actual cost of transmission would not have to be public. The price at the import entry point would thus presumably consist of the gas contract price until the Relevant Section, plus the (small addition relating to the) regulated and publicly available transport tariff for the said section.

17.103

Therefore, the requirements of the Gas Directive regarding regulated tariff would thus seem to pose little difficulty for IPOCs of import gas pipelines, even those with ‘non-competitive’ transmission costs.

17.104

849

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Appendix 1

DIRECTIVE (EU) 2019/944 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (recast) (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 194(2) thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Having regard to the opinion of the Committee of the Regions (2), Acting in accordance with the ordinary legislative procedure (3), Whereas: (1)

A number of amendments are to be made to Directive 2009/72/EC of the European Parliament and of the Council (4). In the interests of clarity, that Directive should be recast. 851

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(2)

The internal market for electricity, which has been progressively implemented throughout the Union since 1999, aims, by organising competitive electricity markets across country borders, to deliver real choice for all Union final customers, be they citizens or businesses, new business opportunities, competitive prices, efficient investment signals and higher standards of service, and to contribute to security of supply and sustainability.

(3)

Directive 2003/54/EC of the European Parliament and of the Council (5) and Directive 2009/72/EC have made a significant contribution towards the creation of the internal market for electricity. However, the Union’s energy system is in the middle of a profound change. The common goal of decarbonising the energy system creates new opportunities and challenges for market participants. At the same time, technological developments allow for new forms of consumer participation and crossborder cooperation. There is a need to adapt the Union market rules to a new market reality.

(4)

The Commission Communication of 25  February 2015, entitled ‘A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy’, sets out a vision of an Energy Union with citizens at its core, where citizens take ownership of the energy transition, benefit from new technologies to reduce their bills and participate actively in the market, and where vulnerable consumers are protected.

(5)

The Commission Communication of 15 July 2015, entitled ‘Delivering a New Deal for Energy Consumers’, put forward the Commission’s vision for a retail market that better serves energy consumers, including by better linking wholesale and retail markets. By taking advantage of new technology, new and innovative energy service companies should enable all consumers to fully participate in the energy transition, managing their consumption to deliver energy efficient solutions which save them money and contribute to the overall reduction of energy consumption.

(6)

The Commission Communication of 15 July 2015, entitled ‘Launching the public consultation process on a new energy market design’, highlighted that the move away from generation in large central generating installations towards decentralised production of electricity from renewable sources and towards decarbonised markets requires adapting the current rules of electricity trading and changing the existing market roles.  The 852

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Communication underlined the need to organise electricity markets in a more flexible manner and to fully integrate all market players – including producers of renewable energy, new energy service providers, energy storage and flexible demand. It is equally important for the Union to invest urgently in interconnection at Union level for the transfer of energy through high-voltage electricity transmission systems. (7)

With a view to creating an internal market for electricity, Member States should foster the integration of their national markets and cooperation among system operators at Union and regional level, and incorporate isolated systems that form electricity islands that persist in the Union.

(8)

In addition to addressing new challenges, this Directive seeks to address the persisting obstacles to the completion of the internal market for electricity. The refined regulatory framework needs to contribute to overcoming the current problems of fragmented national markets which are still often determined by a high degree of regulatory interventions. Such interventions have led to obstacles to the supply of electricity on equal terms as well as higher costs in comparison to solutions based on crossborder cooperation and market-based principles.

(9)

The Union would most effectively meet its renewable energy targets through the creation of a market framework that rewards flexibility and innovation. A well-functioning electricity market design is the key factor enabling the uptake of renewable energy.

(10) Consumers have an essential role to play in achieving the flexibility necessary to adapt the electricity system to variable and distributed renewable electricity generation. Technological progress in grid management and the generation of renewable electricity has unlocked many opportunities for consumers. Healthy competition in retail markets is essential to ensuring the market-driven deployment of innovative new services that address consumers’ changing needs and abilities, while increasing system flexibility. However, the lack of real-time or near real-time information provided to consumers about their energy consumption has prevented them from being active participants in the energy market and the energy transition. By empowering consumers and providing them with the tools to participate more in the energy market, including participating in new ways, it is intended that citizens in the Union benefit from the internal market for electricity and that the Union’s renewable energy targets are attained. 853

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(11) The freedoms which the Treaty on the Functioning of the European Union (TFEU) guarantees the citizens of the Union — inter alia, the free movement of goods, the freedom of establishment and the freedom to provide services — are achievable only in a fully open market, which enables all consumers freely to choose their suppliers and all suppliers freely to deliver to their customers. (12) Promoting fair competition and easy access for different suppliers is of the utmost importance for Member States in order to allow consumers to take full advantage of the opportunities of a liberalised internal market for electricity. Nonetheless, it is possible that market failure persists in peripheral small electricity systems and in systems not connected with other Member States, where electricity prices fail to provide the right signal to drive investment, and therefore requires specific solutions to ensure an adequate level of security of supply. (13) In order to foster competition and ensure the supply of electricity at the most competitive price, Member States and regulatory authorities should facilitate cross-border access for new suppliers of electricity from different energy sources as well as for new providers of generation, energy storage and demand response. (14) Member States should ensure that no undue barriers exist within the internal market for electricity as regards market entry, operation and exit. At the same time, it should be clarified that that obligation is without prejudice to the competence that Member States retain in relation to third countries. That clarification should not be interpreted as enabling a Member State to exercise the exclusive competence of the Union. It should also be clarified that market participants from third countries who operate within the internal market are to comply with the applicable Union and national law in the same manner as other market participants. (15) Market rules allow for the entry and exit of producers and suppliers based on their assessment of the economic and financial viability of their operations. That principle is not incompatible with the possibility for Member States to impose on undertakings operating in the electricity sector public service obligations in the general economic interest in accordance with the Treaties, in particular with Article 106 TFEU, and with this Directive and Regulation (EU) 2019/943 of the European Parliament and of the Council (6). 854

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(16) The European Council of 23 and 24 October 2014 stated in its conclusions that the Commission, supported by the Member States, is to take urgent measures in order to ensure the achievement of a minimum target of 10 % of existing electricity interconnections, as a matter of urgency, and no later than 2020, at least for Member States which have not yet attained a minimum level of integration in the internal energy market, which are the Baltic States, Portugal and Spain, and for Member States which constitute their main point of access to the internal energy market. It further stated that the Commission is also to report regularly to the European Council with the objective of arriving at a 15 % target by 2030. (17) Sufficient physical interconnection with neighbouring countries is important to enable Member States and neighbouring countries to benefit from the positive effects of the internal market as stressed in the Commission Communication of 23 November 2017, entitled ‘Communication on strengthening Europe’s energy networks’, and as reflected in Member States’ integrated national energy and climate plans under Regulation (EU) 2018/1999 of the European Parliament and of the Council (7). (18) Electricity markets differ from other markets such as those for natural gas, for example because they involve the trading in a commodity which cannot currently be easily stored and which is produced using a large variety of generating installations, including through distributed generation. This has been reflected in the different approaches to the regulatory treatment of interconnectors in the electricity and gas sectors. The integration of electricity markets requires a high degree of cooperation among system operators, market participants and regulatory authorities, in particular where electricity is traded via market coupling. (19) Securing common rules for a true internal market and a broad supply of electricity that is accessible to all should also be one of the main goals of this Directive. To that end, undistorted market prices would provide incentives for cross-border interconnections and for investments in new electricity generation while leading to price convergence in the long term. (20) Market prices should give the right incentives for the development of the network and for investing in new electricity generation. (21) Different types of market organisation exist in the internal market for electricity. The measures that Member States could take in order to ensure 855

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

a level playing field should be based on overriding requirements of general interest. The Commission should be consulted on the compatibility of those measures with the TFEU and with other Union law. (22) Member States should maintain wide discretion to impose public service obligations on electricity undertakings in pursuing objectives of general economic interest. Member States should ensure that household customers and, where Member States consider it to be appropriate, small enterprises, enjoy the right to be supplied with electricity of a specified quality at clearly comparable, transparent and competitive prices.  Nevertheless, public service obligations in the form of price setting for the supply of electricity constitute a fundamentally distortive measure that often leads to the accumulation of tariff deficits, the limitation of consumer choice, poorer incentives for energy saving and energy efficiency investments, lower standards of service, lower levels of consumer engagement and satisfaction, and the restriction of competition, as well as to there being fewer innovative products and services on the market. Consequently, Member  States should apply other policy tools, in particular targeted social policy measures, to safeguard the affordability of electricity supply to their citizens. Public interventions in price setting for the supply of electricity should be carried out only as public service obligations and should be subject to specific conditions set out in this Directive. A fully liberalised, well-functioning retail electricity market would stimulate price and nonprice competition among existing suppliers and provide incentives to new market entrants, thereby improving consumer choice and satisfaction. (23) Public service obligations in the form of price setting for the supply of electricity should be used without overriding the principle of open markets in clearly defined circumstances and beneficiaries and should be limited in duration. Such circumstances might occur for example where supply is severely constrained, causing significantly higher electricity prices than normal, or in the event of a market failure where interventions by regulatory authorities and competition authorities have proven to be ineffective. This would disproportionately affect households and, in particular, vulnerable customers who typically expend a higher share of their disposable income on energy bills compared to high-income consumers. In order to mitigate the distortive effects of public service obligations in price setting for the supply of electricity, Member States applying such interventions should put in place additional measures, including measures to prevent distortions of price setting in the wholesale market. Mem856

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ber States should ensure that all beneficiaries of regulated prices are able to benefit fully from the offers available on the competitive market when they choose to do so. To that end, those beneficiaries need to be equipped with smart metering systems and have access to dynamic electricity price contracts. In addition, they should be directly and regularly informed of the offers and savings available on the competitive market, in particular relating to dynamic electricity price contracts, and should be provided with assistance to respond to and benefit from market-based offers. (24) The entitlement of beneficiaries of regulated prices to receive individual smart meters without extra costs should not prevent Member States from modifying the functionality of smart metering systems where smart meter infrastructure does not exist because the cost-benefit assessment regarding the deployment of smart metering systems was negative. (25) Public interventions in price setting for the supply of electricity should not lead to direct cross-subsidisation between different categories of customer. According to that principle, price systems must not explicitly make certain categories of customer bear the cost of price interventions that affect other categories of customer. For example, a price system, in which the cost is borne by suppliers or other operators in a non-discriminatory manner, should not be considered to be direct cross-subsidisation. (26) In order to ensure the maintenance of the high standards of public service in the Union, all measures taken by Member States to achieve the objective of this Directive should be regularly notified to the Commission. The Commission should regularly publish a report analysing measures taken at national level to achieve public service objectives and comparing their effectiveness, with a view to making recommendations as regards measures to be taken at national level to achieve high standards of public service. (27) It should be possible for Member States to appoint a supplier of last resort. That supplier might be the sales division of a vertically integrated undertaking which also performs distribution functions, provided that it meets the unbundling requirements of this Directive. (28) It should be possible for measures implemented by Member States for the purpose of achieving the objectives of social and economic cohesion to include, in particular, the provision of adequate economic incentives, us857

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ing, where appropriate, any existing national and Union tools. Such tools may include liability mechanisms to guarantee the necessary investment. (29) To the extent that measures taken by Member States to fulfil public service obligations constitute State aid under Article 107(1) TFEU, there is an obligation under Article 108(3) TFEU to notify them to the Commission. (30) Cross–sectorial law provides a strong basis for consumer protection for a wide range of energy services that exist, and is likely to evolve. Nevertheless, certain basic contractual rights of customers should be clearly established. (31) Plain and unambiguous information should be made available to consumers concerning their rights in relation to the energy sector. The Commission has established, after consulting relevant stakeholders, including Member States, regulatory authorities, consumer organisations and electricity undertakings, an energy consumer checklist that provides consumers with practical information about their rights. That checklist should be kept up to date, provided to all consumers and made publicly available. (32) Several factors impede consumers from accessing, understanding and acting upon the various sources of market information available to them. It follows that the comparability of offers should be improved and barriers to switching should be minimised to the greatest practicable extent without unduly limiting consumer choice. (33) Smaller customers are still being charged a broad range of fees directly or indirectly as a result of switching supplier. Such fees make it more difficult to identify the best product or service and diminish the immediate financial advantage of switching. Although removing such fees might limit consumer choice by eliminating products based on rewarding consumer loyalty, restricting their use further should improve consumer welfare, consumer engagement and competition in the market. (34) Shorter switching times are likely to encourage consumers to search for better energy deals and switch supplier. With the increased deployment of information technology, by the year 2026, the technical switching process of registering a new supplier in a metering point at the market operator should typically be possible to complete within 24  hours on 858

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

any working day. Notwithstanding other steps in the switching process that are to be completed before the technical process of switching is initiated, ensuring that it is possible by that date for the technical process of switching to take place within 24 hours would minimise switching times, helping to increase consumer engagement and retail competition. In any event, the total duration of the switching process should not exceed three weeks from the date of the customer’s request. (35) Independent comparison tools, including websites, are an effective means for smaller customers to assess the merits of the different energy offers that are available on the market. Such tools lower search costs as customers no longer need to collect information from individual suppliers and service providers. Such tools can provide the right balance between the need for information to be clear and concise and the need for it to be complete and comprehensive. They should aim to include the broadest possible range of available offers, and to cover the market as completely as is feasible so as to give the customer a representative overview. It is crucial that smaller customers have access to at least one comparison tool and that the information given on such tools be trustworthy, impartial and transparent. To that end, Member States could provide for a comparison tool that is operated by a national authority or a private company. (36) Greater consumer protection is guaranteed by the availability of effective, independent out-of-court dispute settlement mechanisms for all consumers, such as an energy ombudsman, a consumer body or a regulatory authority. Member States should introduce speedy and effective complaint-handling procedures. (37) All consumers should be able to benefit from directly participating in the market, in particular by adjusting their consumption according to market signals and, in return, benefiting from lower electricity prices or other incentive payments.  The benefits of such active participation are likely to increase over time, as the awareness of otherwise passive consumers is raised about their possibilities as active customers and as the information on the possibilities of active participation becomes more accessible and better known. Consumers should have the possibility of participating in all forms of demand response. They should therefore have the possibility of benefiting from the full deployment of smart metering systems and, where such deployment has been negatively assessed, of choosing to have a smart metering system and a dynamic electricity price contract. This 859

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

should allow them to adjust their consumption according to real-time price signals that reflect the value and cost of electricity or transportation in different time periods, while Member States should ensure the reasonable exposure of consumers to wholesale price risk. Consumers should be informed about benefits and potential price risks of dynamic electricity price contracts. Member States should also ensure that those consumers who choose not to actively engage in the market are not penalised. Instead, their ability to make informed decisions on the options available to them should be facilitated in the manner that is the most suited to domestic market conditions. (38) In order to maximise the benefits and effectiveness of dynamic electricity pricing, Member States should assess the potential for making more dynamic or reducing the share of fixed components in electricity bills, and where such potential exists, should take appropriate action. (39) All customer groups (industrial, commercial and households) should have access to the electricity markets to trade their flexibility and selfgenerated electricity. Customers should be allowed to make full use of the advantages of aggregation of production and supply over larger regions and benefit from cross-border competition. Market participants engaged in aggregation are likely to play an important role as intermediaries between customer groups and the market. Member States should be free to choose the appropriate implementation model and approach to governance for independent aggregation while respecting the general principles set out in this Directive. Such a model or approach could include choosing market-based or regulatory principles which provide solutions to comply with this Directive, such as models where imbalances are settled or where perimeter corrections are introduced. The chosen model should contain transparent and fair rules to allow independent aggregators to fulfil their roles as intermediaries and to ensure that the final customer adequately benefits from their activities. Products should be defined on all electricity markets, including ancillary services and capacity markets, so as to encourage the participation of demand response. (40) The Commission Communication of 20  July 2016, entitled ‘European Strategy for Low-Emission Mobility’, stresses the need for the decarbonisation of the transport sector and the reduction of its emissions, especially in urban areas, and highlights the important role that electromobility can play in contributing to those objectives. Moreover, the deployment 860

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

of electromobility constitutes an important element of the energy transition. Market rules set out in this Directive should therefore contribute to creating favourable conditions for electric vehicles of all kinds. In particular, they should ensure the effective deployment of publicly accessible and private recharging points for electric vehicles and should ensure the efficient integration of vehicle charging into the system. (41) Demand response is pivotal to enabling the smart charging of electric vehicles and thereby enabling the efficient integration of electric vehicles into the electricity grid which will be crucial for the process of decarbonising transport. (42) Consumers should be able to consume, to store and to sell self-generated electricity to the market and to participate in all electricity markets by providing flexibility to the system, for instance through energy storage, such as storage using electric vehicles, through demand response or through energy efficiency schemes. New technology developments will facilitate those activities in the future. However, legal and commercial barriers exist, including, for example, disproportionate fees for internally consumed electricity, obligations to feed self-generated electricity to the energy system, and administrative burdens, such as the need for consumers who self-generate electricity and sell it to the system to comply with the requirements for suppliers, etc. Such obstacles, which prevent consumers from self-generating electricity and from consuming, storing or selling self-generated electricity to the market, should be removed while it should be ensured that such consumers contribute adequately to system costs. Member States should be able to have different provisions in their national law with respect to taxes and levies for individual and jointlyacting active customers, as well as for household and other final customers. (43) Distributed energy technologies and consumer empowerment have made community energy an effective and cost-efficient way to meet citizens’ needs and expectations regarding energy sources, services and local participation. Community energy offers an inclusive option for all consumers to have a direct stake in producing, consuming or sharing energy. Community energy initiatives focus primarily on providing affordable energy of a specific kind, such as renewable energy, for their members or shareholders rather than on prioritising profit-making like a traditional electricity undertaking. By directly engaging with consumers, commu861

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

nity energy initiatives demonstrate their potential to facilitate the uptake of new technologies and consumption patterns, including smart distribution grids and demand response, in an integrated manner. Community energy can also advance energy efficiency at household level and help fight energy poverty through reduced consumption and lower supply tariffs. Community energy also enables certain groups of household customers to participate in the electricity markets, who otherwise might not have been able to do so. Where they have been successfully operated such initiatives have delivered economic, social and environmental benefits to the community that go beyond the mere benefits derived from the provision of energy services. This Directive aims to recognise certain categories of citizen energy initiatives at the Union level as ‘citizen energy communities’, in order to provide them with an enabling framework, fair treatment, a level playing field and a well-defined catalogue of rights and obligations. Household customers should be allowed to participate voluntarily in community energy initiatives as well as to leave them, without losing access to the network operated by the community energy initiative or losing their rights as consumers.  Access to a citizen energy community’s network should be granted on fair and cost-reflective terms. (44) Membership of citizen energy communities should be open to all categories of entities. However, the decision-making powers within a citizen energy community should be limited to those members or shareholders that are not engaged in large-scale commercial activity and for which the energy sector does not constitute a primary area of economic activity. Citizen energy communities are considered to be a category of cooperation of citizens or local actors that should be subject to recognition and protection under Union law. The provisions on citizen energy communities do not preclude the existence of other citizen initiatives such as those stemming from private law agreements. It should therefore be possible for Member States to provide that citizen energy communities take any form of entity, for example that of an association, a cooperative, a partnership, a non-profit organisation or a small or medium-sized enterprise, provided that the entity is entitled to exercise rights and be subject to obligations in its own name. (45) The provisions of this Directive on citizen energy communities provide for rights and obligations, which are possible to deduce from other, existing rights and obligations, such as the freedom of contract, the right to switch supplier, the responsibilities of the distribution system operator, the rules on network charges, and balancing obligations. 862

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(46) Citizen energy communities constitute a new type of entity due to their membership structure, governance requirements and purpose. They should be allowed to operate on the market on a level playing field without distorting competition, and the rights and obligations applicable to the other electricity undertakings on the market should be applied to citizen energy communities in a non-discriminatory and proportionate manner. Those rights and obligations should apply in accordance with the roles that they undertake, such as the roles of final customers, producers, suppliers or distribution system operators. Citizen energy communities should not face regulatory restrictions when they apply existing or future information and communications technologies to share electricity produced using generation assets within the citizen energy community among their members or shareholders based on market principles, for example by offsetting the energy component of members or shareholders using the generation available within the community, even over the public network, provided that both metering points belong to the community. Electricity sharing enables members or shareholders to be supplied with electricity from generating installations within the community without being in direct physical proximity to the generating installation and without being behind a single metering point. Where electricity is shared, the sharing should not affect the collection of network charges, tariffs and levies related to electricity flows. The sharing should be facilitated in accordance with the obligations and correct timeframes for balancing, metering and settlement. The provisions of this Directive on citizen energy communities do not interfere with the competence of Member States to design and implement policies relating to the energy sector in relation to network charges and tariffs, or to design and implement energy policy financing systems and cost sharing, provided that those policies are nondiscriminatory and lawful. (47) This Directive empowers Member States to allow citizen energy communities to become distribution system operators either under the general regime or as ‘closed distribution system operators’. Once a citizen energy community is granted the status of a distribution system operator, it should be treated as, and be subject to the same obligations as, a distribution system operator. The provisions of this Directive on citizen energy communities only clarify aspects of distribution system operation that are likely to be relevant for citizen energy communities, while other aspects of distribution system operation apply in accordance with the rules relating to distribution system operators. 863

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(48) Electricity bills are an important means by which final customers are informed. As well as providing data on consumption and costs, they can also convey other information that helps consumers to compare their current arrangements with other offers.  However, disputes over bills are a very common source of consumer complaints, a factor which contributes to the persistently low levels of consumer satisfaction and engagement in the electricity sector. It is therefore necessary to make bills clearer and easier to understand, as well as to ensure that bills and billing information prominently display a limited number of important items of information that are necessary to enable consumers to regulate their energy consumption, compare offers and switch supplier. Other items of information should be made available to final customers in, with or signposted to within their bills. Such items should be displayed on the bill or be in a separate document attached to the bill, or the bill should contain a reference to where the final customer is easily able to find the information on a website, through a mobile application or by other means. (49) The regular provision of accurate billing information based on actual electricity consumption, facilitated by smart metering, is important for helping customers to control their electricity consumption and costs. Nevertheless, customers, in particular household customers, should have access to flexible arrangements for the actual payment of their bills. For example, it could be possible for customers to be provided with frequent billing information, while paying only on a quarterly basis, or there could be products for which the customer pays the same amount every month, independently of the actual consumption. (50) The provisions on billing in Directive 2012/27/EU of the European Parliament and of the Council (8) should be updated, streamlined and moved to this Directive, where they fit more coherently. (51) Member States should encourage the modernisation of distribution networks, such as through the introduction of smart grids, which should be built in a way that encourages decentralised generation and energy efficiency. (52) Engaging consumers requires appropriate incentives and technologies such as smart metering systems. Smart metering systems empower consumers because they allow them to receive accurate and near real-time feedback on their energy consumption or generation, and to manage their 864

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

consumption better, to participate in and reap benefits from demand response programmes and other services, and to lower their electricity bills. Smart metering systems also enable distribution system operators to have better visibility of their networks, and as a consequence, to reduce their operation and maintenance costs and to pass those savings on to the consumers in the form of lower distribution tariffs. (53) When it comes to deciding at national level on the deployment of smart metering systems, it should be possible to base this decision on an economic assessment. That economic assessment should take into account the long-term benefits of the deployment of smart metering systems to consumers and the whole value chain, such as better network management, more precise planning and identification of network losses. Should that assessment conclude that the introduction of such metering systems is cost-effective only for consumers with a certain amount of electricity consumption, Member States should be able to take that conclusion into account when proceeding with the deployment of smart metering systems. However, such assessments should be reviewed regularly in response to significant changes in the underlying assumptions, or at least every four years, given the fast pace of technological developments. (54) Member States that do not systematically deploy smart metering systems should allow consumers to benefit from the installation of a smart meter, upon request and under fair and reasonable conditions, and should provide them with all the relevant information. Where consumers do not have smart meters, they should be entitled to meters that fulfil the minimum requirements necessary to provide them with the billing information specified in this Directive. (55) In order to assist consumers’ active participation in the electricity markets, the smart metering systems to be deployed by Member States in their territory should be interoperable, and should be able to provide data required for consumer energy management systems. To that end, Member States should have due regard to the use of relevant available standards, including standards that enable interoperability on the level of the data model and the application layer, to best practices and the importance of the development of data exchange, to future and innovative energy services, to the deployment of smart grids and to the internal market for electricity. Moreover, the smart metering systems that are deployed should not represent a barrier to switching supplier, and should be equipped 865

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

with fit-for-purpose functionalities that allow consumers to have near real-time access to their consumption data, to modulate their energy consumption and, to the extent that the supporting infrastructure permits, to offer their flexibility to the network and to electricity undertakings and to be rewarded for it, and to obtain savings in their electricity bills. (56) A key aspect of supplying customers is providing access to objective and transparent consumption data. Thus, consumers should have access to their consumption data and to the prices and service costs associated with their consumption, so that they can invite competitors to make offers based on that information. Consumers should also have the right to be properly informed about their energy consumption. Prepayments should not place a disproportionate disadvantage on their users, while different payment systems should be non-discriminatory. The information on energy costs that is provided to consumers sufficiently frequently would create incentives for energy savings because it would give customers direct feedback on the effects of investment in energy efficiency and on changes of behaviour. In that respect, the full implementation of Directive 2012/27/EU will help consumers to reduce their energy costs. (57) Currently, different models for the management of data have been developed or are under development in Member States following deployment of smart metering systems. Independently of the data management model it is important that Member States put in place transparent rules under which data can be accessed under non-discriminatory conditions and ensure the highest level of cybersecurity and data protection as well as the impartiality of the entities which process data. (58) Member States should take the necessary measures to protect vulnerable and energy poor customers in the context of the internal market for electricity. Such measures may differ according to the particular circumstances in the Member States in question and may include social or energy policy measures relating to the payment of electricity bills, to investment in the energy efficiency of residential buildings, or to consumer protection such as disconnection safeguards. Where universal service is also provided to small enterprises, measures to ensure universal service provision may differ according to whether those measures are aimed at household customers or small enterprises.

866

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(59) Energy services are fundamental to safeguarding the well-being of the Union citizens. Adequate warmth, cooling and lighting, and energy to power appliances are essential services to guarantee a decent standard of living and citizens’ health. Furthermore, access to those energy services enables Union citizens to fulfil their potential and enhances social inclusion. Energy poor households are unable to afford those energy services due to a combination of low income, high expenditure on energy and poor energy efficiency of their homes. Member States should collect the right information to monitor the number of households in energy poverty. Accurate measurement should assist Member States in identifying households that are affected by energy poverty in order to provide targeted support. The Commission should actively support the implementation of the provisions of this Directive on energy poverty by facilitating the sharing of good practices between Member States. (60) Where Member States are affected by energy poverty and have not developed national action plans or other appropriate frameworks to tackle energy poverty, they should do so, with the aim of decreasing the number of energy poor customers. Low income, high expenditure on energy, and poor energy efficiency of homes are relevant factors in establishing criteria for the measurement of energy poverty. In any event, Member States should ensure the necessary supply for vulnerable and energy poor customers. In doing so, an integrated approach, such as in the framework of energy and social policy, could be used and measures could include social policies or energy efficiency improvements for housing. This Directive should enhance national policies in favour of vulnerable and energy poor customers. (61) Distribution system operators have to cost-efficiently integrate new electricity generation, especially installations generating electricity from renewable sources, and new loads such as loads that result from heat pumps and electric vehicles.  For that purpose, distribution system operators should be enabled, and provided with incentives, to use services from distributed energy resources such as demand response and energy storage, based on market procedures, in order to efficiently operate their networks and to avoid costly network expansions.  Member States should put in place appropriate measures such as national network codes and market rules, and should provide incentives to distribution system operators through network tariffs which do not create obstacles to flexibility or to the improvement of energy efficiency in the grid. Member States should 867

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

also introduce network development plans for distribution systems in order to support the integration of installations generating electricity from renewable energy sources, facilitate the development of energy storage facilities and the electrification of the transport sector, and provide to system users adequate information regarding the anticipated expansions or upgrades of the network, as currently such procedures do not exist in the majority of Member States. (62) System operators should not own, develop, manage or operate energy storage facilities.  In the new electricity market design, energy storage services should be market-based and competitive. Consequently, crosssubsidisation between energy storage and the regulated functions of distribution or transmission should be avoided. Such restrictions on the ownership of energy storage facilities is to prevent distortion of competition, to eliminate the risk of discrimination, to ensure fair access to energy storage services to all market participants and to foster the effective and efficient use of energy storage facilities, beyond the operation of the distribution or transmission system. That requirement should be interpreted and applied in accordance with the rights and principles established under the Charter of Fundamental Rights of the European Union (the ‘Charter’), in particular the freedom to conduct a business and the right to property guaranteed by Articles 16 and 17 of the Charter. (63) Where energy storage facilities are fully integrated network components that are not used for balancing or for congestion management, they should not, subject to approval by the regulatory authority, be required to comply with the same strict limitations for system operators to own, develop, manage or operate those facilities. Such fully integrated network components can include energy storage facilities such as capacitors or flywheels which provide important services for network security and reliability, and contribute to the synchronisation of different parts of the system. (64) With the objective of progress towards a completely decarbonised electricity sector that is fully free of emissions, it is necessary to make progress in seasonal energy storage. Such energy storage is an element that would serve as a tool for the operation of the electricity system to allow for short-term and seasonal adjustment, in order to cope with variability in the production of electricity from renewable sources and the associated contingencies in those horizons.

868

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(65) Non-discriminatory access to the distribution network determines downstream access to customers at retail level. To create a level playing field at retail level, the activities of distribution system operators should therefore be monitored so that distribution system operators are prevented from taking advantage of their vertical integration as regards their competitive position on the market, in particular in relation to household customers and small non-household customers. (66) Where a closed distribution system is used to ensure the optimal efficiency of an integrated supply that requires specific operational standards, or where a closed distribution system is maintained primarily for the use of the owner of the system, it should be possible to exempt the distribution system operator from obligations which would constitute an unnecessary administrative burden because of the particular nature of the relationship between the distribution system operator and the system users. Industrial sites, commercial sites or shared services sites such as train station buildings, airports, hospitals, large camping sites with integrated facilities, and chemical industry sites can include closed distribution systems because of the specialised nature of their operations. (67) Without the effective separation of networks from activities of generation and supply (effective unbundling), there is an inherent risk of discrimination not only in the operation of the network but also in the incentives for vertically integrated undertakings to invest adequately in their networks. (68) Only the removal of the incentive for vertically integrated undertakings to discriminate against competitors as regards network access and investment can ensure effective unbundling. Ownership unbundling, which implies the appointment of the network owner as the system operator and its independence from any supply and production interests, is clearly an effective and stable way to solve the inherent conflict of interests and to ensure security of supply. For that reason, the European Parliament, in its resolution of 10  July  2007 on prospects for the internal gas and electricity market, referred to ownership unbundling at transmission level as the most effective tool for promoting investments in infrastructure in a non-discriminatory way, fair access to the network for new entrants and transparency in the market. Under ownership unbundling, Member States should therefore be required to ensure that the same person or persons are not entitled to exercise control over a producer or supplier and, 869

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

at the same time, exercise control or any right over a transmission system operator or transmission system. Conversely, control over a transmission system operator or transmission system should preclude the possibility of exercising control or any right over a producer or supplier. Within those limits, a producer or supplier should be able to have a minority shareholding in a transmission system operator or transmission system. (69) Any system for unbundling should be effective in removing any conflict of interests between producers, suppliers and transmission system operators, in order to create incentives for the necessary investments and to guarantee the access of new market entrants under a transparent and efficient regulatory regime and should not create an overly onerous regulatory regime for regulatory authorities. (70) Since ownership unbundling requires the restructuring of undertakings in some instances, Member States that decide to implement ownership unbundling should be granted additional time to apply the relevant provisions. In view of the vertical links between the electricity and gas sectors, the unbundling provisions should apply across the two sectors. (71) Under ownership unbundling, to ensure full independence of network operation from supply and generation interests, and to prevent exchanges of any confidential information, the same person should not be a member of the managing board of both a transmission system operator or a transmission system and an undertaking performing any of the functions of generation or supply. For the same reason, the same person should not be entitled to appoint members of the managing boards of a transmission system operator or a transmission system and to exercise control or any right over a producer or supplier. (72) The setting up of a system operator or transmission operator that is independent from supply and generation interests should enable a vertically integrated undertaking to maintain its ownership of network assets while ensuring the effective separation of interests, provided that such independent system operator or independent transmission operator performs all of the functions of a system operator, and provided that detailed regulation and extensive regulatory control mechanisms are put in place. (73) Where, on 3  September 2009, an undertaking owning a transmission system was part of a vertically integrated undertaking, Member States 870

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

should be given a choice between ownership unbundling and setting up a system operator or transmission operator which is independent from supply and generation interests. (74) To preserve fully the interests of the shareholders of vertically integrated undertakings, Member States should have the choice of implementing ownership unbundling either by direct divestments or by splitting the shares of the integrated undertaking into shares of a network undertaking and shares of a remaining supply and generation undertaking, provided that the requirements resulting from ownership unbundling are complied with. (75) The full effectiveness of the independent system operator or independent transmission operator solutions should be ensured by way of specific additional rules. The rules on independent transmission operators provide an appropriate regulatory framework to guarantee fair competition, sufficient investment, access for new market entrants and integration of electricity markets.  Effective unbundling through provisions on independent transmission operators should be based on a pillar of organisational measures and measures relating to the governance of transmission system operators and on a pillar of measures relating to investment, to connecting new production capacities to the network and to market integration through regional cooperation. The independence of transmission operators should also be ensured, inter alia, through certain ‘cooling-off ’ periods during which no management or other relevant activity giving access to the same information that could have been obtained in a managerial position is exercised in the vertically integrated undertaking. (76) Member States have the right to opt for full ownership unbundling in their territory. Where a Member State has exercised that right, an undertaking does not have the right to set up an independent system operator or an independent transmission operator. Furthermore, an undertaking performing any of the functions of generation or supply cannot directly or indirectly exercise control or any right over a transmission system operator from a Member State that has opted for full ownership unbundling. (77) The implementation of effective unbundling should respect the principle of non-discrimination between the public and private sectors. To that end, the same person should not be able to exercise control or any right, in violation of the rules of ownership unbundling or the independent sys871

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

tem operator option, solely or jointly, over the composition, voting or decisions of both the bodies of the transmission system operators or the transmission systems and the bodies of the producer or supplier. With regard to ownership unbundling and the independent system operator solution, provided that the relevant Member State is able to demonstrate that the relevant requirements have been complied with, two separate public bodies should be able to control generation and supply activities, on the one hand, and transmission activities, on the other. (78) Fully effective separation of network activities from supply and generation activities should apply throughout the Union to both Union and non-Union undertakings. To ensure that network activities and supply and generation activities throughout the Union remain independent from each other, regulatory authorities should be empowered to refuse to certify transmission system operators that do not comply with the unbundling rules. To ensure the consistent application of those rules across the Union, the regulatory authorities should take the utmost account of Commission opinions when they take decisions on certification. In addition, to ensure respect for the international obligations of the Union, and to ensure solidarity and energy security within the Union, the Commission should have the right to give an opinion on certification in relation to a transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries. (79) Authorisation procedures should not lead to administrative burdens that are disproportionate to the size and potential impact of the producers. Unduly lengthy authorisation procedures may constitute a barrier to access for new market entrants. (80) Regulatory authorities need to be able to take decisions in relation to all relevant regulatory issues if the internal market for electricity is to function properly, and need to be fully independent from any other public or private interests. This precludes neither judicial review nor parliamentary supervision in accordance with the constitutional laws of the Member States. In addition, the approval of the budget of the regulatory authority by the national legislator does not constitute an obstacle to budgetary autonomy. The provisions relating to the autonomy in the implementation of the allocated budget of the regulatory authority should be implemented in the framework defined by national budgetary law and rules. While contributing to the regulatory authorities’ independence from any po872

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

litical or economic interest through an appropriate rotation scheme, it should be possible for Member States to take due account of the availability of human resources and of the size of the board. (81) Regulatory authorities should be able to fix or approve tariffs, or the methodologies underlying the calculation of the tariffs, on the basis of a proposal by the transmission system operator or distribution system operators, or on the basis of a proposal agreed between those operators and the users of the network. In carrying out those tasks, regulatory authorities should ensure that transmission and distribution tariffs are nondiscriminatory and cost-reflective, and should take account of the longterm, marginal, avoided network costs from distributed generation and demand-side management measures. (82) Regulatory authorities should fix or approve individual grid tariffs for transmission and distribution networks or a methodology, or both. In either case, the independence of the regulatory authorities in setting network tariffs pursuant to point (b)(ii) of Article 57(4) should be preserved. (83) Regulatory authorities should ensure that transmission system operators and distribution system operators take appropriate measures to make their network more resilient and flexible. To that end, they should monitor those operators’ performance based on indicators such as the capability of transmission system operators and distribution system operators to operate lines under dynamic line rating, the development of remote monitoring and real-time control of substations, the reduction of grid losses and the frequency and duration of power interruptions. (84) Regulatory authorities should have the power to issue binding decisions in relation to electricity undertakings and to impose effective, proportionate and dissuasive penalties on electricity undertakings which fail to comply with their obligations or to propose that a competent court impose such penalties on them. To that end, regulatory authorities should be able to request relevant information from electricity undertakings, to conduct appropriate and sufficient investigations, and to settle disputes. Regulatory authorities should also be granted the power to decide, irrespective of the application of competition rules, on appropriate measures that ensure customer benefits through the promotion of effective competition necessary for the proper functioning of the internal market for electricity. 873

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(85) Regulatory authorities should coordinate among themselves when carrying out their tasks to ensure that the European Network of Transmission System Operators for Electricity (the ‘ENTSO for Electricity’), the European Entity for Distribution System Operators (the ‘EU DSO entity’), and the regional coordination centres comply with their obligations under the regulatory framework of the internal market for electricity, and with decisions of the Agency for the Cooperation of Energy Regulators (ACER), established by Regulation (EU) 2019/942 of the European Parliament and of the Council (9). With the expansion of the operational responsibilities of the ENTSO for Electricity, the EU DSO entity and the regional coordination centres, it is necessary to enhance oversight with regard to entities that operate at Union or regional level. Regulatory authorities should consult each other and should coordinate their oversight to jointly identify situations where the ENTSO for Electricity, the EU DSO entity or the regional coordination centres do not comply with their respective obligations. (86) Regulatory authorities should also be granted the power to contribute to ensuring high standards of universal and public service obligations in accordance with market opening, to the protection of vulnerable customers, and to the full effectiveness of consumer protection measures. Those provisions should be without prejudice to both the Commission’s powers concerning the application of competition rules, including the examination of mergers with a Union dimension, and the rules on the internal market, such as the rules on the free movement of capital. The independent body to which a party affected by the decision of a regulatory authority has a right to appeal could be a court or another tribunal that is empowered to conduct a judicial review. (87) This Directive and Directive 2009/73/EC of the European Parliament and of the Council (10) do not deprive Member States of the possibility of establishing and issuing their national energy policy. It follows that, depending on a Member State’s constitutional arrangements, it might be within Member State’s competence to determine the policy framework in which the regulatory authorities are to operate, for example concerning security of supply. However, the general energy policy guidelines issued by the Member  State should not impinge on the independence or autonomy of the regulatory authorities.

874

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(88) Regulation (EU) 2019/943 provides for the Commission to adopt guidelines or network codes to achieve the necessary degree of harmonisation. Such guidelines and network codes constitute binding implementing measures and, with regard to certain provisions of this Directive, are a useful tool that can be adapted quickly where necessary. (89) Member States and the Contracting Parties to the Treaty establishing the Energy Community  (11) should cooperate closely on all matters concerning the development of an integrated electricity trading region and should take no measures that endanger the further integration of electricity markets or the security of supply of Member States and Contracting Parties. (90) This Directive should be read together with Regulation (EU) 2019/943, which lays down the key principles of the new market design for electricity which will enable better rewards for flexibility, provide adequate price signals, and ensure the development of functioning integrated short-term markets.  Regulation (EU)  2019/943 also sets out new rules in various areas, including on capacity mechanisms and cooperation between transmission system operators. (91) This Directive respects the fundamental rights and observes the principles recognised in the Charter. Accordingly, this Directive should be interpreted and applied in accordance with those rights and principles, in particular the right to the protection of personal data guaranteed by Article 8 of the Charter. It is essential that any processing of personal data under this Directive comply with Regulation (EU) 2016/679 of the European Parliament and of the Council (12). (92) In order to provide the minimum degree of harmonisation required to achieve the aim of this Directive, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission to establish rules on the extent of the duties of the regulatory authorities to cooperate with each other and with ACER and setting out the details of the procedure for compliance with the network codes and guidelines. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (13). In particular, to ensure equal participation in the 875

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of the delegated acts. (93) In order to ensure uniform conditions for the implementation of this Directive, implementing powers should be conferred on the Commission to determine interoperability requirements and non-discriminatory and transparent procedures for access to metering data, consumption data, as well as data required for customer switching, demand response and other services. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (14). (94) Where a derogation applies pursuant to Article 66(3), (4) or (5), that derogation should also cover any provisions in this Directive that are ancillary to, or that require the prior application of, any of the provisions from which it has been granted a derogation. (95) The provisions of Directive 2012/27/EU related to electricity markets, such as the provisions on metering and billing of electricity, demand response, priority dispatch and grid access for high-efficiency cogeneration, are updated by the provisions laid down in this Directive and in Regulation (EU) 2019/943. Directive 2012/27/EU should therefore be amended accordingly. (96) Since the objective of this Directive, namely the creation of a fully operational internal market for electricity, cannot be sufficiently achieved by the Member States but can rather, by the reasons of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on the European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (97) In accordance with the Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory documents (15), Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and 876

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified. (98) The obligation to transpose this Directive into national law should be confined to those provisions which represent a substantive amendment as compared to Directive 2009/72/EC. The obligation to transpose the provisions which are unchanged arises under Directive 2009/72/EC. (99) This Directive should be without prejudice to the obligations of the Member States relating to the time-limits for the transposition into national law and the date of application of Directive 2009/72/EC set out in Annex III, HAVE ADOPTED THIS DIRECTIVE: CHAPTER I SUBJECT MATTER AND DEFINITIONS Article 1 Subject matter This Directive establishes common rules for the generation, transmission, distribution, energy storage and supply of electricity, together with consumer protection provisions, with a view to creating truly integrated competitive, consumercentred, flexible, fair and transparent electricity markets in the Union. Using the advantages of an integrated market, this Directive aims to ensure affordable, transparent energy prices and costs for consumers, a high degree of security of supply and a smooth transition towards a sustainable low-carbon energy system. It lays down key rules relating to the organisation and functioning of the Union electricity sector, in particular rules on consumer empowerment and protection, on open access to the integrated market, on third-party access to transmission and distribution infrastructure, unbundling requirements, and rules on the independence of regulatory authorities in the Member States.

877

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

This Directive also sets out modes for Member States, regulatory authorities and transmission system operators to cooperate towards the creation of a fully interconnected internal market for electricity that increases the integration of electricity from renewable sources, free competition and security of supply. Article 2 Definitions For the purposes of this Directive, the following definitions apply: (1)

‘customer’ means a wholesale or final customer of electricity;

(2)

‘wholesale customer’ means a natural or legal person who purchases electricity for the purpose of resale inside or outside the system where that person is established;

(3)

‘final customer’ means a customer who purchases electricity for own use;

(4)

‘household customer’ means a customer who purchases electricity for the customer’s own household consumption, excluding commercial or professional activities;

(5)

‘non-household customer’ means a natural or legal person who purchases electricity that is not for own household use, including producers, industrial customers, small and medium-sized enterprises, businesses and wholesale customers;

(6)

‘microenterprise’ means an enterprise which employs fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 2 million;

(7)

‘small enterprise’ means an enterprise which employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total does not exceed EUR 10 million;

(8)

‘active customer’ means a final customer, or a group of jointly acting final customers, who consumes or stores electricity generated within its premises located within confined boundaries or, where permitted by a 878

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Member State, within other premises, or who sells self-generated electricity or participates in flexibility or energy efficiency schemes, provided that those activities do not constitute its primary commercial or professional activity; (9)

‘electricity markets’ means markets for electricity, including over-thecounter markets and electricity exchanges, markets for the trading of energy, capacity, balancing and ancillary services in all timeframes, including forward, day-ahead and intraday markets;

(10) ‘market participant’ means market participant as defined in point (25) of Article 2 of Regulation (EU) 2019/943; (11) ‘citizen energy community’ means a legal entity that: (a)

is based on voluntary and open participation and is effectively controlled by members or shareholders that are natural persons, local authorities, including municipalities, or small enterprises;

(b)

has for its primary purpose to provide environmental, economic or social community benefits to its members or shareholders or to the local areas where it operates rather than to generate financial profits; and

(c)

may engage in generation, including from renewable sources, distribution, supply, consumption, aggregation, energy storage, energy efficiency services or charging services for electric vehicles or provide other energy services to its members or shareholders;

(12) ‘supply’ means the sale, including the resale, of electricity to customers; (13) ‘electricity supply contract’ means a contract for the supply of electricity, but does not include electricity derivatives; (14) ‘electricity derivative’ means a financial instrument specified in point (5), (6) or (7) of Section C of Annex I to Directive 2014/65/EU of the European Parliament and of the Council (16), where that instrument relates to electricity;

879

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(15) ‘dynamic electricity price contract’ means an electricity supply contract between a supplier and a final customer that reflects the price variation in the spot markets, including in the day-ahead and intraday markets, at intervals at least equal to the market settlement frequency; (16) ‘contract termination fee’ means a charge or penalty imposed on customers by suppliers or market participants engaged in aggregation, for terminating an electricity supply or service contract; (17) ‘switching-related fee’ means a charge or penalty for changing suppliers or market participants engaged in aggregation, including contract termination fees, that is directly or indirectly imposed on customers by suppliers, market participants engaged in aggregation or system operators; (18) ‘aggregation’ means a function performed by a natural or legal person who combines multiple customer loads or generated electricity for sale, purchase or auction in any electricity market; (19) ‘independent aggregator’ means a market participant engaged in aggregation who is not affiliated to the customer’s supplier; (20) ‘demand response’ means the change of electricity load by final customers from their normal or current consumption patterns in response to market signals, including in response to time-variable electricity prices or incentive payments, or in response to the acceptance of the final customer’s bid to sell demand reduction or increase at a price in an organised market as defined in point (4) of Article 2 of Commission Implementing Regulation (EU) No 1348/2014 (17), whether alone or through aggregation; (21) ‘billing information’ means the information provided on a final customer’s bill, apart from a request for payment; (22) ‘conventional meter’ means an analogue or electronic meter with no capability to both transmit and receive data; (23) ‘smart metering system’ means an electronic system that is capable of measuring electricity fed into the grid or electricity consumed from the grid, providing more information than a conventional meter, and that is capable of transmitting and receiving data for information, monitoring and control purposes, using a form of electronic communication; 880

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(24) ‘interoperability’ means, in the context of smart metering, the ability of two or more energy or communication networks, systems, devices, applications or components to interwork to exchange and use information in order to perform required functions; (25) ‘imbalance settlement period’ means imbalance settlement period as defined in point (15) of Article 2 of Regulation (EU) 2019/943; (26) ‘near real-time’ means, in the context of smart metering, a short time period, usually down to seconds or up to the imbalance settlement period in the national market; (27) ‘best available techniques’ means, in the context of data protection and security in a smart metering environment, the most effective, advanced and practically suitable techniques for providing, in principle, the basis for complying with the Union data protection and security rules; (28) ‘distribution’ means the transport of electricity on high-voltage, mediumvoltage and low-voltage distribution systems with a view to its delivery to customers, but does not include supply; (29) ‘distribution system operator’ means a natural or legal person who is responsible for operating, ensuring the maintenance of and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity; (30) ‘energy efficiency’ means the ratio of output of performance, service, goods or energy, to input of energy; (31) ‘energy from renewable sources’ or ‘renewable energy’ means energy from renewable non-fossil sources, namely wind, solar (solar thermal and solar photovoltaic) and geothermal energy, ambient energy, tide, wave and other ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, and biogas; (32) ‘distributed generation’ means generating installations connected to the distribution system;

881

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(33) ‘recharging point’ means an interface that is capable of charging one electric vehicle at a time or exchanging the battery of one electric vehicle at a time; (34) ‘transmission’ means the transport of electricity on the extra high-voltage and high-voltage interconnected system with a view to its delivery to final customers or to distributors, but does not include supply; (35) ‘transmission system operator’ means a natural or legal person who is responsible for operating, ensuring the maintenance of and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity; (36) ‘system user’ means a natural or legal person who supplies to, or is supplied by, a transmission system or a distribution system; (37) ‘generation’ means the production of electricity; (38) ‘producer’ means a natural or legal person who generates electricity; (39) ‘interconnector’ means equipment used to link electricity systems; (40) ‘interconnected system’ means a number of transmission and distribution systems linked together by means of one or more interconnectors; (41) ‘direct line’ means either an electricity line linking an isolated generation site with an isolated customer or an electricity line linking a producer and an electricity supply undertaking to supply directly their own premises, subsidiaries and customers; (42) ‘small isolated system’ means any system that had consumption of less than 3 000 GWh in the year 1996, where less than 5 % of annual consumption is obtained through interconnection with other systems; (43) ‘small connected system’ means any system that had consumption of less than 3 000 GWh in the year 1996, where more than 5 % of annual consumption is obtained through interconnection with other systems;

882

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(44) ‘congestion’ means congestion as defined in point (4) of Article 2 of Regulation (EU) 2019/943; (45) ‘balancing’ means balancing as defined in point (10) of Article 2 of Regulation (EU) 2019/943; (46) ‘balancing energy’ means balancing energy as defined in point (11) of Article 2 of Regulation (EU) 2019/943; (47) ‘balance responsible party’ means balance responsible party as defined in point (14) of Article 2 of Regulation (EU) 2019/943; (48) ‘ancillary service’ means a service necessary for the operation of a transmission or distribution system, including balancing and non-frequency ancillary services, but not including congestion management; (49) ‘non-frequency ancillary service’ means a service used by a transmission system operator or distribution system operator for steady state voltage control, fast reactive current injections, inertia for local grid stability, short-circuit current, black start capability and island operation capability; (50) ‘regional coordination centre’ means a regional coordination centre established pursuant to Article 35 of Regulation (EU) 2019/943; (51) ‘fully integrated network components’ means network components that are integrated in the transmission or distribution system, including storage facilities, and that are used for the sole purpose of ensuring a secure and reliable operation of the transmission or distribution system, and not for balancing or congestion management; (52) ‘integrated electricity undertaking’ means a vertically integrated undertaking or a horizontally integrated undertaking; (53) ‘vertically integrated undertaking’ means an electricity undertaking or a group of electricity undertakings where the same person or the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings performs at least one of the functions of transmission or distribution, and at least one of the functions of generation or supply;

883

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(54) ‘horizontally integrated undertaking’ means an electricity undertaking performing at least one of the functions of generation for sale, or transmission, or distribution, or supply, and another non-electricity activity; (55) ‘related undertaking’ means affiliated undertakings as defined in point (12) of Article 2 of Directive 2013/34/EU of the European Parliament and of the Council (18), and undertakings which belong to the same shareholders; (56) ‘control’ means rights, contracts or other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by: (a)

ownership or the right to use all or part of the assets of an undertaking;

(b)

rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking;

(57) ‘electricity undertaking’ means a natural or legal person who carries out at least one of the following functions: generation, transmission, distribution, aggregation, demand response, energy storage, supply or purchase of electricity, and who is responsible for the commercial, technical or maintenance tasks related to those functions, but does not include final customers; (58) ‘security’ means both security of supply and provision of electricity, and technical safety; (59) ‘energy storage’ means, in the electricity system, deferring the final use of electricity to a moment later than when it was generated, or the conversion of electrical energy into a form of energy which can be stored, the storing of such energy, and the subsequent reconversion of such energy into electrical energy or use as another energy carrier; (60) ‘energy storage facility’ means, in the electricity system, a facility where energy storage occurs.

884

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

CHAPTER II GENERAL RULES FOR THE ORGANISATION OF THE ELECTRICITY SECTOR Article 3 Competitive, consumer-centred, flexible and non-discriminatory electricity markets 1.    Member States shall ensure that their national law does not unduly hamper cross-border trade in electricity, consumer participation, including through demand response, investments into, in particular, variable and flexible energy generation, energy storage, or the deployment of electromobility or new interconnectors between Member States, and shall ensure that electricity prices reflect actual demand and supply. 2.    When developing new interconnectors, Member States shall take into account the electricity interconnection targets set out in point (1) of Article 4(d) of Regulation (EU) 2018/1999. 3.    Member States shall ensure that no undue barriers exist within the internal market for electricity as regards market entry, operation and exit, without prejudice to the competence that Member States retain in relation to third countries. 4.    Member States shall ensure a level playing field where electricity undertakings are subject to transparent, proportionate and non-discriminatory rules, fees and treatment, in particular with respect to balancing responsibility, access to wholesale markets, access to data, switching processes and billing regimes and, where applicable, licensing. 5.    Member States shall ensure that market participants from third countries, when operating within the internal market for electricity, comply with applicable Union and national law, including that concerning environmental and safety policy.

885

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 4 Free choice of supplier Member States shall ensure that all customers are free to purchase electricity from the supplier of their choice and shall ensure that all customers are free to have more than one electricity supply contract at the same time, provided that the required connection and metering points are established. Article 5 Market-based supply prices 1.    Suppliers shall be free to determine the price at which they supply electricity to customers. Member States shall take appropriate actions to ensure effective competition between suppliers. 2.    Member States shall ensure the protection of energy poor and vulnerable household customers pursuant to Articles 28 and 29 by social policy or by other means than public interventions in the price setting for the supply of electricity. 3.    By way of derogation from paragraphs 1 and 2, Member States may apply public interventions in the price setting for the supply of electricity to energy poor or vulnerable household customers. Such public interventions shall be subject to the conditions set out in paragraphs 4 and 5. 4.    Public interventions in the price setting for the supply of electricity shall: (a)

pursue a general economic interest and not go beyond what is necessary to achieve that general economic interest;

(b)

be clearly defined, transparent, non-discriminatory and verifiable;

(c)

guarantee equal access for Union electricity undertakings to customers;

(d)

be limited in time and proportionate as regards their beneficiaries;

886

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(e)

not result in additional costs for market participants in a discriminatory way.

5.    Any Member State applying public interventions in the price setting for the supply of electricity in accordance with paragraph 3 of this Article shall also comply with point (d) of Article 3(3) and with Article 24 of Regulation  (EU)  2018/1999, regardless of whether the Member State concerned has a significant number of households in energy poverty. 6.    For the purpose of a transition period to establish effective competition for electricity supply contracts between suppliers, and to achieve fully effective market-based retail pricing of electricity in accordance with paragraph 1, Member States may apply public interventions in the price setting for the supply of electricity to household customers and to microenterprises that do not benefit from public interventions pursuant to paragraph 3. 7.    Public interventions pursuant to paragraph 6 shall comply with the criteria set out in paragraph 4 and shall: (a)

be accompanied by a set of measures to achieve effective competition and a methodology for assessing progress with regard to those measures;

(b)

be set using a methodology that ensures non-discriminatory treatment of suppliers;

(c)

be set at a price that is above cost, at a level where effective price competition can occur;

(d)

be designed to minimise any negative impact on the wholesale electricity market;

(e)

ensure that all beneficiaries of such public interventions have the possibility to choose competitive market offers and are directly informed at least every quarter of the availability of offers and savings in the competitive market, in particular of dynamic electricity price contracts, and shall ensure that they are provided with assistance to switch to a market-based offer;

887

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(f )

(g)

ensure that, pursuant to Articles 19 and 21, all beneficiaries of such public interventions are entitled to, and are offered to, have smart meters installed at no extra upfront cost to the customer, are directly informed of the possibility of installing smart meters and are provided with necessary assistance; not lead to direct cross-subsidisation between customers supplied at free market prices and those supplied at regulated supply prices.

8.      Member States shall notify the measures taken in accordance with paragraphs 3 and 6 to the Commission within one month after their adoption and may apply them immediately. The notification shall be accompanied by an explanation of why other instruments were not sufficient to achieve the objective pursued, of how the requirements set out in paragraphs 4 and 7 are fulfilled and of the effects of the notified measures on competition. The notification shall describe the scope of the beneficiaries, the duration of the measures and the number of household customers affected by the measures, and shall explain how the regulated prices have been determined. 9.   By 1 January 2022 and 1 January 2025, Member States shall submit reports to the Commission on the implementation of this Article, the necessity and proportionality of public interventions under this Article, and an assessment of the progress towards achieving effective competition between suppliers and the transition to market-based prices. Member States that apply regulated prices in accordance with paragraph 6 shall report on the compliance with the conditions set out in paragraph 7, including on compliance by suppliers that are required to apply such interventions, as well as on the impact of regulated prices on the finances of those suppliers. 10.   By 31 December 2025, the Commission shall review and submit a report to the European Parliament and to the Council on the implementation of this Article for the purpose of achieving market-based retail pricing of electricity, together with or followed by a legislative proposal, if appropriate. That legislative proposal may include an end date for regulated prices.

888

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 6 Third-party access 1.    Member States shall ensure the implementation of a system of third-party access to the transmission and distribution systems based on published tariffs, applicable to all customers and applied objectively and without discrimination between system users.  Member States shall ensure that those tariffs, or the methodologies underlying their calculation, are approved in accordance with Article 59 prior to their entry into force and that those tariffs, and the methodologies — where only methodologies are approved — are published prior to their entry into force. 2.    The transmission or distribution system operator may refuse access where it lacks the necessary capacity. Duly substantiated reasons shall be given for such refusal, in particular having regard to Article 9, and based on objective and technically and economically justified criteria. Member States or, where Member States have so provided, the regulatory authorities of those Member States, shall ensure that those criteria are consistently applied and that the system user who has been refused access can make use of a dispute settlement procedure. The regulatory authorities shall also ensure, where appropriate and when refusal of access takes place, that the transmission system operator or distribution system operator provides relevant information on measures that would be necessary to reinforce the network. Such information shall be provided in all cases when access for recharging points has been denied. The party requesting such information may be charged a reasonable fee reflecting the cost of providing such information. 3.    This Article shall also apply to citizen energy communities that manage distribution networks.

889

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 7 Direct lines 1.    Member States shall take the measures necessary to enable: (a)

all producers and electricity supply undertakings established within their territory to supply their own premises, subsidiaries and customers through a direct line, without being subject to disproportionate administrative procedures or costs;

(b)

all customers within their territory, individually or jointly, to be supplied through a direct line by producers and electricity supply undertakings.

2.    Member States shall lay down the criteria for the grant of authorisations for the construction of direct lines in their territory. Those criteria shall be objective and non-discriminatory. 3.    The possibility of supplying electricity through a direct line as referred to in paragraph 1 of this Article shall not affect the possibility of contracting electricity in accordance with Article 6. 4.    Member States may issue authorisations to construct a direct line, subject either to the refusal of system access on the basis, as appropriate, of Article 6 or to the opening of a dispute settlement procedure under Article 60. 5.    Member States may refuse to authorise a direct line if the granting of such an authorisation would obstruct the application of the provisions on public service obligations in Article 9. Duly substantiated reasons shall be given for such a refusal.

890

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 8 Authorisation procedure for new capacity 1.    For the construction of new generating capacity, Member States shall adopt an authorisation procedure, which shall be conducted in accordance with objective, transparent and non-discriminatory criteria. 2.    Member States shall lay down the criteria for the grant of authorisations for the construction of generating capacity in their territory. In determining appropriate criteria, Member States shall consider: (a)

the safety and security of the electricity system, installations and associated equipment;

(b)

the protection of public health and safety;

(c)

the protection of the environment;

(d)

land use and siting;

(e)

the use of public ground;

(f )

energy efficiency;

(g)

the nature of the primary sources;

(h)

the characteristics particular to the applicant, such as technical, economic and financial capabilities;

(i)

compliance with measures adopted pursuant to Article 9;

(j)

the contribution of generating capacity to meeting the overall Union target of at least a 32 % share of energy from renewable sources in the Union’s gross final consumption of energy in 2030 referred to in Article 3(1) of Directive (EU) 2018/2001 of the European Parliament and of the Council (19);

(k)

the contribution of generating capacity to reducing emissions; and

891

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(l)

the alternatives to the construction of new generating capacity, such as demand response solutions and energy storage.

3.    Member States shall ensure that specific, simplified and streamlined authorisation procedures exist for small decentralised and/or distributed generation, which take into account their limited size and potential impact.

Member States may set guidelines for that specific authorisation procedure. Regulatory authorities or other competent national authorities, including planning authorities, shall review those guidelines and may recommend amendments thereto.



Where Member States have established particular land use permit procedures applying to major new infrastructure projects in generation capacity, Member States shall, where appropriate, include the construction of new generation capacity within the scope of those procedures and shall implement them in a non-discriminatory manner and within an appropriate time frame.

4.    The authorisation procedures and criteria shall be made public. Applicants shall be informed of the reasons for any refusal to grant an authorisation. Those reasons shall be objective, non-discriminatory, well-founded and duly substantiated. Appeal procedures shall be made available to applicants. Article 9 Public service obligations 1.    Without prejudice to paragraph 2, Member States shall ensure, on the basis of their institutional organisation and with due regard to the principle of subsidiarity, that electricity undertakings operate in accordance with the principles of this Directive with a view to achieving a competitive, secure and environmentally sustainable market for electricity, and shall not discriminate between those undertakings as regards either rights or obligations.

892

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2.    Having full regard to the relevant provisions of the TFEU, in particular Article 106 thereof, Member States may impose on undertakings operating in the electricity sector, in the general economic interest, public service obligations which may relate to security, including the security of supply, regularity, quality and price of supplies and environmental protection, including energy efficiency, energy from renewable sources and climate protection. Such obligations shall be clearly defined, transparent, non-discriminatory and verifiable, and shall guarantee equality of access for electricity undertakings of the Union to national consumers. Public service obligations which concern the price setting for the supply of electricity shall comply with the requirements set out in Article 5 of this Directive. 3.    Where financial compensation, other forms of compensation and exclusive rights which a Member State grants for the fulfilment of the obligations set out in paragraph 2 of this Article or for the provision of universal service as set out in Article 27 are provided, this shall be done in a non-discriminatory and transparent way. 4.    Member States shall, upon implementation of this Directive, inform the Commission of all measures adopted to fulfil universal service and public service obligations, including consumer protection and environmental protection, and their possible effect on national and international competition, whether or not such measures require a derogation from this Directive. They shall subsequently inform the Commission every two years of any changes to those measures, whether or not they require a derogation from this Directive. 5.    Member States may decide not to apply Articles 6, 7 and 8 of this Directive insofar as their application would obstruct, in law or in fact, the performance of the obligations imposed on electricity undertakings in the general economic interest and insofar as the development of trade would not be affected to such an extent as would be contrary to the interests of the Union. The interests of the Union include, inter alia, competition with regard to customers in accordance with Article 106 TFEU and this Directive.

893

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

CHAPTER III CONSUMER EMPOWERMENT AND PROTECTION Article 10 Basic contractual rights 1.    Member States shall ensure that all final customers are entitled to have their electricity provided by a supplier, subject to the supplier’s agreement, regardless of the Member State in which the supplier is registered, provided that the supplier follows the applicable trading and balancing rules. In that regard, Member States shall take all measures necessary to ensure that administrative procedures do not discriminate against suppliers already registered in another Member State. 2.    Without prejudice to Union rules on consumer protection, in particular Directive  2011/83/EU of the European Parliament and of the Council  (20) and Council Directive  93/13/EEC  (21), Member States shall ensure that final customers have the rights provided for in paragraphs 3 to 12 of this Article. 3.    Final customers shall have the right to a contract with their supplier that specifies: (a)

the identity and address of the supplier;

(b)

the services provided, the service quality levels offered, as well as the time for the initial connection;

(c)

the types of maintenance service offered;

(d)

the means by which up-to-date information on all applicable tariffs, maintenance charges and bundled products or services may be obtained;

(e)

the duration of the contract, the conditions for renewal and termination of the contract and services, including products or services that are bundled with those services, and whether terminating the contract without charge is permitted; 894

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(f )

any compensation and the refund arrangements which apply if contracted service quality levels are not met, including inaccurate or delayed billing;

(g)

the method of initiating an out-of-court dispute settlement procedure in accordance with Article 26;

(h)

information relating to consumer rights, including information on complaint handling and all of the information referred to in this paragraph, that is clearly communicated on the bill or the electricity undertaking’s web site.



Conditions shall be fair and well known in advance. In any case, this information shall be provided prior to the conclusion or confirmation of the contract. Where contracts are concluded through intermediaries, the information relating to the matters set out in this paragraph shall also be provided prior to the conclusion of the contract.



Final customers shall be provided with a summary of the key contractual conditions in a prominent manner and in concise and simple language.

4.    Final customers shall be given adequate notice of any intention to modify contractual conditions and shall be informed about their right to terminate the contract when the notice is given. Suppliers shall notify their final customers, in a transparent and comprehensible manner, directly of any adjustment in the supply price and of the reasons and preconditions for the adjustment and its scope, at an appropriate time no later than two weeks, or no later than one month in the case of household customers, before the adjustment comes into effect. Member States shall ensure that final customers are free to terminate contracts if they do not accept the new contractual conditions or adjustments in the supply price notified to them by their supplier. 5.    Suppliers shall provide final customers with transparent information on applicable prices and tariffs and on standard terms and conditions, in respect of access to and use of electricity services. 6.    Suppliers shall offer final customers a wide choice of payment methods. Such payment methods shall not unduly discriminate between customers. Any difference in charges related to payment methods or prepay895

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ment systems shall be objective, non-discriminatory and proportionate and shall not exceed the direct costs borne by the payee for the use of a specific payment method or a prepayment system, in line with Article 62 of Directive (EU) 2015/2366 of the European Parliament and of the Council (22). 7.    Pursuant to paragraph 6, household customers who have access to prepayment systems shall not be placed at a disadvantage by the prepayment systems. 8.  

Suppliers shall offer final customers fair and transparent general terms and conditions, which shall be provided in plain and unambiguous language and shall not include non-contractual barriers to the exercise of customers’ rights, such as excessive contractual documentation. Customers shall be protected against unfair or misleading selling methods.

9.    Final customers shall have the right to a good standard of service and complaint handling by their suppliers. Suppliers shall handle complaints in a simple, fair and prompt manner. 10.    When accessing universal service under the provisions adopted by Member States pursuant to Article 27, final customers shall be informed about their rights regarding universal service. 11.    Suppliers shall provide household customers with adequate information on alternative measures to disconnection sufficiently in advance of any planned disconnection. Such alternative measures may refer to sources of support to avoid disconnection, prepayment systems, energy audits, energy consultancy services, alternative payment plans, debt management advice or disconnection moratoria and not constitute an extra cost to the customers facing disconnection. 12.    Suppliers shall provide final customers with a final closure account after any switch of supplier no later than six weeks after such a switch has taken place.

896

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 11 Entitlement to a dynamic electricity price contract 1.    Member States shall ensure that the national regulatory framework enables suppliers to offer dynamic electricity price contracts. Member States shall ensure that final customers who have a smart meter installed can request to conclude a dynamic electricity price contract with at least one supplier and with every supplier that has more than 200 000 final customers. 2.    Member States shall ensure that final customers are fully informed by the suppliers of the opportunities, costs and risks of such dynamic electricity price contracts, and shall ensure that suppliers are required to provide information to the final customers accordingly, including with regard to the need to have an adequate electricity meter installed. Regulatory authorities shall monitor the market developments and assess the risks that the new products and services may entail and deal with abusive practices. 3.    Suppliers shall obtain each final customer’s consent before that customer is switched to a dynamic electricity price contract. 4.    For at least a ten-year period after dynamic electricity price contracts become available, Member States or their regulatory authorities shall monitor, and shall publish an annual report on the main developments of such contracts, including market offers and the impact on consumers’ bills, and specifically the level of price volatility. Article 12 Right to switch and rules on switching-related fees 1.   

Switching supplier or market participant engaged in aggregation shall be carried out within the shortest possible time. Member States shall ensure that a customer wishing to switch suppliers or market participants engaged in aggregation, while respecting contractual conditions, is entitled to such a switch within a maximum of three weeks from the date of the request. By no later than 2026, the technical process of switching supplier shall take no longer than 24 hours and shall be possible on any working day. 897

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2.    Member States shall ensure that at least household customers and small enterprises are not charged any switching-related fees. 3.    By way of derogation from paragraph 2, Member States may permit suppliers or market participants engaged in aggregation to charge customers contract termination fees where those customers voluntarily terminate fixed-term, fixed-price electricity supply contracts before their maturity, provided that such fees are part of a contract that the customer has voluntarily entered into and that such fees are clearly communicated to the customer before the contract is entered into. Such fees shall be proportionate and shall not exceed the direct economic loss to the supplier or the market participant engaged in aggregation resulting from the customer’s termination of the contract, including the costs of any bundled investments or services that have already been provided to the customer as part of the contract. The burden of proving the direct economic loss shall be on the supplier or market participant engaged in aggregation, and the permissibility of contract termination fees shall be monitored by the regulatory authority, or by an other competent national authority. 4.    Member States shall ensure that the right to switch supplier or market participants engaged in aggregation is granted to customers in a non-discriminatory manner as regards cost, effort and time. 5.    Household customers shall be entitled to participate in collective switching schemes. Member States shall remove all regulatory or administrative barriers for collective switching, while providing a framework that ensures the utmost consumer protection to avoid any abusive practices. Article 13 Aggregation contract 1.    Member States shall ensure that all customers are free to purchase and sell electricity services, including aggregation, other than supply, independently from their electricity supply contract and from an electricity undertaking of their choice.

898

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2.    Member States shall ensure that, where a final customer wishes to conclude an aggregation contract, the final customer is entitled to do so without the consent of the final customer’s electricity undertakings.

Member States shall ensure that market participants engaged in aggregation fully inform customers of the terms and conditions of the contracts that they offer to them.

3.   Member States shall ensure that final customers are entitled to receive all relevant demand response data or data on supplied and sold electricity free of charge at least once every billing period if requested by the customer. 4.   Member States shall ensure that the rights referred to in paragraphs 2 and 3 are granted to final customers in a non-discriminatory manner as regards cost, effort or time. In particular, Member States shall ensure that customers are not subject to discriminatory technical and administrative requirements, procedures or charges by their supplier on the basis of whether they have a contract with a market participant engaged in aggregation. Article 14 Comparison tools 1.    Member States shall ensure that at least household customers, and microenterprises with an expected yearly consumption of below 100 000 kWh, have access, free of charge, to at least one tool comparing the offers of suppliers, including offers for dynamic electricity price contracts. Customers shall be informed of the availability of such tools in or together with their bills or by other means. The tools shall meet at least the following requirements: (a)

they shall be independent from market participants and ensure that electricity undertakings are given equal treatment in search results;

(b)

they shall clearly disclose their owners and the natural or legal person operating and controlling the tools, as well as information on how the tools are financed;

899

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity



(c)

they shall set out clear and objective criteria on which the comparison is to be based, including services, and disclose them;

(d)

they shall use plain and unambiguous language;

(e)

they shall provide accurate and up-to-date information and state the time of the last update;

(f )

they shall be accessible to persons with disabilities, by being perceivable, operable, understandable and robust;

(g)

they shall provide an effective procedure for reporting incorrect information on published offers; and

(h)

they shall perform comparisons, while limiting the personal data requested to that strictly necessary for the comparison.

Member States shall ensure that at least one tool covers the entire market. Where multiple tools cover the market, those tools shall include, as complete as practicable, a range of electricity offers covering a significant part of the market and, where those tools do not completely cover the market, a clear statement to that effect, before displaying results.

2.    The tools referred to in paragraph 1 may be operated by any entity, including private companies and public authorities or bodies. 3.    Member States shall appoint a competent authority to be responsible for issuing trust marks for comparison tools that meet the requirements set out in paragraph 1, and for ensuring that comparison tools bearing a trust mark continue to meet the requirements set out in paragraph 1. That authority shall be independent of any market participants and comparison tool operators. 4.    Member States may require comparison tools referred to in paragraph 1 to include comparative criteria relating to the nature of the services offered by the suppliers. 5.    Any tool comparing the offers of market participants shall be eligible to apply for a trust mark in accordance with this Article on a voluntary and non-discriminatory basis. 900

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

6.    By way of derogation from paragraphs 3 and 5, Member States may choose not to provide for the issuance of trust marks to comparison tools if a public authority or body provides a comparison tool that meets the requirements set out in paragraph 1. Article 15 Active customers 1.    Member States shall ensure that final customers are entitled to act as active customers without being subject to disproportionate or discriminatory technical requirements, administrative requirements, procedures and charges, and to network charges that are not cost-reflective. 2.    Member States shall ensure that active customers are: (a)

entitled to operate either directly or through aggregation;

(b)

entitled to sell self-generated electricity, including through power purchase agreements;

(c)

entitled to participate in flexibility schemes and energy efficiency schemes;

(d)

entitled to delegate to a third party the management of the installations required for their activities, including installation, operation, data handling and maintenance, without that third party being considered to be an active customer;

(e)

subject to cost-reflective, transparent and non-discriminatory network charges that account separately for the electricity fed into the grid and the electricity consumed from the grid, in accordance with Article 59(9) of this Directive and Article 18 of Regulation (EU) 2019/943, ensuring that they contribute in an adequate and balanced way to the overall cost sharing of the system;

(f )

financially responsible for the imbalances they cause in the electricity system; to that extent they shall be balance responsible parties or shall delegate their balancing responsibility in accordance with Article 5 of Regulation (EU) 2019/943. 901

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

3.    Member States may have different provisions applicable to individual and jointly-acting active customers in their national law, provided that all rights and obligations under this Article apply to all active customers.  Any difference in the treatment of jointly-acting active customers shall be proportionate and duly justified. 4.    Member States that have existing schemes that do not account separately for the electricity fed into the grid and the electricity consumed from the grid, shall not grant new rights under such schemes after 31 December 2023. In any event, customers subject to existing schemes shall have the possibility at any time to opt for a new scheme that accounts separately for the electricity fed into the grid and the electricity consumed from the grid as the basis for calculating network charges. 5.    Member States shall ensure that active customers that own an energy storage facility: (a)

have the right to a grid connection within a reasonable time after the request, provided that all necessary conditions, such as balancing responsibility and adequate metering, are fulfilled;

(b)

are not subject to any double charges, including network charges, for stored electricity remaining within their premises or when providing flexibility services to system operators;

(c)

are not subject to disproportionate licensing requirements or fees;

(d)

are allowed to provide several services simultaneously, if technically feasible. Article 16 Citizen energy communities

1.    Member States shall provide an enabling regulatory framework for citizen energy communities ensuring that: (a)

participation in a citizen energy community is open and voluntary; 902

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(b)

members or shareholders of a citizen energy community are entitled to leave the community, in which case Article 12 applies;

(c)

members or shareholders of a citizen energy community do not lose their rights and obligations as household customers or active customers;

(d)

subject to fair compensation as assessed by the regulatory authority, relevant distribution system operators cooperate with citizen energy communities to facilitate electricity transfers within citizen energy communities;

(e)

citizen energy communities are subject to non-discriminatory, fair, proportionate and transparent procedures and charges, including with respect to registration and licensing, and to transparent, nondiscriminatory and cost-reflective network charges in accordance with Article 18 of Regulation (EU) 2019/943, ensuring that they contribute in an adequate and balanced way to the overall cost sharing of the system.

2.    Member States may provide in the enabling regulatory framework that citizen energy communities:

3. 

(a)

are open to cross-border participation;

(b)

are entitled to own, establish, purchase or lease distribution networks and to autonomously manage them subject to conditions set out in paragraph 4 of this Article;

(c)

are subject to the exemptions provided for in Article 38(2).

Member States shall ensure that citizen energy communities: (a)

are able to access all electricity markets, either directly or through aggregation, in a non-discriminatory manner;

(b)

are treated in a non-discriminatory and proportionate manner with regard to their activities, rights and obligations as final customers, producers, suppliers, distribution system operators or market participants engaged in aggregation; 903

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity



(c)

are financially responsible for the imbalances they cause in the electricity system; to that extent they shall be balance responsible parties or shall delegate their balancing responsibility in accordance with Article 5 of Regulation (EU) 2019/943;

(d)

with regard to consumption of self-generated electricity, citizen energy communities are treated like active customers in accordance with point (e) of Article 15(2);

(e)

are entitled to arrange within the citizen energy community the sharing of electricity that is produced by the production units owned by the community, subject to other requirements laid down in this Article and subject to the community members retaining their rights and obligations as final customers.

For the purposes of point (e) of the first subparagraph, where electricity is shared, this shall be without prejudice to applicable network charges, tariffs and levies, in accordance with a transparent cost-benefit analysis of distributed energy resources developed by the competent national authority.

4.    Member States may decide to grant citizen energy communities the right to manage distribution networks in their area of operation and establish the relevant procedures, without prejudice to Chapter IV or to other rules and regulations applying to distribution system operators. If such a right is granted, Member States shall ensure that citizen energy communities: (a)

are entitled to conclude an agreement on the operation of their network with the relevant distribution system operator or transmission system operator to which their network is connected;

(b)

are subject to appropriate network charges at the connection points between their network and the distribution network outside the citizen energy community and that such network charges account separately for the electricity fed into the distribution network and the electricity consumed from the distribution network outside the citizen energy community in accordance with Article 59(7);

(c)

do not discriminate or harm customers who remain connected to the distribution system. 904

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 17 Demand response through aggregation 1.   

Member States shall allow and foster participation of demand response through aggregation. Member States shall allow final customers, including those offering demand response through aggregation, to participate alongside producers in a non-discriminatory manner in all electricity markets.

2.    Member States shall ensure that transmission system operators and distribution system operators, when procuring ancillary services, treat market participants engaged in the aggregation of demand response in a nondiscriminatory manner alongside producers on the basis of their technical capabilities. 3.    Member States shall ensure that their relevant regulatory framework contains at least the following elements: (a)

the right for each market participant engaged in aggregation, including independent aggregators, to enter electricity markets without the consent of other market participants;

(b)

non-discriminatory and transparent rules that clearly assign roles and responsibilities to all electricity undertakings and customers;

(c)

non-discriminatory and transparent rules and procedures for the exchange of data between market participants engaged in aggregation and other electricity undertakings that ensure easy access to data on equal and non-discriminatory terms while fully protecting commercially sensitive information and customers’ personal data;

(d)

an obligation on market participants engaged in aggregation to be financially responsible for the imbalances that they cause in the electricity system; to that extent they shall be balance responsible parties or shall delegate their balancing responsibility in accordance with Article 5 of Regulation (EU) 2019/943;

(e)

provision for final customers who have a contract with independent aggregators not to be subject to undue payments, penalties or other undue contractual restrictions by their suppliers; 905

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(f )

a conflict resolution mechanism between market participants engaged in aggregation and other market participants, including responsibility for imbalances.

4.    Member States may require electricity undertakings or participating final customers to pay financial compensation to other market participants or to the market participants’ balance responsible parties, if those market participants or balance responsible parties are directly affected by demand response activation. Such financial compensation shall not create a barrier to market entry for market participants engaged in aggregation or a barrier to flexibility. In such cases, the financial compensation shall be strictly limited to covering the resulting costs incurred by the suppliers of participating customers or the suppliers’ balance responsible parties during the activation of demand response. The method for calculating compensation may take account of the benefits brought about by the independent aggregators to other market participants and, where it does so, the aggregators or participating customers may be required to contribute to such compensation but only where and to the extent that the benefits to all suppliers, customers and their balance responsible parties do not exceed the direct costs incurred. The calculation method shall be subject to approval by the regulatory authority or by another competent national authority. 5.    Member States shall ensure that regulatory authorities or, where their national legal system so requires, transmission system operators and distribution system operators, acting in close cooperation with market participants and final customers, establish the technical requirements for participation of demand response in all electricity markets on the basis of the technical characteristics of those markets and the capabilities of demand response. Such requirements shall cover participation involving aggregated loads. Article 18 Bills and billing information 1.    Member States shall ensure that bills and billing information are accurate, easy to understand, clear, concise, user-friendly and presented in a manner that facilitates comparison by final customers. On request, final 906

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

customers shall receive a clear and understandable explanation of how their bill was derived, especially where bills are not based on actual consumption. 2.    Member States shall ensure that final customers receive all their bills and billing information free of charge. 3.    Member States shall ensure that final customers are offered the option of electronic bills and billing information and are offered flexible arrangements for the actual payment of the bills. 4.    If the contract provides for a future change of the product or price, or a discount, this shall be indicated on the bill together with the date on which the change takes place. 5.    Member States shall consult consumer organisations when they consider changes to the requirements for the content of bills. 6.    Member States shall ensure that bills and billing information fulfil the minimum requirements set out in Annex I. Article 19 Smart metering systems 1.    In order to promote energy efficiency and to empower final customers, Member States or, where a Member State has so provided, the regulatory authority shall strongly recommend that electricity undertakings and other market participants optimise the use of electricity, inter alia, by providing energy management services, developing innovative pricing formulas, and introducing smart metering systems that are interoperable, in particular with consumer energy management systems and with smart grids, in accordance with the applicable Union data protection rules. 2.    Member States shall ensure the deployment in their territories of smart metering systems that assist the active participation of customers in the electricity market. Such deployment may be subject to a cost-benefit assessment which shall be undertaken in accordance with the principles laid down in Annex II. 907

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

3.    Member States that proceed with the deployment of smart metering systems shall adopt and publish the minimum functional and technical requirements for the smart metering systems to be deployed in their territories, in accordance with Article 20 and Annex II. Member States shall ensure the interoperability of those smart metering systems, as well as their ability to provide output for consumer energy management systems. In that respect, Member States shall have due regard to the use of the relevant available standards, including those enabling interoperability, to best practices and to the importance of the development of smart grids and the development of the internal market for electricity. 4.    Member States that proceed with the deployment of smart metering systems shall ensure that final customers contribute to the associated costs of the deployment in a transparent and non-discriminatory manner, while taking into account the long-term benefits to the whole value chain. Member States or, where a Member State has so provided, the designated competent authorities, shall regularly monitor such deployment in their territories to track the delivery of benefits to consumers. 5.    Where the deployment of smart metering systems has been negatively assessed as a result of the cost-benefit assessment referred to in paragraph 2, Member States shall ensure that this assessment is revised at least every four years, or more frequently, in response to significant changes in the underlying assumptions and in response to technological and market developments. Member States shall notify to the Commission the outcome of their updated cost-benefit assessment as it becomes available. 6.    The provisions in this Directive concerning smart metering systems shall apply to future installations and to installations that replace older smart meters. Smart metering systems that have already been installed, or for which the ‘start of works’ began, before 4 July 2019, may remain in operation over their lifetime but, in the case of smart metering systems that do not meet the requirements of Article 20 and Annex II, shall not remain in operation after 5 July 2031.

For the purpose of this paragraph, ‘start of works’ means either the start of construction works on the investment or the first firm commitment to order equipment or other commitment that makes the investment irreversible, whichever is the first in time. Buying of land and preparatory works such as obtaining permits and conducting preliminary feasibility 908

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

studies are not considered as start of works. For take-overs, ‘start of works’ means the moment of acquiring the assets directly linked to the acquired establishment. Article 20 Functionalities of smart metering systems Where the deployment of smart metering systems is positively assessed as a result of the cost-benefit assessment referred to in Article 19(2), or where smart metering systems are systematically deployed after 4 July 2019, Member States shall deploy smart metering systems in accordance with European standards, Annex II and the following requirements: (a)

the smart metering systems shall accurately measure actual electricity consumption and shall be capable of providing to final customers information on actual time of use. Validated historical consumption data shall be made easily and securely available and visualised to final customers on request and at no additional cost. Non-validated near real-time consumption data shall also be made easily and securely available to final customers at no additional cost, through a standardised interface or through remote access, in order to support automated energy efficiency programmes, demand response and other services;

(b)

the security of the smart metering systems and data communication shall comply with relevant Union security rules, having due regard of the best available techniques for ensuring the highest level of cybersecurity protection while bearing in mind the costs and the principle of proportionality;

(c)

the privacy of final customers and the protection of their data shall comply with relevant Union data protection and privacy rules;

(d)

meter operators shall ensure that the meters of active customers who feed electricity into the grid can account for electricity fed into the grid from the active customers’ premises;

(e)

if final customers request it, data on the electricity they fed into the grid and their electricity consumption data shall be made available to them, in 909

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

accordance with the implementing acts adopted pursuant to Article 24, through a standardised communication interface or through remote access, or to a third party acting on their behalf, in an easily understandable format allowing them to compare offers on a like-for-like basis; (f )

appropriate advice and information shall be given to final customers prior to or at the time of installation of smart meters, in particular concerning their full potential with regard to the management of meter reading and the monitoring of energy consumption, and concerning the collection and processing of personal data in accordance with the applicable Union data protection rules;

(g)

smart metering systems shall enable final customers to be metered and settled at the same time resolution as the imbalance settlement period in the national market.

For the purposes of point (e) of the first subparagraph, it shall be possible for final customers to retrieve their metering data or transmit them to another party at no additional cost and in accordance with their right to data portability under Union data protection rules. Article 21 Entitlement to a smart meter 1.    Where the deployment of smart metering systems has been negatively assessed as a result of the cost-benefit assessment referred to in Article 19(2) and where smart metering systems are not systematically deployed, Member States shall ensure that every final customer is entitled on request, while bearing the associated costs, to have installed or, where applicable, to have upgraded, under fair, reasonable and cost-effective conditions, a smart meter that: (a)

is equipped, where technically feasible, with the functionalities referred to in Article 20, or with a minimum set of functionalities to be defined and published by Member States at national level in accordance with Annex II;

910

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(b)

is interoperable and able to deliver the desired connectivity of the metering infrastructure with consumer energy management systems in near real-time.

2.    In the context of a customer request for a smart meter pursuant to paragraph 1, Member States or, where a Member State has so provided, the designated competent authorities shall: (a)

ensure that the offer to the final customer requesting the installation of a smart meter explicitly states and clearly describes: (i)

the functions and interoperability that can be supported by the smart meter and the services that are feasible as well as the benefits that can be realistically attained by having that smart meter at that moment in time;

(ii)

any associated costs to be borne by the final customer;

(b)

ensure that it is installed within a reasonable time, no later than four months after the customer’s request;

(c)

regularly, and at least every two years, review and make publicly available the associated costs, and trace the evolution of those costs as a result of technology developments and potential metering system upgrades. Article 22 Conventional meters

1.    Where final customers do not have smart meters, Member States shall ensure that final customers are provided with individual conventional meters that accurately measure their actual consumption. 2.    Member States shall ensure that final customers are able to easily read their conventional meters, either directly or indirectly through an online interface or through another appropriate interface.

911

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 23 Data management 1.    When laying down the rules regarding the management and exchange of data, Member States or, where a Member State has so provided, the designated competent authorities shall specify the rules on the access to data of the final customer by eligible parties in accordance with this Article and the applicable Union legal framework. For the purpose of this Directive, data shall be understood to include metering and consumption data as well as data required for customer switching, demand response and other services. 2.    Member States shall organise the management of data in order to ensure efficient and secure data access and exchange, as well as data protection and data security.

Independently of the data management model applied in each Member State, the parties responsible for data management shall provide access to the data of the final customer to any eligible party, in accordance with paragraph 1. Eligible parties shall have the requested data at their disposal in a non-discriminatory manner and simultaneously. Access to data shall be easy and the relevant procedures for obtaining access to data shall be made publicly available.

3.    The rules on access to data and data storage for the purpose of this Directive shall comply with the relevant Union law.

The processing of personal data within the framework of this Directive shall be carried out in accordance with Regulation (EU) 2016/679.

4.    Member States or, where a Member State has so provided, the designated competent authorities, shall authorise and certify or, where applicable, supervise the parties responsible for the data management, in order to ensure that they comply with the requirements of this Directive.

Without prejudice to the tasks of the data protection officers under Regulation (EU) 2016/679, Member States may decide to require that parties responsible for the data management appoint compliance officers who are to be responsible for monitoring the implementation of meas912

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ures taken by those parties to ensure non-discriminatory access to data and compliance with the requirements of this Directive.

Member States may appoint compliance officers or bodies referred to in point (d) of Article 35(2) of this Directive to fulfil the obligations under this paragraph.

5.    No additional costs shall be charged to final customers for access to their data or for a request to make their data available.

Member States shall be responsible for setting the relevant charges for access to data by eligible parties.



Member States or, where a Member State has so provided, the designated competent authorities shall ensure that any charges imposed by regulated entities that provide data services are reasonable and duly justified. Article 24 Interoperability requirements and procedures for access to data

1.    In order to promote competition in the retail market and to avoid excessive administrative costs for the eligible parties, Member States shall facilitate the full interoperability of energy services within the Union. 2.    The Commission shall adopt, by means of implementing acts, interoperability requirements and non-discriminatory and transparent procedures for access to data referred to in Article 23(1). Those implementing acts shall be adopted in accordance with the advisory procedure referred to in Article 68(2). 3.    Member States shall ensure that electricity undertakings apply the interoperability requirements and procedures for access to data referred to in paragraph 2. Those requirements and procedures shall be based on existing national practices.

913

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 25 Single points of contact Member States shall ensure the provision of single points of contact, to provide customers with all necessary information concerning their rights, the applicable law and dispute settlement mechanisms available to them in the event of a dispute. Such single points of contact may be part of general consumer information points. Article 26 Right to out-of-court dispute settlement 1.    Member States shall ensure that final customers have access to simple, fair, transparent, independent, effective and efficient out-of-court mechanisms for the settlement of disputes concerning rights and obligations established under this Directive, through an independent mechanism such as an energy ombudsman or a consumer body, or through a regulatory authority. Where the final customer is a consumer within the meaning of Directive 2013/11/EU of the European Parliament and of the Council (23), such out-of-court dispute settlement mechanisms shall comply with the quality requirements of Directive 2013/11/EU and shall provide, where warranted, for systems of reimbursement and compensation. 2.    Where necessary, Member States shall ensure that alternative dispute resolution entities cooperate to provide simple, fair, transparent, independent, effective and efficient out-of-court dispute settlement mechanisms for any dispute that arises from products or services that are tied to, or bundled with, any product or service falling under the scope of this Directive. 3.   The participation of electricity undertakings in out-of-court dispute settlement mechanisms for household customers shall be mandatory unless the Member State demonstrates to the Commission that other mechanisms are equally effective.

914

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 27 Universal service 1.    Member States shall ensure that all household customers, and, where Member States deem it to be appropriate, small enterprises, enjoy universal service, namely the right to be supplied with electricity of a specified quality within their territory at competitive, easily and clearly comparable, transparent and non-discriminatory prices. To ensure the provision of universal service, Member States may appoint a supplier of last resort. Member States shall impose on distribution system operators an obligation to connect customers to their network under terms, conditions and tariffs set in accordance with the procedure laid down in Article 59(7). This Directive does not prevent Member States from strengthening the market position of the household customers and small and medium-sized non-household customers by promoting the possibilities for the voluntary aggregation of representation for that class of customers. 2.    Paragraph 1 shall be implemented in a transparent and non-discriminatory way, and shall not impede the free choice of supplier provided for in Article 4. Article 28 Vulnerable customers 1.    Member States shall take appropriate measures to protect customers and shall ensure, in particular, that there are adequate safeguards to protect vulnerable customers. In this context, each Member State shall define the concept of vulnerable customers which may refer to energy poverty and, inter alia, to the prohibition of disconnection of electricity to such customers in critical times. The concept of vulnerable customers may include income levels, the share of energy expenditure of disposable income, the energy efficiency of homes, critical dependence on electrical equipment for health reasons, age or other criteria. Member States shall ensure that rights and obligations linked to vulnerable customers are applied. In particular, they shall take measures to protect customers in remote areas.  They shall ensure high levels of consumer protection, particularly with respect to transparency regarding contractual terms and conditions, general information and dispute settlement mechanisms. 915

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2.    Member States shall take appropriate measures, such as providing benefits by means of their social security systems to ensure the necessary supply to vulnerable customers, or providing for support for energy efficiency improvements, to address energy poverty where identified pursuant to point  (d) of Article  3(3) of Regulation (EU) 2018/1999, including in the broader context of poverty. Such measures shall not impede the effective opening of the market set out in Article 4 or market functioning and shall be notified to the Commission, where relevant, in accordance with Article 9(4). Such notifications may also include measures taken within the general social security system. Article 29 Energy poverty When assessing the number of households in energy poverty pursuant to point (d) of Article 3(3) of Regulation (EU) 2018/1999, Member States shall establish and publish a set of criteria, which may include low income, high expenditure of disposable income on energy and poor energy efficiency. The Commission shall provide guidance on the definition of ‘significant number of households in energy poverty’ in this context and in the context of Article 5(5), starting from the premise that any proportion of households in energy poverty can be considered to be significant. CHAPTER IV DISTRIBUTION SYSTEM OPERATION Article 30 Designation of distribution system operators Member States shall designate or shall require undertakings that own or are responsible for distribution systems to designate one or more distribution system operators for a period of time to be determined by the Member States, having regard to considerations of efficiency and economic balance.

916

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 31 Tasks of distribution system operators 1.    The distribution system operator shall be responsible for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity, for operating, maintaining and developing under economic conditions a secure, reliable and efficient electricity distribution system in its area with due regard for the environment and energy efficiency. 2.  

 In any event, the distribution system operator shall not discriminate between system users or classes of system users, particularly in favour of its related undertakings.

3.    The distribution system operator shall provide system users with the information they need for efficient access to, including use of, the system. 4.    A Member State may require the distribution system operator, when dispatching generating installations, to give priority to generating installations using renewable sources or using high-efficiency cogeneration, in accordance with Article 12 of Regulation (EU) 2019/943. 5.    Each distribution system operator shall act as a neutral market facilitator in procuring the energy it uses to cover energy losses in its system in accordance with transparent, non-discriminatory and market-based procedures, where it has such a function. 6.  

Where a distribution system operator is responsible for the procurement of products and services necessary for the efficient, reliable and secure operation of the distribution system, rules adopted by the distribution system operator for that purpose shall be objective, transparent and nondiscriminatory, and shall be developed in coordination with transmission system operators and other relevant market participants. The terms and conditions, including rules and tariffs, where applicable, for the provision of such products and services to distribution system operators shall be established in accordance with Article 59(7) in a non-discriminatory and cost-reflective way and shall be published.

917

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

7.    In performing the tasks referred to in paragraph 6, the distribution system operator shall procure the non-frequency ancillary services needed for its system in accordance with transparent, non-discriminatory and market-based procedures, unless the regulatory authority has assessed that the market-based provision of non-frequency ancillary services is economically not efficient and has granted a derogation. The obligation to procure non-frequency ancillary services does not apply to fully integrated network components. 8.    The procurement of the products and services referred to in paragraph 6 shall ensure the effective participation of all qualified market participants, including market participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation, in particular by requiring regulatory authorities and distribution system operators in close cooperation with all market participants, as well as transmission system operators, to establish the technical requirements for participation in those markets on the basis of the technical characteristics of those markets and the capabilities of all market participants. 9.    Distribution system operators shall cooperate with transmission system operators for the effective participation of market participants connected to their grid in retail, wholesale and balancing markets. Delivery of balancing services stemming from resources located in the distribution system shall be agreed with the relevant transmission system operator in accordance with Article 57 of Regulation (EU) 2019/943 and Article 182 of Commission Regulation (EU) 2017/1485 (24). 10.    Member States or their designated competent authorities may allow distribution system operators to perform activities other than those provided for in this Directive and in Regulation (EU) 2019/943, where such activities are necessary for the distribution system operators to fulfil their obligations under this Directive or Regulation (EU) 2019/943, provided that the regulatory authority has assessed the necessity of such a derogation. This paragraph shall be without prejudice to the right of the distribution system operators to own, develop, manage or operate networks other than electricity networks where the Member State or the designated competent authority has granted such a right.

918

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 32 Incentives for the use of flexibility in distribution networks 1.    Member States shall provide the necessary regulatory framework to allow and provide incentives to distribution system operators to procure flexibility services, including congestion management in their areas, in order to improve efficiencies in the operation and development of the distribution system. In particular, the regulatory framework shall ensure that distribution system operators are able to procure such services from providers of distributed generation, demand response or energy storage and shall promote the uptake of energy efficiency measures, where such services cost-effectively alleviate the need to upgrade or replace electricity capacity and support the efficient and secure operation of the distribution system. Distribution system operators shall procure such services in accordance with transparent, non-discriminatory and market-based procedures unless the regulatory authorities have established that the procurement of such services is not economically efficient or that such procurement would lead to severe market distortions or to higher congestion. 2.    Distribution system operators, subject to approval by the regulatory authority, or the regulatory authority itself, shall, in a transparent and participatory process that includes all relevant system users and transmission system operators, establish the specifications for the flexibility services procured and, where appropriate, standardised market products for such services at least at national level. The specifications shall ensure the effective and non-discriminatory participation of all market participants, including market participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation. Distribution system operators shall exchange all necessary information and shall coordinate with transmission system operators in order to ensure the optimal utilisation of resources, to ensure the secure and efficient operation of the system and to facilitate market development. Distribution system operators shall be adequately remunerated for the procurement of such services to allow them to recover at least their reasonable corresponding costs, including the necessary information and communication technology expenses and infrastructure costs.

919

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

3.    The development of a distribution system shall be based on a transparent network development plan that the distribution system operator shall publish at least every two  years and shall submit to the regulatory authority. The network development plan shall provide transparency on the medium and long-term flexibility services needed, and shall set out the planned investments for the next five-to-ten years, with particular emphasis on the main distribution infrastructure which is required in order to connect new generation capacity and new loads, including recharging points for electric vehicles. The network development plan shall also include the use of demand response, energy efficiency, energy storage facilities or other resources that the distribution system operator is to use as an alternative to system expansion. 4.    The distribution system operator shall consult all relevant system users and the relevant transmission system operators on the network development plan. The distribution system operator shall publish the results of the consultation process along with the network development plan, and submit the results of the consultation and the network development plan to the regulatory authority. The regulatory authority may request amendments to the plan. 5.    Member States may decide not to apply the obligation set out in paragraph  3 to integrated electricity undertakings which serve less than 100 000 connected customers or which serve small isolated systems. Article 33 Integration of electromobility into the electricity network 1.    Without prejudice to Directive 2014/94/EU of the European Parliament and of the Council (25), Member States shall provide the necessary regulatory framework to facilitate the connection of publicly accessible and private recharging points to the distribution networks. Member States shall ensure that distribution system operators cooperate on a nondiscriminatory basis with any undertaking that owns, develops, operates or manages recharging points for electric vehicles, including with regard to connection to the grid.

920

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2.    Distribution system operators shall not own, develop, manage or operate recharging points for electric vehicles, except where distribution system operators own private recharging points solely for their own use. 3.    By way of derogation from paragraph 2, Member States may allow distribution system operators to own, develop, manage or operate recharging points for electric vehicles, provided that all of the following conditions are fulfilled:



(a)

other parties, following an open, transparent and non-discriminatory tendering procedure that is subject to review and approval by the regulatory authority, have not been awarded a right to own, develop, manage or operate recharging points for electric vehicles, or could not deliver those services at a reasonable cost and in a timely manner;

(b)

the regulatory authority has carried out an ex ante review of the conditions of the tendering procedure under point  (a) and has granted its approval;

(c)

the distribution system operator operates the recharging points on the basis of third-party access in accordance with Article 6 and does not discriminate between system users or classes of system users, and in particular in favour of its related undertakings.

The regulatory authority may draw up guidelines or procurement clauses to help distribution system operators ensure a fair tendering procedure.

4.    Where Member States have implemented the conditions set out in paragraph 3, Member States or their designated competent authorities shall perform, at regular intervals or at least every five years, a public consultation in order to re-assess the potential interest of other parties in owning, developing, operating or managing recharging points for electric vehicles. Where the public consultation indicates that other parties are able to own, develop, operate or manage such points, Member States shall ensure that distribution system operators’ activities in this regard are phased-out, subject to the successful completion of the tendering procedure referred to in point (a) of paragraph 3. As part of the conditions of that procedure, regulatory authorities may allow the distribution system operator to recover the residual value of its investment in recharging infrastructure. 921

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 34 Tasks of distribution system operators in data management Member States shall ensure that all eligible parties have non-discriminatory access to data under clear and equal terms, in accordance with the relevant data protection rules.  In Member  States where smart metering systems have been deployed in accordance with Article 19 and where distribution system operators are involved in data management, the compliance programmes referred to in point (d) of Article 35(2) shall include specific measures in order to exclude discriminatory access to data from eligible parties as provided for in Article 23. Where distribution system operators are not subject to Article 35(1), (2) or (3), Member States shall take all necessary measures to ensure that vertically integrated undertakings do not have privileged access to data for the conduct of their supply activities. Article 35 Unbundling of distribution system operators 1.    Where the distribution system operator is part of a vertically integrated undertaking, it shall be independent at least in terms of its legal form, organisation and decision-making from other activities not relating to distribution. Those rules shall not create an obligation to separate the ownership of assets of the distribution system operator from the vertically integrated undertaking. 2.    In addition to the requirements under paragraph 1, where the distribution system operator is part of a vertically integrated undertaking, it shall be independent in terms of its organisation and decision-making from the other activities not related to distribution. In order to achieve this, the following minimum criteria shall apply: (a)

the persons responsible for the management of the distribution system operator must not participate in company structures of the integrated electricity undertaking responsible, directly or indirectly, for the day-to-day operation of the generation, transmission or supply of electricity;

922

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(b)

appropriate measures must be taken to ensure that the professional interests of the persons responsible for the management of the distribution system operator are taken into account in a manner that ensures that they are capable of acting independently;

(c)

the distribution system operator must have effective decision-making rights, independent from the integrated electricity undertaking, with respect to assets necessary to operate, maintain or develop the network. In order to fulfil those tasks, the distribution system operator shall have at its disposal the necessary resources including human, technical, physical and financial resources. This should not prevent the existence of appropriate coordination mechanisms to ensure that the economic and management supervision rights of the parent company in respect of return on assets, regulated indirectly in accordance with Article 59(7), in a subsidiary are protected. In particular, this shall enable the parent company to approve the annual financial plan, or any equivalent instrument, of the distribution system operator and to set global limits on the levels of indebtedness of its subsidiary. It shall not permit the parent company to give instructions regarding day-to-day operations, nor with respect to individual decisions concerning the construction or upgrading of distribution lines, that do not exceed the terms of the approved financial plan, or any equivalent instrument; and

(d)

the distribution system operator must establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded, and ensure that observance of it is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet that objective. An annual report, setting out the measures taken, shall be submitted by the person or body responsible for monitoring the compliance programme, the compliance officer of the distribution system operator, to the regulatory authority referred to in Article 57(1) and shall be published. The compliance officer of the distribution system operator shall be fully independent and shall have access to all the necessary information of the distribution system operator and any affiliated undertaking to fulfil its task.

923

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

3.    Where the distribution system operator is part of a vertically integrated undertaking, the Member States shall ensure that the activities of the distribution system operator are monitored by regulatory authorities or other competent bodies so that it cannot take advantage of its vertical integration to distort competition. In particular, vertically integrated distribution system operators shall not, in their communication and branding, create confusion with respect to the separate identity of the supply branch of the vertically integrated undertaking. 4.    Member States may decide not to apply paragraphs 1, 2 and 3 to integrated electricity undertakings which serve less than 100 000 connected customers, or serving small isolated systems. Article 36 Ownership of energy storage facilities by distribution system operators 1.    Distribution system operators shall not own, develop, manage or operate energy storage facilities. 2.    By way of derogation from paragraph 1, Member States may allow distribution system operators to own, develop, manage or operate energy storage facilities, where they are fully integrated network components and the regulatory authority has granted its approval, or where all of the following conditions are fulfilled: (a)

other parties, following an open, transparent and non-discriminatory tendering procedure that is subject to review and approval by the regulatory authority, have not been awarded a right to own, develop, manage or operate such facilities, or could not deliver those services at a reasonable cost and in a timely manner;

(b)

such facilities are necessary for the distribution system operators to fulfil their obligations under this Directive for the efficient, reliable and secure operation of the distribution system and the facilities are not used to buy or sell electricity in the electricity markets; and

924

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(c)

the regulatory authority has assessed the necessity of such a derogation and has carried out an assessment of the tendering procedure, including the conditions of the tendering procedure, and has granted its approval.

The regulatory authority may draw up guidelines or procurement clauses to help distribution system operators ensure a fair tendering procedure. 3.    The regulatory authorities shall perform, at regular intervals or at least every five years, a public consultation on the existing energy storage facilities in order to assess the potential availability and interest in investing in such facilities. Where the public consultation, as assessed by the regulatory authority, indicates that third parties are able to own, develop, operate or manage such facilities in a cost-effective manner, the regulatory authority shall ensure that the distribution system operators’ activities in this regard are phased out within 18 months. As part of the conditions of that procedure, regulatory authorities may allow the distribution system operators to receive reasonable compensation, in particular to recover the residual value of their investment in the energy storage facilities. 4.    Paragraph 3 shall not apply to fully integrated network components or for the usual depreciation period of new battery storage facilities with a final investment decision until 4  July 2019, provided that such battery storage facilities are: (a)

connected to the grid at the latest two years thereafter;

(b)

integrated into the distribution system;

(c)

used only for the reactive instantaneous restoration of network security in the case of network contingencies where such restoration measure starts immediately and ends when regular re-dispatch can solve the issue; and

(d)

not used to buy or sell electricity in the electricity markets, including balancing.

925

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 37 Confidentiality obligation of distribution system operators Without prejudice to Article  55 or another legal requirement to disclose information, the distribution system operator shall preserve the confidentiality of commercially sensitive information obtained in the course of carrying out its business, and shall prevent information about its own activities which may be commercially advantageous from being disclosed in a discriminatory manner. Article 38 Closed distribution systems 1.    Member States may provide for regulatory authorities or other competent authorities to classify a system which distributes electricity within a geographically confined industrial, commercial or shared services site and does not, without prejudice to paragraph 4, supply household customers, as a closed distribution system if: (a)

for specific technical or safety reasons, the operations or the production process of the users of that system are integrated; or

(b)

that system distributes electricity primarily to the owner or operator of the system or their related undertakings.

2.    Closed distribution systems shall be considered to be distribution systems for the purposes of this Directive. Member States may provide for regulatory authorities to exempt the operator of a closed distribution system from: (a)

the requirement under Article 31(5) and (7) to procure the energy it uses to cover energy losses and the non-frequency ancillary services in its system in accordance with transparent, non-discriminatory and market-based procedures;

(b)

the requirement under Article 6(1) that tariffs, or the methodologies underlying their calculation, are approved in accordance with Article 59(1) prior to their entry into force; 926

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(c)

the requirements under Article 32(1) to procure flexibility services and under Article 32(3) to develop the operator’s system on the basis of network development plans;

(d)

the requirement under Article 33(2) not to own, develop, manage or operate recharging points for electric vehicles; and

(e)

the requirement under Article 36(1) not to own, develop, manage or operate energy storage facilities.

3.    Where an exemption is granted under paragraph 2, the applicable tariffs, or the methodologies underlying their calculation, shall be reviewed and approved in accordance with Article 59(1) upon request by a user of the closed distribution system. 4.    Incidental use by a small number of households with employment or similar associations with the owner of the distribution system and located within the area served by a closed distribution system shall not preclude an exemption under paragraph 2 being granted. Article 39 Combined operator Article 35(1) shall not prevent the operation of a combined transmission and distribution system operator, provided that the operator complies with Article 43(1), Articles 44 and 45, or Section 3 of Chapter VI, or that the operator falls under Article 66(3).

927

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

CHAPTER V GENERAL RULES APPLICABLE TO TRANSMISSION SYSTEM OPERATORS Article 40 Tasks of transmission system operators 1.    Each transmission system operator shall be responsible for: (a)

ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity, operating, maintaining and developing under economic conditions secure, reliable and efficient transmission system with due regard to the environment, in close cooperation with neighbouring transmission system operators and distribution system operators;

(b)

ensuring adequate means to meet its obligations;

(c)

contributing to security of supply through adequate transmission capacity and system reliability;

(d)

managing electricity flows on the system, taking into account exchanges with other interconnected systems. To that end, the transmission system operator shall be responsible for ensuring a secure, reliable and efficient electricity system and, in that context, for ensuring the availability of all necessary ancillary services, including those provided by demand response and energy storage facilities, insofar as such availability is independent from any other transmission systems with which its system is interconnected;

(e)

providing to the operator of other systems with which its system is interconnected sufficient information to ensure the secure and efficient operation, coordinated development and interoperability of the interconnected system;

(f )

ensuring non-discrimination as between system users or classes of system users, particularly in favour of its related undertakings;

928

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(g)

providing system users with the information they need for efficient access to the system;

(h)

collecting congestion rents and payments under the inter-transmission system operator compensation mechanism, in accordance with Article 49 of Regulation (EU) 2019/943, granting and managing third-party access and giving reasoned explanations when it denies such access, which shall be monitored by the regulatory authorities; in carrying out their tasks under this Article transmission system operators shall primarily facilitate market integration;

(i)

procuring ancillary services to ensure operational security;

(j)

adopting a framework for cooperation and coordination between the regional coordination centres;

(k)

participating in the establishment of the European and national resource adequacy assessments pursuant to Chapter IV of Regulation (EU) 2019/943;

(l)

the digitalisation of transmission systems;

(m) data management, including the development of data management systems, cybersecurity and data protection, subject to the applicable rules, and without prejudice to the competence of other authorities. 2.    Member States may provide that one or several responsibilities listed in paragraph 1 of this Article be assigned to a transmission system operator other than the one which owns the transmission system to which the responsibilities concerned would otherwise be applicable. The transmission system operator to which the tasks are assigned shall be certified under the ownership unbundling, the independent system operator or the independent transmission system operator model, and fulfil the requirements provided for in Article 43, but shall not be required to own the transmission system it is responsible for.

The transmission system operator which owns the transmission system shall fulfil the requirements provided for in Chapter VI and be certified in accordance with Article 43. This shall be without prejudice to the pos929

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

sibility for transmission system operators which are certified under the ownership unbundling, the independent system operator or the independent transmission system operator model to delegate, on their own initiative and under their supervision, certain tasks to other transmission system operators which are certified under the ownership unbundling, the independent system operator or the independent transmission system operator model where that delegation of tasks does not endanger the effective and independent decision-making rights of the delegating transmission system operator. 3.    In performing the tasks referred to in paragraph 1, transmission system operators shall take into account the recommendations issued by the regional coordination centres. 4.    In performing the task referred to in point (i) of paragraph 1, transmission system operators shall procure balancing services subject to the following:



(a)

transparent, non-discriminatory and market-based procedures;

(b)

the participation of all qualified electricity undertakings and market participants, including market participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation.

For the purpose of point (b) of the first subparagraph, regulatory authorities and transmission system operators shall, in close cooperation with all market participants, establish technical requirements for participation in those markets, on the basis of the technical characteristics of those markets.

5.    Paragraph 4 shall apply to the provision of non-frequency ancillary services by transmission system operators, unless the regulatory authority has assessed that the market-based provision of non-frequency ancillary services is economically not efficient and has granted a derogation. In particular, the regulatory framework shall ensure that transmission system operators are able to procure such services from providers of demand response or energy storage and shall promote the uptake of energy efficiency measures, where such services cost-effectively alleviate the need 930

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

to upgrade or replace electricity capacity and support the efficient and secure operation of the transmission system. 6.    Transmission system operators, subject to approval by the regulatory authority, or the regulatory authority itself, shall, in a transparent and participatory process that includes all relevant system users and the distribution system operators, establish the specifications for the non-frequency ancillary services procured and, where appropriate, standardised market products for such services at least at national level. The specifications shall ensure the effective and non-discriminatory participation of all market participants, including market participants offering energy from renewable sources, market participants engaged in demand response, operators of energy storage facilities and market participants engaged in aggregation. Transmission system operators shall exchange all necessary information and shall coordinate with distribution system operators in order to ensure the optimal utilisation of resources, to ensure the secure and efficient operation of the system and to facilitate market development. Transmission system operators shall be adequately remunerated for the procurement of such services to allow them to recover at least the reasonable corresponding costs, including the necessary information and communication technology expenses and infrastructure costs. 7.    The obligation to procure non-frequency ancillary services referred to in paragraph 5 does not apply to fully integrated network components. 8.    Member States or their designated competent authorities may allow transmission system operators to perform activities other than those provided for in this Directive and in Regulation (EU) 2019/943 where such activities are necessary for the transmission system operators to fulfil their obligations under this Directive or Regulation (EU) 2019/943, provided that the regulatory authority has assessed the necessity of such a derogation. This paragraph shall be without prejudice to the right of the transmission system operators to own, develop, manage or operate networks other than electricity networks where the Member State or the designated competent authority has granted such a right.

931

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 41 Confidentiality and transparency requirements for transmission system operators and transmission system owners 1.    Without prejudice to Article 55 or another legal duty to disclose information, each transmission system operator and each transmission system owner shall preserve the confidentiality of commercially sensitive information obtained in the course of carrying out its activities, and shall prevent information about its own activities which may be commercially advantageous from being disclosed in a discriminatory manner. In particular it shall not disclose any commercially sensitive information to the remaining parts of the undertaking, unless such disclosure is necessary for carrying out a business transaction. In order to ensure the full respect of the rules on information unbundling, Member States shall ensure that the transmission system owner and the remaining part of the undertaking do not use joint services, such as joint legal services, apart from purely administrative or IT functions. 2.    Transmission system operators shall not, in the context of sales or purchases of electricity by related undertakings, misuse commercially sensitive information obtained from third parties in the context of providing or negotiating access to the system. 3.    Information necessary for effective competition and the efficient functioning of the market shall be made public. That obligation shall be without prejudice to preserving the confidentiality of commercially sensitive information.

932

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 42 Decision-making powers regarding the connection of new generating installations and energy storage facilities to the transmission system 1.    The transmission system operator shall establish and publish transparent and efficient procedures for non-discriminatory connection of new generating installations and energy storage facilities to the transmission system. Those procedures shall be subject to approval by the regulatory authorities. 2.    The transmission system operator shall not be entitled to refuse the connection of a new generating installation or energy storage facility on the grounds of possible future limitations to available network capacities, such as congestion in distant parts of the transmission system. The transmission system operator shall supply necessary information.

The first subparagraph shall be without prejudice to the possibility for transmission system operators to limit the guaranteed connection capacity or to offer connections subject to operational limitations, in order to ensure economic efficiency regarding new generating installations or energy storage facilities, provided that such limitations have been approved by the regulatory authority. The regulatory authority shall ensure that any limitations in guaranteed connection capacity or operational limitations are introduced on the basis of transparent and non-discriminatory procedures and do not create undue barriers to market entry. Where the generating installation or energy storage facility bears the costs related to ensuring unlimited connection, no limitation shall apply.

3.    The transmission system operator shall not be entitled to refuse a new connection point, on the ground that it would lead to additional costs resulting from the necessary capacity increase of system elements in the close-up range to the connection point.

933

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

CHAPTER VI UNBUNDLING OF TRANSMISSION SYSTEM OPERATORS Section 1 Ownership unbundling Article 43 Ownership unbundling of transmission systems and transmission system operators 1.   

Member States shall ensure that: (a)

each undertaking which owns a transmission system acts as a transmission system operator;

(b)

the same person or persons are not entitled either:

(c)

(i)

directly or indirectly to exercise control over an undertaking performing any of the functions of generation or supply, and directly or indirectly to exercise control or exercise any right over a transmission system operator or over a transmission system; or

(ii)

directly or indirectly to exercise control over a transmission system operator or over a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of generation or supply;

the same person or persons are not entitled to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, of a transmission system operator or a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of generation or supply; and

934

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(d)

the same person is not entitled to be a member of the supervisory board, the administrative board or bodies legally representing the undertaking, of both an undertaking performing any of the functions of generation or supply and a transmission system operator or a transmission system.

2.    The rights referred to in points (b) and (c) of paragraph 1 shall include, in particular: (a)

the power to exercise voting rights;

(b)

the power to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking; or

(c)

the holding of a majority share.

3.    For the purpose of point (b) of paragraph  1, the notion ‘undertaking performing any of the functions of generation or supply’ shall include ‘undertaking performing any of the functions of production and supply’ within the meaning of Directive 2009/73/EC, and the terms ‘transmission system operator’ and ‘transmission system’ shall include ‘transmission system operator’ and ‘transmission system’ within the meaning of that Directive. 4.    The obligation set out in point (a) of paragraph 1 shall be deemed to be fulfilled in a situation where two or more undertakings which own transmission systems have created a joint venture which acts as a transmission system operator in two or more Member States for the transmission systems concerned. No other undertaking may be part of the joint venture, unless it has been approved under Article 44 as an independent system operator or as an independent transmission operator for the purposes of Section 3. 5.    For the implementation of this Article, where the person referred to in points (b), (c) and (d) of paragraph 1 is the Member State or another public body, two separate public bodies exercising control over a transmission system operator or over a transmission system on the one hand, and over an undertaking performing any of the functions of generation or supply on the other, shall be deemed not to be the same person or persons. 935

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

6.    Member States shall ensure that neither commercially sensitive information referred to in Article 41 held by a transmission system operator which was part of a vertically integrated undertaking, nor the staff of such a transmission system operator, is transferred to undertakings performing any of the functions of generation and supply. 7.    Where on 3 September 2009, the transmission system belongs to a vertically integrated undertaking a Member State may decide not to apply paragraph 1. In such case, the Member State concerned shall either: (a)

designate an independent system operator in accordance with Article 44; or

(b)

comply with Section 3.

8.    Where, on 3 September 2009, the transmission system belongs to a vertically integrated undertaking and there are arrangements in place which guarantee more effective independence of the transmission system operator than Section 3, a Member State may decide not to apply paragraph 1. 9.    Before an undertaking is approved and designated as a transmission system operator under paragraph 8 of this Article, it shall be certified in accordance with the procedures laid down in Article 52(4), (5), and (6) of this Directive and in Article  51 of Regulation  (EU)  2019/943, pursuant to which the Commission shall verify that the arrangements in place clearly guarantee more effective independence of the transmission system operator than Section 3 of this Chapter. 10.    Vertically integrated undertakings which own a transmission system shall not in any event be prevented from taking steps to comply with paragraph 1. 11.    Undertakings performing any of the functions of generation or supply shall not in any event be able to directly or indirectly take control over or exercise any right over unbundled transmission system operators in Member States which apply paragraph 1.

936

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Section 2 Independent system operator Article 44 Independent system operator 1.

Where the transmission system belongs to a vertically integrated undertaking on 3  September  2009, Member States may decide not to apply Article 43(1) and designate an independent system operator upon a proposal from the transmission system owner. Such designation shall be subject to approval by the Commission.

2.    The Member State may approve and designate an independent system operator provided that: (a)

the candidate operator has demonstrated that it complies with the requirements laid down in points (b), (c) and (d) of Article 43(1);

(b)

the candidate operator has demonstrated that it has at its disposal the required financial, technical, physical and human resources to carry out its tasks under Article 40;

(c)

the candidate operator has undertaken to comply with a ten-year network development plan monitored by the regulatory authority;

(d)

the transmission system owner has demonstrated its ability to comply with its obligations under paragraph 5. To that end, it shall provide all the draft contractual arrangements with the candidate operator and any other relevant entity; and

(e)

the candidate operator has demonstrated its ability to comply with its obligations under Regulation  (EU)  2019/943, including the cooperation of transmission system operators at European and regional level.

3.    Undertakings which have been certified by the regulatory authority as having complied with the requirements of Article 53 and paragraph 2 of 937

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

this Article shall be approved and designated as independent system operators by Member States. The certification procedure in either Article 52 of this Directive and Article 51 of Regulation (EU) 2019/943 or in Article 53 of this Directive shall be applicable. 4.    Each independent system operator shall be responsible for granting and managing third-party access, including the collection of access charges, congestion charges, and payments under the inter-transmission system operator compensation mechanism in accordance with Article  49 of Regulation  (EU)  2019/943, as well as for operating, maintaining and developing the transmission system, and for ensuring the long-term ability of the system to meet reasonable demand through investment planning. When developing the transmission system, the independent system operator shall be responsible for planning (including authorisation procedure), construction and commissioning of the new infrastructure. For this purpose, the independent system operator shall act as a transmission system operator in accordance with this Section. The transmission system owner shall not be responsible for granting and managing third-party access, nor for investment planning. 5.    Where an independent system operator has been designated, the transmission system owner shall: (a)

provide all the relevant cooperation and support to the independent system operator for the fulfilment of its tasks, including in particular all relevant information;

(b)

finance the investments decided by the independent system operator and approved by the regulatory authority, or give its agreement to financing by any interested party including the independent system operator. The relevant financing arrangements shall be subject to approval by the regulatory authority. Prior to such approval, the regulatory authority shall consult the transmission system owner together with the other interested parties;

(c)

provide for the coverage of liability relating to the network assets, excluding the liability relating to the tasks of the independent system operator; and

938

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(d)

provide guarantees to facilitate financing any network expansions with the exception of those investments where, pursuant to point (b), it has given its agreement to financing by any interested party including the independent system operator.

6.    In close cooperation with the regulatory authority, the relevant national competition authority shall be granted all relevant powers to effectively monitor compliance of the transmission system owner with its obligations under paragraph 5. Article 45 Unbundling of transmission system owners 1.    A transmission system owner, where an independent system operator has been appointed, which is part of a vertically integrated undertaking shall be independent at least in terms of its legal form, organisation and decision-making from other activities not relating to transmission. 2.    In order to ensure the independence of the transmission system owner referred to in paragraph 1, the following minimum criteria shall apply: (a)

persons responsible for the management of the transmission system owner shall not participate in company structures of the integrated electricity undertaking responsible, directly or indirectly, for the day-to-day operation of the generation, distribution and supply of electricity;

(b)

appropriate measures shall be taken to ensure that the professional interests of persons responsible for the management of the transmission system owner are taken into account in a manner that ensures that they are capable of acting independently; and

(c)

the transmission system owner shall establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded, and ensure that observance of it is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet those objectives. An annual report, setting out the measures taken, shall be submitted 939

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

by the person or body responsible for monitoring the compliance programme to the regulatory authority and shall be published. Section 3 Independent transmission operators Article 46 Assets, equipment, staff and identity 1.    Transmission system operators shall be equipped with all human, technical, physical and financial resources necessary for fulfilling their obligations under this Directive and carrying out the activity of electricity transmission, in particular: (a)

assets that are necessary for the activity of electricity transmission, including the transmission system, shall be owned by the transmission system operator;

(b)

personnel, necessary for the activity of electricity transmission, including the performance of all corporate tasks, shall be employed by the transmission system operator;

(c)

leasing of personnel and rendering of services, to and from other parts of the vertically integrated undertaking shall be prohibited. A transmission system operator may, however, render services to the vertically integrated undertaking, provided that: (i)

the provision of those services does not discriminate between system users, is available to all system users on the same terms and conditions and does not restrict, distort or prevent competition in generation or supply; and

(ii)

the terms and conditions of the provision of those services are approved by the regulatory authority;

940

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(d)

without prejudice to the decisions of the Supervisory Body under Article  49, appropriate financial resources for future investment projects and/or for the replacement of existing assets shall be made available to the transmission system operator in due time by the vertically integrated undertaking after an appropriate request from the transmission system operator.

2.    The activity of electricity transmission shall include at least the following tasks in addition to those listed in Article 40:

3.

(a)

the representation of the transmission system operator and contacts to third parties and the regulatory authorities;

(b)

the representation of the transmission system operator within the ENTSO for Electricity;

(c)

granting and managing third-party access on a non-discriminatory basis between system users or classes of system users;

(d)

the collection of all the transmission system related charges including access charges, energy for losses and ancillary services charges;

(e)

the operation, maintenance and development of a secure, efficient and economic transmission system;

(f )

investment planning ensuring the long-term ability of the system to meet reasonable demand and guaranteeing security of supply;

(g)

the setting up of appropriate joint ventures, including with one or more transmission system operators, power exchanges, and the other relevant actors pursuing the objectives to develop the creation of regional markets or to facilitate the liberalisation process; and

(h)

all corporate services, including legal services, accountancy and IT services.

Transmission system operators shall be organised in a legal form as referred to in Annex I to Directive (EU) 2017/1132 of the European Parliament and of the Council (26). 941

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

4.

The transmission system operator shall not, in its corporate identity, communication, branding and premises, create confusion with respect to the separate identity of the vertically integrated undertaking or any part thereof.

5.    The transmission system operator shall not share IT systems or equipment, physical premises and security access systems with any part of the vertically integrated undertaking nor use the same consultants or external contractors for IT systems or equipment, and security access systems. 6.    The accounts of transmission system operators shall be audited by an auditor other than the one auditing the vertically integrated undertaking or any part thereof. Article 47 Independence of the transmission system operator 1.    Without prejudice to the decisions of the Supervisory Body under Article 49, the transmission system operator shall have: (a)

effective decision-making rights, independent from the vertically integrated undertaking, with respect to assets necessary to operate, maintain or develop the transmission system; and

(b)

the power to raise money on the capital market in particular through borrowing and capital increase.

2.    The transmission system operator shall at all times act so as to ensure it has the resources it needs in order to carry out the activity of transmission properly and efficiently and develop and maintain an efficient, secure and economic transmission system. 3.   

Subsidiaries of the vertically integrated undertaking performing functions of generation or supply shall not have any direct or indirect shareholding in the transmission system operator. The transmission system operator shall neither have any direct or indirect shareholding in any subsidiary of the vertically integrated undertaking performing functions of generation or supply, nor receive dividends or other financial benefits from that subsidiary. 942

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

4.    The overall management structure and the corporate statutes of the transmission system operator shall ensure effective independence of the transmission system operator in accordance with this Section. The vertically integrated undertaking shall not determine, directly or indirectly, the competitive behaviour of the transmission system operator in relation to the day-to-day activities of the transmission system operator and management of the network, or in relation to activities necessary for the preparation of the ten-year network development plan developed pursuant to Article 51. 5.    In fulfilling their tasks in Article 40 and Article 46(2) of this Directive, and in complying with obligations set out in Articles 16, 18, 19 and 50 of Regulation (EU) 2019/943, transmission system operators shall not discriminate against different persons or entities and shall not restrict, distort or prevent competition in generation or supply. 6.    Any commercial and financial relations between the vertically integrated undertaking and the transmission system operator, including loans from the transmission system operator to the vertically integrated undertaking, shall comply with market conditions. The transmission system operator shall keep detailed records of such commercial and financial relations and make them available to the regulatory authority upon request. 7.    The transmission system operator shall submit for approval by the regulatory authority all commercial and financial agreements with the vertically integrated undertaking. 8.    The transmission system operator shall inform the regulatory authority of the financial resources, referred to in point (d) of Article 46(1), available for future investment projects and/or for the replacement of existing assets. 9.    The vertically integrated undertaking shall refrain from any action impeding or prejudicing the transmission system operator from complying with its obligations in this Chapter and shall not require the transmission system operator to seek permission from the vertically integrated undertaking in fulfilling those obligations. 10.    An undertaking which has been certified by the regulatory authority as being in accordance with the requirements of this Chapter shall be ap943

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

proved and designated as a transmission system operator by the Member State concerned. The certification procedure in either Article 52 of this Directive and Article 51 of Regulation (EU) 2019/943 or in Article 53 of this Directive shall apply. Article 48 Independence of the staff and the management of the transmission system operator 1.    Decisions regarding the appointment and renewal, working conditions including remuneration, and termination of the term of office of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator shall be taken by the Supervisory Body of the transmission system operator appointed in accordance with Article 49. 2.    The identity and the conditions governing the term, the duration and the termination of office of the persons nominated by the Supervisory Body for appointment or renewal as persons responsible for the executive management and/or as members of the administrative bodies of the transmission system operator, and the reasons for any proposed decision terminating such term of office, shall be notified to the regulatory authority. Those conditions and the decisions referred to in paragraph 1 shall become binding only if the regulatory authority has raised no objections within three weeks of notification.

The regulatory authority may object to the decisions referred to in paragraph 1 where: (a)

doubts arise as to the professional independence of a nominated person responsible for the management and/or member of the administrative bodies; or

(b)

in the case of premature termination of a term of office, doubts exist regarding the justification of such premature termination.

944

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

3.    No professional position or responsibility, interest or business relationship, directly or indirectly, with the vertically integrated undertaking or any part of it or its controlling shareholders other than the transmission system operator shall be exercised for a period of three years before the appointment of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator who are subject to this paragraph. 4.    The persons responsible for the management and/or members of the administrative bodies, and employees of the transmission system operator shall have no other professional position or responsibility, interest or business relationship, directly or indirectly, with another part of the vertically integrated undertaking or with its controlling shareholders. 5.    The persons responsible for the management and/or members of the administrative bodies, and employees of the transmission system operator shall hold no interest in or receive any financial benefit, directly or indirectly, from any part of the vertically integrated undertaking other than the transmission system operator. Their remuneration shall not depend on activities or results of the vertically integrated undertaking other than those of the transmission system operator. 6.    Effective rights of appeal to the regulatory authority shall be guaranteed for any complaints by the persons responsible for the management and/ or members of the administrative bodies of the transmission system operator against premature terminations of their term of office. 7.    After termination of their term of office in the transmission system operator, the persons responsible for its management and/or members of its administrative bodies shall have no professional position or responsibility, interest or business relationship with any part of the vertically integrated undertaking other than the transmission system operator, or with its controlling shareholders for a period of not less than four years. 8.    Paragraph 3 shall apply to the majority of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator.

945

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity



The persons responsible for the management and/or members of the administrative bodies of the transmission system operator who are not subject to paragraph 3 shall have exercised no management or other relevant activity in the vertically integrated undertaking for a period of at least six months before their appointment.



The first subparagraph of this paragraph and paragraphs 4 to 7 shall be applicable to all the persons belonging to the executive management and to those directly reporting to them on matters related to the operation, maintenance or development of the network. Article 49 Supervisory Body

1.    The transmission system operator shall have a Supervisory Body which shall be in charge of taking decisions which may have a significant impact on the value of the assets of the shareholders within the transmission system operator, in particular decisions regarding the approval of the annual and longer-term financial plans, the level of indebtedness of the transmission system operator and the amount of dividends distributed to shareholders. The decisions falling under the remit of the Supervisory Body shall exclude those that are related to the day-to-day activities of the transmission system operator and management of the network, and to activities necessary for the preparation of the ten-year network development plan developed pursuant to Article 51. 2.    The Supervisory Body shall be composed of members representing the vertically integrated undertaking, members representing third-party shareholders and, where the relevant national law so provides, members representing other interested parties such as employees of the transmission system operator. 3.    The first subparagraph of Article 48(2) and Article 48(3) to (7) shall apply to at least half of the members of the Supervisory Body minus one.

Point (b) of the second subparagraph of Article 48(2) shall apply to all the members of the Supervisory Body.

946

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 50 Compliance programme and compliance officer 1.    Member States shall ensure that transmission system operators establish and implement a compliance programme which sets out the measures taken in order to ensure that discriminatory conduct is excluded, and ensure that the compliance with that programme is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet those objectives.  It shall be subject to approval by the regulatory authority. Without prejudice to the powers of the regulatory authority, compliance with the programme shall be independently monitored by a compliance officer. 2.    The compliance officer shall be appointed by the Supervisory Body, subject to approval by the regulatory authority. The regulatory authority may refuse the approval of the compliance officer only for reasons of lack of independence or professional capacity. The compliance officer may be a natural or legal person. Article 48(2) to (8) shall apply to the compliance officer. 3.    The compliance officer shall be in charge of: (a)

monitoring the implementation of the compliance programme;

(b)

elaborating an annual report, setting out the measures taken in order to implement the compliance programme and submitting it to the regulatory authority;

(c)

reporting to the Supervisory Body and issuing recommendations on the compliance programme and its implementation;

(d)

notifying the regulatory authority on any substantial breaches with regard to the implementation of the compliance programme; and

(e)

reporting to the regulatory authority on any commercial and financial relations between the vertically integrated undertaking and the transmission system operator.

947

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

4.    The compliance officer shall submit the proposed decisions on the investment plan or on individual investments in the network to the regulatory authority. This shall occur at the latest when the management and/or the competent administrative body of the transmission system operator submits them to the Supervisory Body. 5.    Where the vertically integrated undertaking, in the general assembly or through the vote of the members of the Supervisory Body it has appointed, has prevented the adoption of a decision with the effect of preventing or delaying investments, which under the ten-year network development plan was to be executed in the following three years, the compliance officer shall report this to the regulatory authority, which then shall act in accordance with Article 51. 6.    The conditions governing the mandate or the employment conditions of the compliance officer, including the duration of its mandate, shall be subject to approval by the regulatory authority. Those conditions shall ensure the independence of the compliance officer, including by providing all the resources necessary for fulfilling the compliance officer’s duties. During his or her mandate, the compliance officer shall have no other professional position, responsibility or interest, directly or indirectly, in or with any part of the vertically integrated undertaking or with its controlling shareholders. 7.    The compliance officer shall report regularly, either orally or in writing, to the regulatory authority and shall have the right to report regularly, either orally or in writing, to the Supervisory Body of the transmission system operator. 8.    The compliance officer may attend all meetings of the management or administrative bodies of the transmission system operator, and those of the Supervisory Body and the general assembly. The compliance officer shall attend all meetings that address the following matters: (a)

conditions for access to the network, as laid down in Regulation  (EU)  2019/943, in particular regarding tariffs, third-party access services, capacity allocation and congestion management, transparency, ancillary services and secondary markets;

948

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(b)

projects undertaken in order to operate, maintain and develop the transmission system, including interconnection and connection investments;

(c)

energy purchases or sales necessary for the operation of the transmission system.

9.    The compliance officer shall monitor the compliance of the transmission system operator with Article 41. 10.    The compliance officer shall have access to all relevant data and to the offices of the transmission system operator and to all the information necessary for the fulfilment of his task. 11.    The compliance officer shall have access to the offices of the transmission system operator without prior announcement. 12.    After prior approval by the regulatory authority, the Supervisory Body may dismiss the compliance officer. It shall dismiss the compliance officer for reasons of lack of independence or professional capacity upon request of the regulatory authority. Article 51 Network development and powers to make investment decisions 1.    At least every two years, transmission system operators shall submit to the regulatory authority a ten-year network development plan based on existing and forecast supply and demand after having consulted all the relevant stakeholders. That network development plan shall contain efficient measures in order to guarantee the adequacy of the system and the security of supply. The transmission system operator shall publish the ten-year network development plan on its website. 2.    The ten-year network development plan shall in particular: (a)

indicate to market participants the main transmission infrastructure that needs to be built or upgraded over the next ten years;

949

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(b)

contain all the investments already decided and identify new investments which have to be executed in the next three years; and

(c)

provide for a time frame for all investment projects.

3.    When elaborating the ten-year network development plan, the transmission system operator shall fully take into account the potential for the use of demand response, energy storage facilities or other resources as alternatives to system expansion, as well as expected consumption, trade with other countries and investment plans for Union-wide and regional networks. 4.    The regulatory authority shall consult all actual or potential system users on the ten-year network development plan in an open and transparent manner. Persons or undertakings claiming to be potential system users may be required to substantiate such claims.  The regulatory authority shall publish the result of the consultation process, in particular possible needs for investments. 5.    The regulatory authority shall examine whether the ten-year network development plan covers all investment needs identified during the consultation process, and whether it is consistent with the non-binding Union-wide ten-year network development plan (‘Union-wide network development plan’) referred to in point (b) of Article 30(1) of Regulation (EU) 2019/943. If any doubt arises as to the consistency with the Union-wide network development plan, the regulatory authority shall consult ACER. The regulatory authority may require the transmission system operator to amend its ten-year network development plan.

The competent national authorities shall examine the consistency of the ten-year network development plan with the national energy and climate plan submitted in accordance with Regulation (EU) 2018/1999.

6.    The regulatory authority shall monitor and evaluate the implementation of the ten-year network development plan. 7.    In circumstances where the transmission system operator, other than for overriding reasons beyond its control, does not execute an investment, which, under the ten-year network development plan, was to be executed in the following three years, Member States shall ensure that the regula950

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

tory authority is required to take at least one of the following measures to ensure that the investment in question is made if such investment is still relevant on the basis of the most recent ten-year network development plan: (a)

to require the transmission system operator to execute the investments in question;

(b)

to organise a tender procedure open to any investors for the investment in question; or

(c)

to oblige the transmission system operator to accept a capital increase to finance the necessary investments and allow independent investors to participate in the capital.

8.    Where the regulatory authority has made use of its powers under point (b) of paragraph 7, it may oblige the transmission system operator to agree to one or more of the following: (a)

financing by any third party;

(b)

construction by any third party;

(c)

building the new assets concerned itself;

(d)

operating the new asset concerned itself.



The transmission system operator shall provide the investors with all information needed to realise the investment, shall connect new assets to the transmission network and shall generally make its best efforts to facilitate the implementation of the investment project.



The relevant financial arrangements shall be subject to approval by the regulatory authority.

9.    Where the regulatory authority has made use of its powers under paragraph 7, the relevant tariff regulations shall cover the costs of the investments in question.

951

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Section 4 Designation and certification of transmission system operators Article 52 Designation and certification of transmission system operators 1.    Before an undertaking is approved and designated as transmission system operator, it shall be certified in accordance with the procedures laid down in paragraphs 4, 5 and 6 of this Article and in Article 51 of Regulation (EU) 2019/943. 2.    Undertakings which have been certified by the regulatory authority as having complied with the requirements of Article 43 pursuant to the certification procedure below, shall be approved and designated as transmission system operators by Member States. The designation of transmission system operators shall be notified to the Commission and published in the Official Journal of the European Union. 3.    Transmission system operators shall notify to the regulatory authority any planned transaction which may require a reassessment of their compliance with the requirements of Article 43. 4.    Regulatory authorities shall monitor the continuing compliance of transmission system operators with the requirements of Article 43. They shall open a certification procedure to ensure such compliance: (a)

upon notification by the transmission system operator pursuant to paragraph 3;

(b)

on their own initiative where they have knowledge that a planned change in rights or influence over transmission system owners or transmission system operators may lead to an infringement of Article 43, or where they have reason to believe that such an infringement may have occurred; or

(c)

upon a reasoned request from the Commission.

952

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

5.    The regulatory authorities shall adopt a decision on the certification of a transmission system operator within four months of the date of the notification by the transmission system operator or from the date of the Commission request. After expiry of that period, the certification shall be deemed to be granted. The explicit or tacit decision of the regulatory authority shall become effective only after conclusion of the procedure set out in paragraph 6. 6.    The explicit or tacit decision on the certification of a transmission system operator shall be notified without delay to the Commission by the regulatory authority, together with all the relevant information with respect to that decision. The Commission shall act in accordance with the procedure laid down in Article 51 of Regulation (EU) 2019/943. 7.    The regulatory authorities and the Commission may request from transmission system operators and undertakings performing any of the functions of generation or supply any information relevant for the fulfilment of their tasks under this Article. 8.    Regulatory authorities and the Commission shall preserve the confidentiality of commercially sensitive information. Article 53 Certification in relation to third countries 1.    Where certification is requested by a transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries, the regulatory authority shall notify the Commission.

The regulatory authority shall also notify to the Commission without delay any circumstances that would result in a person or persons from a third country or third countries acquiring control of a transmission system or a transmission system operator.

953

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2.    The transmission system operator shall notify to the regulatory authority any circumstances that would result in a person or persons from a third country or third countries acquiring control of the transmission system or the transmission system operator. 3.    The regulatory authority shall adopt a draft decision on the certification of a transmission system operator within four months of the date of notification by the transmission system operator. It shall refuse the certification if it has not been demonstrated: (a)

that the entity concerned complies with the requirements of Article 43; and

(b)

to the regulatory authority or to another competent national authority designated by the Member State that granting certification will not put at risk the security of energy supply of the Member State and the Union. In considering that question the regulatory authority or other competent national authority shall take into account: (i)

the rights and obligations of the Union with respect to that third country arising under international law, including any agreement concluded with one or more third countries to which the Union is a party and which addresses the issues of security of energy supply;

(ii)

the rights and obligations of the Member State with respect to that third country arising under agreements concluded with it, insofar as they comply with Union law; and

(iii) other specific facts and circumstances of the case and the third country concerned. 4.    The regulatory authority shall notify the decision to the Commission without delay, together with all the relevant information with respect to that decision.

954

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

5.    Member States shall provide for the regulatory authority or the designated competent authority referred to in point (b) of paragraph 3, before the regulatory authority adopts a decision on the certification, to request an opinion from the Commission on whether: (a)

the entity concerned complies with the requirements of Article 43; and

(b)

granting certification will not put at risk the security of energy supply to the Union.

6.    The Commission shall examine the request referred to in paragraph 5 as soon as it is received. Within two months of receiving the request, it shall deliver its opinion to the regulatory authority or, if the request was made by the designated competent authority, to that authority.

In preparing the opinion, the Commission may request the views of ACER, the Member State concerned, and interested parties. In the event that the Commission makes such a request, the two-month period shall be extended by two months.



In the absence of an opinion by the Commission within the period referred to in the first and second subparagraphs, the Commission shall be deemed not to raise objections to the decision of the regulatory authority.

7.    When assessing whether the control by a person or persons from a third country or third countries will put at risk the security of energy supply to the Union, the Commission shall take into account: (a)

the specific facts of the case and the third country or third countries concerned; and

(b)

the rights and obligations of the Union with respect to that third country or third countries arising under international law, including an agreement concluded with one or more third countries to which the Union is a party and which addresses the issues of security of supply.

8.    The regulatory authority shall, within two months of the expiry of the period referred to in paragraph 6, adopt its final decision on the certifica955

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

tion. In adopting its final decision the regulatory authority shall take utmost account of the Commission’s opinion. In any event Member States shall have the right to refuse certification where granting certification puts at risk the Member State’s security of energy supply or the security of energy supply of another Member State. Where the Member State has designated another competent national authority to make the assessment referred to in point (b) of paragraph 3, it may require the regulatory authority to adopt its final decision in accordance with the assessment of that competent national authority. The regulatory authority’s final decision and the Commission’s opinion shall be published together. Where the final decision diverges from the Commission’s opinion, the Member State concerned shall provide and publish, together with that decision, the reasoning underlying such decision. 9.    Nothing in this Article shall affect the right of Member States to exercise, in accordance with Union law, national legal controls to protect legitimate public security interests. 10.   This Article, with exception of point (a) of paragraph 3 thereof, shall also apply to Member States which are subject to a derogation under Article 66. Article 54 Ownership of energy storage facilities by transmission system operators 1.    Transmission system operators shall not own, develop, manage or operate energy storage facilities. 2.    By way of derogation from paragraph 1, Member States may allow transmission system operators to own, develop, manage or operate energy storage facilities, where they are fully integrated network components and the regulatory authority has granted its approval, or where all of the following conditions are fulfilled: (a)

other parties, following an open, transparent and non-discriminatory tendering procedure that is subject to review and approval by the regulatory authority, have not been awarded a right to own, develop, manage or operate such facilities, or could not deliver those services at a reasonable cost and in a timely manner; 956

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity



(b)

such facilities or non-frequency ancillary services are necessary for the transmission system operators to fulfil their obligations under this Directive for the efficient, reliable and secure operation of the transmission system and they are not used to buy or sell electricity in the electricity markets; and

(c)

the regulatory authority has assessed the necessity of such a derogation, has carried out an ex ante review of the applicability of a tendering procedure, including the conditions of the tendering procedure, and has granted its approval.

The regulatory authority may draw up guidelines or procurement clauses to help transmission system operators ensure a fair tendering procedure.

3.    The decision to grant a derogation shall be notified to the Commission and ACER together with relevant information about the request and the reasons for granting the derogation. 4.    The regulatory authorities shall perform, at regular intervals or at least every five years, a public consultation on the existing energy storage facilities in order to assess the potential availability and interest of other parties in investing in such facilities. Where the public consultation, as assessed by the regulatory authority, indicates that other parties are able to own, develop, operate or manage such facilities in a cost-effective manner, the regulatory authority shall ensure that transmission system operators’ activities in this regard are phased-out within 18 months. As part of the conditions of that procedure, regulatory authorities may allow the transmission system operators to receive reasonable compensation, in particular to recover the residual value of their investment in the energy storage facilities. 5.    Paragraph 4 shall not apply to fully integrated network components or for the usual depreciation period of new battery storage facilities with a final investment decision until 2024, provided that such battery storage facilities are: (a)

connected to the grid at the latest two years thereafter;

(b)

integrated into the transmission system;

957

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(c)

used only for the reactive instantaneous restoration of network security in the case of network contingencies where such restoration measure starts immediately and ends when regular re-dispatch can solve the issue; and

(d)

not used to buy or sell electricity in the electricity markets, including balancing. Section 5 Unbundling and transparency of accounts Article 55 Right of access to accounts

1.    Member States or any competent authority that they designate, including the regulatory authorities referred to in Article 57, shall, insofar as necessary to carry out their functions, have right of access to the accounts of electricity undertakings as set out in Article 56. 2.    Member States and any designated competent authority, including the regulatory authorities, shall preserve the confidentiality of commercially sensitive information. Member States may provide for the disclosure of such information where such disclosure is necessary in order for the competent authorities to carry out their functions. Article 56 Unbundling of accounts 1.    Member States shall take the necessary steps to ensure that the accounts of electricity undertakings are kept in accordance with paragraphs  2 and 3. 2.    Electricity undertakings, whatever their system of ownership or legal form, shall draw up, submit to audit and publish their annual accounts in accordance with the rules of national law concerning the annual accounts 958

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

of limited liability companies adopted pursuant to Directive 2013/34/ EU.

Undertakings which are not legally obliged to publish their annual accounts shall keep a copy of these at the disposal of the public in their head office.

3.    Electricity undertakings shall, in their internal accounting, keep separate accounts for each of their transmission and distribution activities as they would be required to do if the activities in question were carried out by separate undertakings, with a view to avoiding discrimination, cross-subsidisation and distortion of competition. They shall also keep accounts, which may be consolidated, for other electricity activities not relating to transmission or distribution. Revenue from ownership of the transmission or distribution system shall be specified in the accounts. Where appropriate, they shall keep consolidated accounts for other, non-electricity activities. The internal accounts shall include a balance sheet and a profit and loss account for each activity. 4.    The audit referred to in paragraph 2 shall, in particular, verify that the obligation to avoid discrimination and cross-subsidisation referred to in paragraph 3 is respected. CHAPTER VII REGULATORY AUTHORITIES Article 57 Designation and independence of regulatory authorities 1.    Each Member State shall designate a single regulatory authority at national level. 2.    Paragraph 1 shall be without prejudice to the designation of other regulatory authorities at regional level within Member States, provided that there is one senior representative for representation and contact purposes at Union level within ACER’s Board of Regulators in accordance with Article 21(1) of Regulation (EU) 2019/942. 959

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

3.    By way of derogation from paragraph 1, a Member State may designate regulatory authorities for small systems in a geographically separate region whose consumption, in 2008, accounted for less than 3  % of the total consumption of the Member State of which it is part. That derogation shall be without prejudice to the appointment of one senior representative for representation and contact purposes at Union level within ACER’s Board of Regulators in accordance with Article 21(1) of Regulation (EU) 2019/942. 4.    Member States shall guarantee the independence of the regulatory authority and shall ensure that it exercises its powers impartially and transparently. For that purpose, Member  States shall ensure that, when carrying out the regulatory tasks conferred upon it by this Directive and related legislation, the regulatory authority: (a)

is legally distinct and functionally independent from other public or private entities;

(b)

ensures that its staff and the persons responsible for its management: (i)

act independently from any market interest; and

(ii)

do not seek or take direct instructions from any government or other public or private entity when carrying out the regulatory tasks. That requirement is without prejudice to close cooperation, as appropriate, with other relevant national authorities or to general policy guidelines issued by the government not related to the regulatory powers and duties under Article 59.

5.    In order to protect the independence of the regulatory authority, Member States shall in particular ensure that: (a)

the regulatory authority can take autonomous decisions, independently from any political body;

(b)

the regulatory authority has all the necessary human and financial resources it needs to carry out its duties and exercise its powers in an effective and efficient manner; 960

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity



(c)

the regulatory authority has a separate annual budget allocation and autonomy in the implementation of the allocated budget;

(d)

the members of the board of the regulatory authority or, in the absence of a board, the regulatory authority’s top management are appointed for a fixed term of five up to seven years, renewable once;

(e)

the members of the board of the regulatory authority or, in the absence of a board, the regulatory authority’s top management are appointed based on objective, transparent and published criteria, in an independent and impartial procedure, which ensures that the candidates have the necessary skills and experience for the relevant position in the regulatory authority;

(f )

conflict of interest provisions are in place and confidentiality obligations extend beyond the end of the mandate of the members of the board of the regulatory authority or, in the absence of a board, the end of the mandate of the regulatory authority’s top management;

(g)

the members of the board of the regulatory authority or, in the absence of a board, the regulatory authority’s top management can be dismissed only based on transparent criteria in place.

In regard to point (d) of the first subparagraph, Member States shall ensure an appropriate rotation scheme for the board or the top management. The members of the board or, in the absence of a board, members of the top management may be relieved from office during their term only if they no longer fulfil the conditions set out in this Article or have been guilty of misconduct under national law.

6.    Member States may provide for the ex post control of the regulatory authorities’ annual accounts by an independent auditor. 7.    By 5 July 2022 and every four years thereafter, the Commission shall submit a report to the European Parliament and the Council on the compliance of national authorities with the principle of independence set out in this Article.

961

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 58 General objectives of the regulatory authority In carrying out the regulatory tasks specified in this Directive, the regulatory authority shall take all reasonable measures in pursuit of the following objectives within the framework of its duties and powers as laid down in Article 59, in close consultation with other relevant national authorities, including competition authorities, as well as authorities, including regulatory authorities, from neighbouring Member States and neighbouring third countries, as appropriate, and without prejudice to their competence: (a)

promoting, in close cooperation with regulatory authorities of other Member States, the Commission and ACER, a competitive, flexible, secure and environmentally sustainable internal market for electricity within the Union, and effective market opening for all customers and suppliers in the Union, and ensuring appropriate conditions for the effective and reliable operation of electricity networks, taking into account long-term objectives;

(b)

developing competitive and properly functioning regional cross-border markets within the Union with a view to achieving the objectives referred to in point (a);

(c)

eliminating restrictions on trade in electricity between Member States, including developing appropriate cross-border transmission capacities to meet demand and enhancing the integration of national markets which may facilitate electricity flows across the Union;

(d)

helping to achieve, in the most cost-effective way, the development of secure, reliable and efficient non-discriminatory systems that are consumeroriented, and promoting system adequacy and, in accordance with general energy policy objectives, energy efficiency, as well as the integration of large and small-scale production of electricity from renewable sources and distributed generation in both transmission and distribution networks, and facilitating their operation in relation to other energy networks of gas or heat;

962

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(e)

facilitating access to the network for new generation capacity and energy storage facilities, in particular removing barriers that could prevent access for new market entrants and of electricity from renewable sources;

(f )

ensuring that system operators and system users are granted appropriate incentives, in both the short and the long term, to increase efficiencies, especially energy efficiency, in system performance and to foster market integration;

(g)

ensuring that customers benefit through the efficient functioning of their national market, promoting effective competition and helping to ensure a high level of consumer protection, in close cooperation with relevant consumer protection authorities;

(h)

helping to achieve high standards of universal service and of public service in electricity supply, contributing to the protection of vulnerable customers and contributing to the compatibility of necessary data exchange processes for customer switching. Article 59 Duties and powers of the regulatory authorities

1.    The regulatory authority shall have the following duties: (a)

fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies, or both;

(b)

ensuring the compliance of transmission system operators and distribution system operators and, where relevant, system owners, as well as the compliance of any electricity undertakings and other market participants, with their obligations under this Directive, Regulation  (EU)  2019/943, the network codes and the guidelines adopted pursuant to Articles 59, 60 and 61 of Regulation (EU) 2019/943, and other relevant Union law, including as regards cross-border issues, as well as with ACER’s decisions;

963

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(c)

in close coordination with the other regulatory authorities, ensuring the compliance of the ENTSO for Electricity and the EU DSO entity with their obligations under this Directive, Regulation (EU) 2019/943, the network codes and guidelines adopted pursuant to Articles 59, 60 and 61 of Regulation (EU) 2019/943, and other relevant Union law, including as regards cross-border issues, as well as with ACER’s decisions, and jointly identifying non-compliance of the ENTSO for Electricity and the EU DSO entity with their respective obligations; where the regulatory authorities have not been able to reach an agreement within a period of four months after the start of consultations for the purpose of jointly identifying non-compliance, the matter shall be referred to the ACER for a decision, pursuant to Article 6(10) of Regulation (EU) 2019/942;

(d)

approving products and procurement process for non-frequency ancillary services;

(e)

implementing the network codes and guidelines adopted pursuant to Articles 59, 60 and 61 of Regulation (EU) 2019/943 through national measures or, where so required, coordinated regional or Union-wide measures;

(f )

cooperating in regard to cross-border issues with the regulatory authority or authorities of the Member States concerned and with ACER, in particular through participation in the work of ACER’s Board of Regulators pursuant to Article 21 of Regulation (EU) 2019/942;

(g)

complying with, and implementing, any relevant legally binding decisions of the Commission and of ACER;

(h)

ensuring that transmission system operators make available interconnector capacities to the utmost extent pursuant to Article 16 of Regulation (EU) 2019/943;

(i)

reporting annually on its activity and the fulfilment of its duties to the relevant authorities of the Member States, the Commission and ACER, including on the steps taken and the results obtained as regards each of the tasks listed in this Article; 964

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(j)

ensuring that there is no cross-subsidisation between transmission, distribution and supply activities or other electricity or non-electricity activities;

(k)

monitoring investment plans of the transmission system operators and providing in its annual report an assessment of the investment plans of the transmission system operators as regards their consistency with the Union-wide network development plan; such assessment may include recommendations to amend those investment plans;

(l)

monitoring and assessing the performance of transmission system operators and distribution system operators in relation to the development of a smart grid that promotes energy efficiency and the integration of energy from renewable sources, based on a limited set of indicators, and publish a national report every two years, including recommendations;

(m) setting or approving standards and requirements for quality of service and quality of supply or contributing thereto together with other competent authorities and monitoring compliance with and reviewing the past performance of network security and reliability rules; (n)

monitoring the level of transparency, including of wholesale prices, and ensuring compliance of electricity undertakings with transparency obligations;

(o)

monitoring the level and effectiveness of market opening and competition at wholesale and retail levels, including on electricity exchanges, prices for household customers including prepayment systems, the impact of dynamic electricity price contracts and of the use of smart metering systems, switching rates, disconnection rates, charges for maintenance services, the execution of maintenance services, the relationship between household and wholesale prices, the evolution of grid tariffs and levies, and complaints by household customers, as well as any distortion or restriction of competition, including by providing any relevant information, and bringing any relevant cases to the relevant competition authorities;

965

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(p)

monitoring the occurrence of restrictive contractual practices, including exclusivity clauses which may prevent customers from contracting simultaneously with more than one supplier or restrict their choice to do so, and, where appropriate, informing the national competition authorities of such practices;

(q)

monitoring the time taken by transmission system operators and distribution system operators to make connections and repairs;

(r)

helping to ensure, together with other relevant authorities, that the consumer protection measures are effective and enforced;

(s)

publishing recommendations, at least annually, in relation to compliance of supply prices with Article 5, and providing those recommendations to the competition authorities, where appropriate;

(t)

ensuring non-discriminatory access to customer consumption data, the provision, for optional use, of an easily understandable harmonised format at national level for consumption data, and prompt access for all customers to such data pursuant to Articles 23 and 24;

(u)

monitoring the implementation of rules relating to the roles and responsibilities of transmission system operators, distribution system operators, suppliers, customers and other market participants pursuant to Regulation (EU) 2019/943;

(v)

monitoring investment in generation and storage capacities in relation to security of supply;

(w) monitoring technical cooperation between Union and thirdcountry transmission system operators; (x)

contributing to the compatibility of data exchange processes for the most important market processes at regional level;

(y)

monitoring the availability of comparison tools that meet the requirements set out in Article 14;

966

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(z)

monitoring the removal of unjustified obstacles to and restrictions on the development of consumption of self-generated electricity and citizen energy communities.

2.    Where a Member State has so provided, the monitoring duties set out in paragraph 1 may be carried out by other authorities than the regulatory authority. In such a case, the information resulting from such monitoring shall be made available to the regulatory authority as soon as possible.

While preserving their independence, without prejudice to their own specific competence and consistent with the principles of better regulation, the regulatory authority shall, as appropriate, consult transmission system operators and, as appropriate, closely cooperate with other relevant national authorities when carrying out the duties set out in paragraph 1.



Any approvals given by a regulatory authority or ACER under this Directive are without prejudice to any duly justified future use of its powers by the regulatory authority under this Article or to any penalties imposed by other relevant authorities or the Commission.

3.    Member States shall ensure that regulatory authorities are granted the powers enabling them to carry out the duties referred to in this Article in an efficient and expeditious manner. For this purpose, the regulatory authority shall have at least the following powers: (a)

to issue binding decisions on electricity undertakings;

(b)

to carry out investigations into the functioning of the electricity markets, and to decide upon and impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market. Where appropriate, the regulatory authority shall also have the power to cooperate with the national competition authority and the financial market regulators or the Commission in conducting an investigation relating to competition law;

(c)

to require any information from electricity undertakings relevant for the fulfilment of its tasks, including the justification for any refusal to grant third-party access, and any information on measures necessary to reinforce the network; 967

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(d)

to impose effective, proportionate and dissuasive penalties on electricity undertakings not complying with their obligations under this Directive, Regulation (EU) 2019/943 or any relevant legally binding decisions of the regulatory authority or of ACER, or to propose that a competent court impose such penalties, including the power to impose or propose the imposition of penalties of up to 10 % of the annual turnover of the transmission system operator on the transmission system operator or of up to 10 % of the annual turnover of the vertically integrated undertaking on the vertically integrated undertaking, as the case may be, for non-compliance with their respective obligations pursuant to this Directive; and

(e)

appropriate rights of investigation and relevant powers of instruction for dispute settlement under Article 60(2) and (3).

4.    The regulatory authority located in the Member State in which the ENTSO for Electricity or the EU DSO entity has its seat shall have the power to impose effective, proportionate and dissuasive penalties on those entities where they do not comply with their obligations under this Directive, Regulation (EU)  2019/943 or any relevant legally binding decisions of the regulatory authority or of ACER, or to propose that a competent court impose such penalties. 5.    In addition to the duties conferred upon it under paragraphs 1 and 3 of this Article, when an independent system operator has been designated under Article 44, the regulatory authority shall: (a)

monitor the transmission system owner’s and the independent system operator’s compliance with their obligations under this Article, and issue penalties for non-compliance in accordance with point (d) of paragraph 3;

(b)

monitor the relations and communications between the independent system operator and the transmission system owner so as to ensure compliance of the independent system operator with its obligations, and in particular approve contracts and act as a dispute settlement authority between the independent system operator and the transmission system owner with respect to any complaint submitted by either party pursuant to Article 60(2);

968

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(c)

without prejudice to the procedure under point (c) of Article 44(2), for the first ten-year network development plan, approve the investments planning and the multi-annual network development plan submitted at least every two years by the independent system operator;

(d)

ensure that network access tariffs collected by the independent system operator include remuneration for the network owner or network owners, which provides for adequate remuneration of the network assets and of any new investments made therein, provided they are economically and efficiently incurred;

(e)

have the powers to carry out inspections, including unannounced inspections, at the premises of transmission system owner and independent system operator; and

(f )

monitor the use of congestion charges collected by the independent system operator in accordance with Article 19(2) of Regulation (EU) 2019/943.

6.    In addition to the duties and powers conferred on it under paragraphs 1 and 3 of this Article, when a transmission system operator has been designated in accordance with Section 3 of Chapter VI, the regulatory authority shall be granted at least the following duties and powers: (a)

to impose penalties in accordance with point (d) of paragraph 3 for discriminatory behaviour in favour of the vertically integrated undertaking;

(b)

to monitor communications between the transmission system operator and the vertically integrated undertaking so as to ensure compliance of the transmission system operator with its obligations;

(c)

to act as dispute settlement authority between the vertically integrated undertaking and the transmission system operator with respect to any complaint submitted pursuant to Article 60(2);

(d)

to monitor commercial and financial relations including loans between the vertically integrated undertaking and the transmission system operator; 969

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

7.   

(e)

to approve all commercial and financial agreements between the vertically integrated undertaking and the transmission system operator on the condition that they comply with market conditions;

(f )

to request a justification from the vertically integrated undertaking when notified by the compliance officer in accordance with Article 50(4), such justification including, in particular, evidence demonstrating that no discriminatory behaviour to the advantage of the vertically integrated undertaking has occurred;

(g)

to carry out inspections, including unannounced ones, on the premises of the vertically integrated undertaking and the transmission system operator; and

(h)

to assign all or specific tasks of the transmission system operator to an independent system operator appointed in accordance with Article 44 in the case of a persistent breach by the transmission system operator of its obligations under this Directive, in particular in the case of repeated discriminatory behaviour to the benefit of the vertically integrated undertaking.

The regulatory authorities, except where ACER is competent to fix and approve the terms and conditions or methodologies for the implementation of network codes and guidelines under Chapter VII of Regulation (EU) 2019/943 pursuant to Article 5(2) of Regulation (EU) 2019/942 because of their coordinated nature, shall be responsible for fixing or approving sufficiently in advance of their entry into force at least the national methodologies used to calculate or establish the terms and conditions for: (a)

connection and access to national networks, including transmission and distribution tariffs or their methodologies, those tariffs or methodologies shall allow the necessary investments in the networks to be carried out in a manner allowing those investments to ensure the viability of the networks;

(b)

the provision of ancillary services which shall be performed in the most economic manner possible and provide appropriate incentives for network users to balance their input and off-takes, such ancillary services shall be provided in a fair and non-discriminatory manner and be based on objective criteria; and 970

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(c)

access to cross-border infrastructures, including the procedures for the allocation of capacity and congestion management.

8.    The methodologies or the terms and conditions referred to in paragraph 7 shall be published. 9.    With a view to increasing transparency in the market and providing all interested parties with all necessary information and decisions or proposals for decisions concerning transmission and distribution tariffs as referred in Article 60(3), regulatory authorities shall make publicly available the detailed methodology and underlying costs used for the calculation of the relevant network tariffs, while preserving the confidentiality of commercially sensitive information. 10.    The regulatory authorities shall monitor congestion management of national electricity systems including interconnectors, and the implementation of congestion management rules. To that end, transmission system operators or market operators shall submit their congestion management rules, including capacity allocation, to the regulatory authorities. Regulatory authorities may request amendments to those rules. Article 60 Decisions and complaints 1.    Regulatory authorities shall have the authority to require transmission system operators and distribution system operators, if necessary, to modify the terms and conditions, including tariffs or methodologies referred to Article 59 of this Directive, to ensure that they are proportionate and applied in a non-discriminatory manner, in accordance with Article 18 of Regulation (EU) 2019/943. In the event of delay in the fixing of transmission and distribution tariffs, regulatory authorities shall have the power to fix or approve provisional transmission and distribution tariffs or methodologies and to decide on the appropriate compensatory measures if the final transmission and distribution tariffs or methodologies deviate from those provisional tariffs or methodologies. 2.    Any party having a complaint against a transmission or distribution system operator in relation to that operator’s obligations under this Direc971

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

tive may refer the complaint to the regulatory authority which, acting as dispute settlement authority, shall issue a decision within two months of receipt of the complaint. That period may be extended by two months where additional information is sought by the regulatory authority. That extended period may be further extended with the agreement of the complainant. The regulatory authority’s decision shall have binding effect unless and until overruled on appeal. 3.  

Any party who is affected and who has a right to complain concerning a decision on methodologies taken pursuant to Article 59 or, where the regulatory authority has a duty to consult, concerning the proposed tariffs or methodologies, may, within two months, or within a shorter period as provided for by Member States, after publication of the decision or proposal for a decision, submit a complaint for review. Such a complaint shall not have suspensive effect.

4.    Member States shall create appropriate and efficient mechanisms for regulation, control and transparency so as to avoid any abuse of a dominant position, in particular to the detriment of consumers, and any predatory behaviour. Those mechanisms shall take account of the provisions of the TFEU, and in particular Article 102 thereof. 5.    Member States shall ensure that the appropriate measures are taken, including administrative action or criminal proceedings in conformity with their national law, against the natural or legal persons responsible where confidentiality rules imposed by this Directive have not been respected. 6.    Complaints referred to in paragraphs 2 and 3 shall be without prejudice to the exercise of rights of appeal under Union or national law. 7.    Decisions taken by regulatory authorities shall be fully reasoned and justified to allow for judicial review. The decisions shall be available to the public while preserving the confidentiality of commercially sensitive information. 8.    Member States shall ensure that suitable mechanisms exist at national level under which a party affected by a decision of a regulatory authority has a right of appeal to a body independent of the parties involved and of any government.

972

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 61 Regional cooperation between regulatory authorities on cross-border issues 1.    Regulatory authorities shall closely consult and cooperate with each other, in particular within ACER, and shall provide each other and ACER with any information necessary for the fulfilment of their tasks under this Directive. With respect to the information exchanged, the receiving authority shall ensure the same level of confidentiality as that required of the originating authority. 2.    Regulatory authorities shall cooperate at least at a regional level to: (a)

foster the creation of operational arrangements in order to enable an optimal management of the network, promote joint electricity exchanges and the allocation of cross-border capacity, and to enable an adequate level of interconnection capacity, including through new interconnection, within the region and between regions to allow for development of effective competition and improvement of security of supply, without discriminating between suppliers in different Member States;

(b)

coordinate the joint oversight of entities performing functions at regional level;

(c)

coordinate, in cooperation with other involved authorities, the joint oversight of national, regional and European resource adequacy assessments;

(d)

coordinate the development of all network codes and guidelines for the relevant transmission system operators and other market actors; and

(e)

coordinate the development of the rules governing the management of congestion.

3.    Regulatory authorities shall have the right to enter into cooperative arrangements with each other to foster regulatory cooperation.

973

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

4.    The actions referred to in paragraph 2 shall be carried out, as appropriate, in close consultation with other relevant national authorities and without prejudice to their specific competence. 5.    The Commission is empowered to adopt delegated acts in accordance with Article  67 in order to supplement this Directive by establishing guidelines on the extent of the duties of regulatory authorities to cooperate with each other and with ACER. Article 62 Duties and powers of regulatory authorities with respect to regional coordination centres 1.    The regional regulatory authorities of the system operation region in which a regional coordination centre is established shall, in close coordination with each other: (a)

approve the proposal for the establishment of regional coordination centres in accordance with Article  35(1) of Regulation (EU) 2019/943;

(b)

approve the costs related to the activities of the regional coordination centres, which are to be borne by the transmission system operators and to be taken into account in the calculation of tariffs, provided that they are reasonable and appropriate;

(c)

approve the cooperative decision-making process;

(d)

ensure that the regional coordination centres are equipped with all the necessary human, technical, physical and financial resources for fulfilling their obligations under this Directive and carrying out their tasks independently and impartially;

(e)

propose jointly with other regulatory authorities of a system operation region possible additional tasks and additional powers to be assigned to the regional coordination centres by the Member States of the system operation region;

974

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(f )

ensure compliance with the obligations under this Directive and other relevant Union law, in particular as regards cross-border issues, and jointly identify non-compliance of the regional coordination centres with their respective obligations; where the regulatory authorities have not been able to reach an agreement within a period of four months after the start of consultations for the purpose of jointly identifying non-compliance, the matter shall be referred to ACER for a decision, pursuant to Article 6(10) of Regulation (EU) 2019/942;

(g)

monitor the performance of system coordination and report annually to ACER in this respect in accordance with Article 46 of Regulation (EU) 2019/943.

2.    Member States shall ensure that regulatory authorities are granted the powers enabling them to carry out the duties referred to in paragraph 1 in an efficient and expeditious manner. For this purpose, the regulatory authorities shall have at least the following powers: (a)

to request information from the regional coordination centres;

(b)

to carry out inspections, including unannounced inspections, at the premises of the regional coordination centres;

(c)

to issue joint binding decisions on the regional coordination centres.

3.    The regulatory authority located in the Member State in which a regional coordination centre has its seat shall have the power to impose effective, proportionate and dissuasive penalties on the regional coordination centre where it does not comply with its obligations under this Directive, Regulation (EU) 2019/943 or any relevant legally binding decisions of the regulatory authority or of ACER, or shall have the power to propose that a competent court impose such penalties.

975

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 63 Compliance with the network codes and guidelines 1.    Any regulatory authority and the Commission may request the opinion of ACER on the compliance of a decision taken by a regulatory authority with the network codes and guidelines referred to in this Directive or in Chapter VII of Regulation (EU) 2019/943. 2.    ACER shall provide its opinion to the regulatory authority which has requested it or to the Commission, respectively, and to the regulatory authority which has taken the decision in question within three months of the date of receipt of the request. 3.    Where the regulatory authority which has taken the decision does not comply with ACER’s opinion within four months of the date of receipt of that opinion, ACER shall inform the Commission accordingly. 4.    Any regulatory authority may inform the Commission where it considers that a decision relevant for cross-border trade taken by another regulatory authority does not comply with the network codes and guidelines referred to in this Directive or in Chapter VII of Regulation  (EU)  2019/943 within two months of the date of that decision. 5.    Where the Commission, within two months of having been informed by ACER in accordance with paragraph 3, or by a regulatory authority in accordance with paragraph  4, or, on its own initiative, within three months of the date of the decision, finds that the decision of a regulatory authority raises serious doubts as to its compatibility with the network codes and guidelines referred to in this Directive or in Chapter VII of Regulation (EU) 2019/943, the Commission may decide to examine the case further. In such a case, it shall invite the regulatory authority and the parties to the proceedings before the regulatory authority to submit observations. 6.    Where the Commission takes a decision to examine the case further, it shall, within four months of the date of such decision, issue a final decision:

976

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(a)

not to raise objections against the decision of the regulatory authority; or

(b)

to require the regulatory authority concerned to withdraw its decision on the basis that network codes and guidelines have not been complied with.

7.    Where the Commission has not taken a decision to examine the case further or a final decision within the time-limits set in paragraphs 5 and 6 respectively, it shall be deemed not to have raised objections to the decision of the regulatory authority. 8.    The regulatory authority shall comply with the Commission decision requiring it to withdraw its decision within two months and shall inform the Commission accordingly. 9.    The Commission is empowered to adopt delegated acts in accordance with Article 67 supplementing this Directive by establishing guidelines setting out the details of the procedure to be followed for the application of this Article. Article 64 Record keeping 1.    Member States shall require suppliers to keep at the disposal of the national authorities, including the regulatory authority, the national competition authorities and the Commission, for the fulfilment of their tasks, for at least five years, the relevant data relating to all transactions in electricity supply contracts and electricity derivatives with wholesale customers and transmission system operators. 2.    The data shall include details on the characteristics of the relevant transactions such as duration, delivery and settlement rules, the quantity, the dates and times of execution and the transaction prices and means of identifying the wholesale customer concerned, as well as specified details of all unsettled electricity supply contracts and electricity derivatives.

977

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

3.    The regulatory authority may decide to make available to market participants elements of that information provided that commercially sensitive information on individual market players or individual transactions is not released. This paragraph shall not apply to information about financial instruments which fall within the scope of Directive 2014/65/EU. 4.    This Article shall not create additional obligations towards the authorities referred to in paragraph 1 for entities falling within the scope of Directive 2014/65/EU. 5.    In the event that the authorities referred to in paragraph 1 need access to data kept by entities falling within the scope of Directive 2014/65/EU, the authorities responsible under that Directive shall provide them with the required data. CHAPTER VIII FINAL PROVISIONS Article 65 Level playing field 1.    Measures that the Member States may take pursuant to this Directive in order to ensure a level playing field shall be compatible with the TFEU, in particular Article 36 thereof, and with Union law. 2.  

 The measures referred to in paragraph 1 shall be proportionate, non-discriminatory and transparent. Those measures may be put into effect only following the notification to and approval by the Commission.

3.    The Commission shall act on the notification referred to in paragraph 2 within two months of the receipt of the notification. That period shall begin on the day after receipt of the complete information. In the event that the Commission has not acted within that two-month period, it shall be deemed not to have raised objections to the notified measures.

978

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 66 Derogations 1.    Member States which can demonstrate that there are substantial problems for the operation of their small connected systems and small isolated systems, may apply to the Commission for derogations from the relevant provisions of Articles 7 and 8 and of Chapters IV, V and VI.

Small isolated systems and France, for the purpose of Corsica, may also apply for a derogation from Articles 4, 5 and 6.



The Commission shall inform the Member States of such applications before taking a decision, taking into account respect for confidentiality.

2.    Derogations granted by the Commission as referred to in paragraph 1 shall be limited in time and subject to conditions that aim to increase competition in and the integration of the internal market and to ensure that the derogations do not hamper the transition towards renewable energy, increased flexibility, energy storage, electromobility and demand response.

For outermost regions within the meaning of Article 349 TFEU, that cannot be interconnected with the Union electricity markets, the derogation shall not be limited in time and shall be subject to conditions aimed to ensure that the derogation does not hamper the transition towards renewable energy.



Decisions to grant derogations shall be published in the Official Journal of the European Union.

3.    Article 43 shall not apply to Cyprus, Luxembourg and Malta. In addition, Articles 6 and 35 shall not apply to Malta and Articles 44, 45, 46, 47, 48, 49, 50 and 52 shall not apply to Cyprus.

For the purposes of point (b) of Article 43(1), the notion ‘undertaking performing any of the functions of generation or supply’ shall not include final customers who perform any of the functions of generation and/or supply of electricity, either directly or via undertakings over which they exercise control, either individually or jointly, provided that the final cus979

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

tomers including their shares of the electricity produced in controlled undertakings are, on an annual average, net consumers of electricity and provided that the economic value of the electricity they sell to third parties is insignificant in proportion to their other business operations. 4.    Until 1 January 2025, or until a later date set out in a decision pursuant to paragraph 1 of this Article, Article 5 shall not apply to Cyprus and Corsica. 5.    Article 4 shall not apply to Malta until 5 July 2027. That period may be extended for a further additional period, not exceeding eight years. The extension for a further additional period shall be made by means of a decision pursuant to paragraph 1. Article 67 Exercise of the delegation 1.    The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2.    The power to adopt delegated acts referred to in Article 61(5) and Article 63(9) shall be conferred on the Commission for an indeterminate period of time from 4 July 2019. 3.    The delegation of power referred to in Article 61(5) and Article 63(9) may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated act already in force. 4.    Before adopting a delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Interinstitutional Agreement of 13  April 2016 on Better Law-Making.

980

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

5.    As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 6.    A delegated act adopted pursuant to Article 61(5) and Article 63(9) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within two months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by two months at the initiative of the European Parliament or of the Council. Article 68 Committee procedure 1.    The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2.    Where reference is made to this paragraph, Article 4 of Regulation (EU) No 182/2011 shall apply. Article 69 Commission monitoring, reviewing and reporting 1.    The Commission shall monitor and review the implementation of this Directive and shall submit a progress report to the European Parliament and the Council as an annex to the State of the Energy Union Report referred to in Article 35 of Regulation (EU) 2018/1999. 2.    By 31 December 2025, the Commission shall review the implementation of this Directive and shall submit a report to the European Parliament and to the Council. If appropriate, the Commission shall submit a legislative proposal together with or after submitting the report.

981

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity



The Commission’s review shall, in particular, assess whether customers, especially those who are vulnerable or in energy poverty, are adequately protected under this Directive. Article 70 Amendments to Directive 2012/27/EU

Directive 2012/27/EU is amended as follows: (1)

Article 9 is amended as follows: (a)

the title is replaced by the following:



‘Metering for natural gas’;

(b)

in paragraph 1, the first subparagraph is replaced by the following: ‘1.   Member States shall ensure that, in so far as it is technically possible, financially reasonable, and proportionate to the potential energy savings, for natural gas final customers are provided with competitively priced individual meters that accurately reflect the final customer’s actual energy consumption and that provide information on actual time of use.’;

(c)

paragraph 2 is amended as follows: (i)

the introductory part is replaced by the following: ‘2.

(ii)

Where, and to the extent that, Member States implement intelligent metering systems and roll out smart meters for natural gas in accordance with Directive 2009/73/EC:’;

points (c) and (d) are deleted;

982

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(2)

Article 10 is amended as follows: (a)

the title is replaced by the following:



‘Billing information for natural gas’;

(b)

n paragraph 1, the first subparagraph is replaced by the following: ‘1.   Where final customers do not have smart meters as referred to in Directive  2009/73/EC, Member States shall ensure, by 31 December 2014, that billing information for natural gas is reliable, accurate and based on actual consumption, in accordance with point 1.1 of Annex VII, where that is technically possible and economically justified.’;

(c)

in paragraph 2, the first subparagraph is replaced by the following: ‘2.      Meters installed in accordance with Directive 2009/73/EC shall enable the provision of accurate billing information based on actual consumption. Member States shall ensure that final customers have the possibility of easy access to complementary information on historical consumption allowing detailed self-checks.’;

(3)

in Article 11, the title is replaced by the following:

(4)

in Article 13, the words ‘Articles 7 to 11’ are replaced by the words ‘Articles 7 to 11a’;

(5)

Article 15 is amended as follows:

‘Cost of access to metering and billing information for natural gas’;

(a)

paragraph 5 is amended as follows: (i)

the first and second subparagraphs are deleted;

(ii)

the third subparagraph is replaced by the following:

983

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity



(b)

‘Transmission system operators and distribution system operators shall comply with the requirements set out in Annex XII.’;

paragraph 8 is deleted;

(6)

in Annex VII, the title is replaced by the following:



‘Minimum requirements for billing and billing information based on actual consumption of natural gas’. Article 71 Transposition

1.    Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Articles 2 to 5, Article 6(2) and (3), Article 7(1), point (j) and (l) of Article 8(2), Article 9(2), Article 10(2) to (12), Articles 11 to 24, Articles 26, 28 and 29, Articles 31 to 34 and 36, Article 38(2), Articles 40 and 42, point (d) of Article 46(2), Articles 51 and 54, Articles 57 to 59, Articles 61 to 63, points (1) to (3), (5)(b) and (6) of Article 70 and Annexes I and II by 31 December 2020. They shall immediately communicate the text of those provisions to the Commission.



However, Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with: (a)

point (5)(a) of Article 70 by 31 December 2019;

(b)

point (4) of Article 70 by 25 October 2020.

When Member States adopt those measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. They shall also include a statement that references in existing laws, regulations and administrative provisions to the Directive repealed by this Directive shall be construed as references to this Directive. Member States shall determine how such reference is to be made and how that statement is to be formulated. 984

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2.    Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 72 Repeal Directive 2009/72/EC is repealed with effect from 1  January 2021, without prejudice to the obligations of Member States relating to the time-limit for the transposition into national law and the date of application of the Directive set out in Annex III. References to the repealed Directive shall be construed as references to this Directive and shall be read in accordance with the correlation table set out in Annex IV. Article 73 Entry into force This Directive shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Article 6(1), Article 7 (2) to (5), Article 8(1), points (a) to (i) and (k) of Article 8(2) and Article 8(3) and (4), Article 9(1), (3), (4) and (5), Article 10(2) to (10), Articles 25, 27, 30, 35 and 37, Article 38(1), (3) and (4), Articles 39, 41, 43, 44 and 45, Article 46(1), points (a), (b) and (c) and (e) to (h) of Article 46(2), Article 46(3) to (6), Article 47 to 50, Articles 52, 53, 55, 56, 60, 64 and 65 shall apply from 1 January 2021. Points (1) to (3), (5)(b) and (6) of Article 70 shall apply from 1 January 2021. Point (5)(a) of Article 70 shall apply from 1 January 2020. Point (4) of Article 70 shall apply from 26 October 2020.

985

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 74 Addressees This Directive is addressed to the Member States. Done at Brussels, 5 June 2019. For the European Parliament The President A. TAJANI For the Council The President G. CIAMBA

Notes (1)   OJ C 288, 31.8.2017, p. 91. (2)   OJ C 342, 12.10.2017, p. 79. (3)   Position of the European Parliament of 26  March 2019 (not yet published in the Official Journal) and Decision of the Council of 22  May 2019. (4)   Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55). (5)   Directive 2003/54/EC of the European Parliament and of the Council of 26  June  2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC (OJ L 176, 15.7.2003, p. 37), repealed and replaced, with effect from 2 March 2011, by Directive  2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55). (6)   Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (see page 54 of this Official Journal). (7)   Regulation (EU)  2018/1999 of the European Parliament and of the Council of 11  December  2018 on the Governance of the Energy Un986

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ion and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/ EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation  (EU) No  525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, p. 1). (8)   Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/ EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/ EC (OJ L 315, 14.11.2012, p. 1). (9)   Regulation (EU) 2019/942 of the European Parliament and of the Council of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators (see page 22 of this Official Journal). (10)   Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211, 14.8.2009, p. 94). (11)  OJ L 198, 20.7.2006, p. 18. (12)   Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1). (13)   OJ L 123, 12.5.2016, p. 1. (14)   Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). (15)   OJ C 369, 17.12.2011, p. 14. (16)   Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349). (17)   Commission Implementing Regulation (EU) No 1348/2014 of 17 December 2014 on data reporting implementing Article 8(2) and Article 8(6) of Regulation (EU) No 1227/2011 of the European Parliament and the Council on wholesale energy market integrity and transparency (OJ L 363, 18.12.2014, p. 121). (18)   Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated fi987

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

nancial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/ EEC (OJ L 182, 29.6.2013, p. 19). (19)   Directive (EU) 2018/2001 of the European Parliament and the Council of 11 December 2018 on the promotion of the use of energy from renewable sources (OJ L 328, 21.12.2018, p. 82). (20)   Directive 2011/83/EU of the European Parliament and of the Council of 25  October 2011 on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council (OJ L 304, 22.11.2011, p. 64). (21)   Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L 95, 21.4.1993, p. 29). (22)   Directive (EU) 2015/2366 of the European Parliament and of the Council of 25  November  2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC (OJ L 337, 23.12.2015, p. 35). (23)   Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/ EC (Directive on consumer ADR) (OJ L 165, 18.6.2013, p. 63). (24)   Commission Regulation (EU) 2017/1485 of 2 August 2017 establishing a guideline on electricity transmission system operation (OJ L 220, 25.8.2017, p. 1). (25)   Directive 2014/94/EU of the European Parliament and of the Council of 22 October 2014 on the deployment of alternative fuels infrastructure (OJ L 307, 28.10.2014, p. 1). (26)   Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (OJ L 169, 30.6.2017, p. 46).

988

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ANNEX I MINIMUM REQUIREMENTS FOR BILLING AND BILLING INFORMATION 1.    Minimum information to be contained on the bill and in the billing information 1.1. The following key information shall be prominently displayed to final customers in their bills, distinctly separate from other parts of the bill: (a)

the price to be paid and a breakdown of the price where possible, together with a clear statement that all energy sources may also benefit from incentives that were not financed through the levies indicated in the breakdown of the price;

(b)

the date on which payment is due.

1.2. The following key information shall be prominently displayed to final customers in their bills and billing information, distinctly separate from other parts of the bill and billing information: (a)

electricity consumption for the billing period;

(b)

the name and contact details of the supplier, including a consumer support hotline and email address;

(c)

the tariff name;

(d)

the end date of the contract, if applicable;

(e)

the information on the availability and benefits of switching;

(f )

the final customer’s switching code or unique identification code for the final customer’s supply point;

(g)

information on final customers’ rights as regards out-of-court dispute settlement, including the contact details of the entity responsible pursuant to Article 26; 989

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(h)

the single point of contact referred to in Article 25;

(i)

a link or reference to where comparison tools referred to in Article 14 can be found.

1.3. Where bills are based on actual consumption or remote reading by the operator, the following information shall be made available to final customers in, with or signposted to within their bills and periodic settlement bills:

2.   

(a)

comparisons of the final customer’s current electricity consumption with the final customer’s consumption for the same period in the previous year in graphic form;

(b)

contact information for consumer organisations, energy agencies or similar bodies, including website addresses, from which information may be obtained on available energy efficiency improvement measures for energy-using equipment;

(c)

comparisons with an average normalised or benchmarked final customer in the same user category.

Frequency of billing and the provision of billing information: (a)

billing on the basis of actual consumption shall take place at least once a year;

(b)

where the final customer does not have a meter that allows remote reading by the operator, or where the final customer has actively chosen to disable remote reading in accordance with national law, accurate billing information based on actual consumption shall be made available to the final customer at least every six months, or once every three months, if requested or where the final customer has opted to receive electronic billing;

(c)

where the final customer does not have a meter that allows remote reading by the operator, or where the final customer has actively chosen to disable remote reading in accordance with national law, the obligations in points (a) and (b) may be fulfilled by means of 990

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

a system of regular self-reading by the final customer, whereby the final customer communicates readings from the meter to the operator; billing or billing information may be based on estimated consumption or a flat rate only where the final customer has not provided a meter reading for a given billing interval; (d)

where the final customer has a meter that allows remote reading by the operator, accurate billing information based on actual consumption shall be provided at least every month; such information may also be made available via the internet, and shall be updated as frequently as allowed by the measurement devices and systems used.

3.    Breakdown of the final customer’s price

The customer’s price is the sum of the following three components: the energy and supply component, the network component (transmission and distribution) and the component comprising taxes, levies, fees and charges.



Where a breakdown of the final customer’s price is presented in bills, the common definitions of the three components in that breakdown established under Regulation (EU)  2016/1952 of the European Parliament and of the Council (1) shall be used throughout the Union.

4.    Access to complementary information on historical consumption

Member States shall require that, to the extent that complementary information on historical consumption is available, such information is made available, at the request of the final customer, to the supplier or service provider designated by the final customer.



Where the final customer has a meter that allows remote reading by the operator installed, the final customer shall have easy access to complementary information on historical consumption allowing detailed selfchecks.



Complementary information on historical consumption shall include:

991

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

(a)

cumulative data for at least the three previous years or the period since the start of the electricity supply contract, if that period is shorter. The data shall correspond to the intervals for which frequent billing information has been produced; and

(b)

detailed data according to the time of use for any day, week, month and year, which is made available to the final customer without undue delay via the internet or the meter interface, covering the period of at least the previous 24 months or the period since the start of the electricity supply contract, if that period is shorter.

5.    Disclosure of energy sources

Suppliers shall specify in bills the contribution of each energy source to the electricity purchased by the final customer in accordance with the electricity supply contract (product level disclosure).



The following information shall be made available to final customers in, with, or signposted to within their bills and billing information: (a)

the contribution of each energy source to the overall energy mix of the supplier (at national level, namely in the Member State in which the electricity supply contract has been concluded, as well as at the level of the supplier if the supplier is active in several Member States) over the preceding year in a comprehensible and clearly comparable manner;

(b)

information on the environmental impact, in at least terms of CO2 emissions and the radioactive waste resulting from the electricity produced by the overall energy mix of the supplier over the preceding year.



As regards point (a) of the second subparagraph, with respect to electricity obtained via an electricity exchange or imported from an undertaking situated outside the Union, aggregate figures provided by the exchange or the undertaking in question over the preceding year may be used.



For the disclosure of electricity from high efficiency cogeneration, guarantees of origin issued under Article 14(10) of Directive 992

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

2012/27/EU may be used. The disclosure of electricity from renewable sources shall be done by using guarantees of origin, except in the cases referred to in points  (a) and  (b) of Article  19(8) of Directive (EU) 2018/2001.

The regulatory authority or another competent national authority shall take the necessary steps to ensure that the information provided by suppliers to final customers pursuant to this point is reliable and is provided at a national level in a clearly comparable manner.

(1)   Regulation (EU) 2016/1952 of the European Parliament and of the Council of 26 October 2016 on European statistics on natural gas and electricity prices and repealing Directive 2008/92/EC (OJ  L  311, 17.11.2016, p. 1).

993

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

ANNEX II SMART METERING SYSTEMS 1.

Member States shall ensure the deployment of smart metering systems in their territories that may be subject to an economic assessment of all of the long-term costs and benefits to the market and the individual consumer or which form of smart metering is economically reasonable and cost-effective and which time frame is feasible for their distribution.

2.

Such assessment shall take into consideration the methodology for the cost-benefit analysis and the minimum functionalities for smart metering systems provided for in Commission Recommendation 2012/148/ EU (1) as well as the best available techniques for ensuring the highest level of cybersecurity and data protection.

3.

Subject to that assessment, Member States or, where a Member State has so provided, the designated competent authority, shall prepare a timetable with a target of up to ten years for the deployment of smart metering systems. Where the deployment of smart metering systems is assessed positively, at least 80 % of final customers shall be equipped with smart meters either within seven years of the date of the positive assessment or by 2024 for those Member States that have initiated the systematic deployment of smart metering systems before 4 July 2019.

(1)   Commission Recommendation 2012/148/EU of 9 March 2012 on preparations for the roll-out of smart metering systems (OJ L 73, 13.3.2012, p. 9).

994

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ANNEX III TIME-LIMIT FOR TRANSPOSITION INTO NATIONAL LAW AND DATE OF APPLICATION (REFERRED TO IN ARTICLE 72)

Directive

Time-limit for transposition

Date of application

Directive 2009/72/EC of the European Parliament and of the Council (OJ L 211, 14.8.2009, p. 55)

3 March 2011

3 September 2009

995

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

ANNEX IV CORRELATION TABLE

Directive 2009/72/EC

This Directive

Article 1

Article 1

Article 2

Article 2

—

Article 3

Articles 33 and 41

Article 4

—

Article 5

Article 32

Article 6

Article 34

Article 7

Article 7

Article 8

Article 8

—

Article 3(1)

Article 9(1)

Article 3(2)

Article 9(2)

Article 3(6)

Article 9(3)

Article 3(15)

Article 9(4)

Article 3(14)

Article 9(5)

Article 3(16)

—

Article 3(4)

Article 10(1)

Annex I. 1(a)

Article 10(2) and (3)

Annex I. 1(b)

Article 10(4)

Annex I. 1(c)

Article 10(5)

Annex I. 1(d)

Article 10(6) and (8)

—

Article 10(7)

Annex I. 1(f)

Article 10(9)

Annex I. 1(g)

Article 10(10)

Article 3(7)

Article 10(11)

Annex I. 1(j)

Article 10(12)

Article 3(10)

—

Article 4

—

Article 5

—

Article 6

—

—

Article 11

Article 3(5)(a) and Annex I. 1(e)

Article 12

996

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

—

Article 13

—

Article 14

—

Article 15

—

Article 16

—

Article 17

—

Article 18

Article 3(11)

Article 19(1)

—

Article 19(2) to (6)

—

Article 20

—

Article 21

—

Article 22

—

Article 23

—

Article 24

Article 3(12)

Article 25

Article 3(13)

Article 26

Article 3(3)

Article 27

Article 3(7)

Article 28(1)

Article 3(8)

Article 28(2)

—

Article 29

Article 24

Article 30

Article 25

Article 31

—

Article 32

—

Article 33

—

Article 34

Article 26

Article 35

—

Article 36

Article 27

Article 37

Article 28

Article 38

Article 29

Article 39

Article 12

Article 40(1)

—

Article 40(2) to (8)

Article 16

Article 41

Article 23

Article 42

Article 9

Article 43

Article 13

Article 44

Article 14

Article 45

Article 17

Article 46

997

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 18

Article 47

Article 19

Article 48

Article 20

Article 49

Article 21

Article 50

Article 22

Article 51

Article 10

Article 52

Article 11

Article 53

—

Article 54

Article 30

Article 55

Article 31

Article 56

Article 35

Article 57

Article 36

Article 58

Article 37(1)

Article 59(1)

Article 37(2)

Article 59(2)

Article 37(4)

Article 59(3)

—

Article 59(4)

Article 37(3)

Article 59(5)

Article 37(5)

Article 59(6)

Article 37(6)

Article 59(7)

Article 37(8)

—

Article 37(7)

Article 59(8)

—

Article 59(9)

Article 37(9)

Article 59(10)

Article 37(10)

Article 60(1)

Article 37(11)

Article 60(2)

Article 37(12)

Article 60(3)

Article 37(13)

Article 60(4)

Article 37(14)

Article 60(5)

Article 37(15)

Article 60(6)

Article 37(16)

Article 60(7)

Article 37(17)

Article 60(8)

Article 38

Article 61

—

Article 62

Article 39

Article 63

Article 40

Article 64

Article 42

—

Article 43

Article 65

998

Appendix 1 Dir 2009/72/EC – Common rules for the internal market in electricity

Article 44

Article 66

Article 45

—

—

Article 67

Article 46

Article 68

Article 47

Article 69

—

Article 70

Article 49

Article 71

Article 48

Article 72

Article 50

Article 73

Article 51

Article 74

—

Annex I, points 1 to 4

Article 3(9)

Annex I. 5

Annex I. 2

Annex II

—

Annex III

—

Annex IV

999

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Appendix 2 This text is meant purely as a documentation tool and has no legal effect. The Union’s institutions do not assume any liability for its contents. The authentic versions of the relevant acts, including their preambles, are those published in the Official Journal of the European Union and available in EUR-Lex. Those official texts are directly accessible through the links embedded in this document ►B DIRECTIVE 2009/73/EC OF THE

EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 July 2009

concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Text with EEA relevance) (OJ L 211 14.8.2009, p. 94) Amended by:

    Official Journal No page date ►M1 REGULATION (EU) 2018/1999 L 328 1 21.12.2018 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  of 11 December 2018 ►M2 ▼B

DIRECTIVE (EU) 2019/692 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL Text with EEA relevance of 17 April 2019   

1001

L 117 1 3.5.2019

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

DIRECTIVE 2009/73/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (Text with EEA relevance) CHAPTER I SUBJECT MATTER, SCOPE AND DEFINITIONS Article 1 Subject matter and scope 1.  

This Directive establishes common rules for the transmission, distribution, supply and storage of natural gas. It lays down the rules relating to the organisation and functioning of the natural gas sector, access to the market, the criteria and procedures applicable to the granting of authorisations for transmission, distribution, supply and storage of natural gas and the operation of systems.

2.  

The rules established by this Directive for natural gas, including LNG, shall also apply in a non-discriminatory way to biogas and gas from biomass or other types of gas in so far as such gases can technically and safely be injected into, and transported through, the natural gas system. Article 2 Definitions

For the purposes of this Directive, the following definitions apply: (1)  ‘natural gas undertaking’ means a natural or legal person carrying out at 1002

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

least one of the following functions: production, transmission, distribution, supply, purchase or storage of natural gas, including LNG, which is responsible for the commercial, technical and/or maintenance tasks related to those functions, but shall not include final customers; (2)  ‘upstream pipeline network’ means any pipeline or network of pipelines operated and/or constructed as part of an oil or gas production project, or used to convey natural gas from one or more such projects to a processing plant or terminal or final coastal landing terminal; (3)  ‘transmission’ means the transport of natural gas through a network, which mainly contains high-pressure pipelines, other than an upstream pipeline network and other than the part of high-pressure pipelines primarily used in the context of local distribution of natural gas, with a view to its delivery to customers, but not including supply; (4)  ‘transmission system operator’ means a natural or legal person who carries out the function of transmission and is responsible for operating, ensuring the maintenance of, and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transport of gas; (5)  ‘distribution’ means the transport of natural gas through local or regional pipeline networks with a view to its delivery to customers, but not including supply; (6)  ‘distribution system operator’ means a natural or legal person who carries out the function of distribution and is responsible for operating, ensuring the maintenance of, and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of gas; (7)  ‘supply’ means the sale, including resale, of natural gas, including LNG, to customers; (8)  ‘supply undertaking’ means any natural or legal person who carries out the function of supply; (9)  ‘storage facility’ means a facility used for the stocking of natural gas and 1003

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

owned and/or operated by a natural gas undertaking, including the part of LNG facilities used for storage but excluding the portion used for production operations, and excluding facilities reserved exclusively for transmission system operators in carrying out their functions; (10)  ‘storage system operator’ means a natural or legal person who carries out the function of storage and is responsible for operating a storage facility; (11)  ‘LNG facility’ means a terminal which is used for the liquefaction of natural gas or the importation, offloading, and re-gasification of LNG, and includes ancillary services and temporary storage necessary for the re-gasification process and subsequent delivery to the transmission system, but does not include any part of LNG terminals used for storage; (12)  ‘LNG system operator’ means a natural or legal person who carries out the function of liquefaction of natural gas, or the importation, offloading, and re-gasification of LNG and is responsible for operating a LNG facility; (13)  ‘system’ means any transmission networks, distribution networks, LNG facilities and/or storage facilities owned and/or operated by a natural gas undertaking, including linepack and its facilities supplying ancillary services and those of related undertakings necessary for providing access to transmission, distribution and LNG; (14)  ‘ancillary services’ means all services necessary for access to and the operation of transmission networks, distribution networks, LNG facilities, and/or storage facilities, including load balancing, blending and injection of inert gases, but not including facilities reserved exclusively for transmission system operators carrying out their functions; (15)  ‘linepack’ means the storage of gas by compression in gas transmission and distribution systems, but not including facilities reserved for transmission system operators carrying out their functions; (16)  ‘interconnected system’ means a number of systems which are linked with each other; ▼M2 1004

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(17)  ‘interconnector’ means a transmission line which crosses or spans a border between Member States for the purpose of connecting the national transmission system of those Member States or a transmission line between a Member State and a third country up to the territory of the Member States or the territorial sea of that Member State; ▼B (18)  ‘direct line’ means a natural gas pipeline complementary to the interconnected system; (19)  ‘integrated natural gas undertaking’ means a vertically or horizontally integrated undertaking; (20)  ‘vertically integrated undertaking’ means a natural gas undertaking or a group of natural gas undertakings where the same person or the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings perform at least one of the functions of transmission, distribution, LNG or storage, and at least one of the functions of production or supply of natural gas; (21)  ‘horizontally integrated undertaking’ means an undertaking performing at least one of the functions of production, transmission, distribution, supply or storage of natural gas, and a non-gas activity; (22)  ‘related undertaking’ means an affiliated undertaking, within the meaning of Article 41 of Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 44(2)(g) ( *1 ) of the Treaty on consolidated accounts ( 1 ) and/or an associated undertaking, within the meaning of Article 33(1) of that Directive, and/or an undertaking which belong to the same shareholders; (23)  ‘system user’ means a natural or legal person supplying to, or being supplied by, the system; (24)  ‘customer’ means a wholesale or final customer of natural gas or a natural gas undertaking which purchases natural gas; (25)  ‘household customer’ means a customer purchasing natural gas for his own household consumption; (26)  ‘non-household customer’ means a customer purchasing natural gas 1005

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

which is not for his own household use; (27)  ‘final customer’ means a customer purchasing natural gas for his own use; (28)  ‘eligible customer’ means a customer who is free to purchase gas from the supplier of his choice, within the meaning of Article 37; (29)  ‘wholesale customer’ means a natural or legal person other than a transmission system operator or distribution system operator who purchases natural gas for the purpose of resale inside or outside the system where he is established; (30)  ‘long-term planning’ means the planning of supply and transport capacity of natural gas undertakings on a long-term basis with a view to meeting the demand for natural gas of the system, diversification of sources and securing supplies to customers; (31)  ‘emergent market’ means a Member State in which the first commercial supply of its first long-term natural gas supply contract was made not more than 10 years earlier; (32)  ‘security’ means both security of supply of natural gas and technical safety; (33)  ‘new infrastructure’ means an infrastructure not completed by 4 August 2003; (34)  ‘gas supply contract’ means a contract for the supply of natural gas, but does not include a gas derivative; (35)  ‘gas derivative’ means a financial instrument specified in points 5, 6 or 7 of Section C of Annex I to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments ( 2 ), where that instrument relates to natural gas; (36)  ‘control’ means any rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by: (a)  ownership or the right to use all or part of the assets of an under1006

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

taking; (b)  rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking. CHAPTER II GENERAL RULES FOR THE ORGANISATION OF THE SECTOR Article 3 Public service obligations and customer protection 1.  

Member States shall ensure, on the basis of their institutional organisation and with due regard to the principle of subsidiarity, that, without prejudice to paragraph  2, natural gas undertakings are operated in accordance with the principles of this Directive with a view to achieving a competitive, secure and environmentally sustainable market in natural gas, and shall not discriminate between those undertakings as regards their rights or obligations.

2.  

Having full regard to the relevant provisions of the Treaty, in particular Article 86 thereof, Member States may impose on undertakings operating in the gas sector, in the general economic interest, public service obligations which may relate to security, including security of supply, regularity, quality and price of supplies, and environmental protection, including energy efficiency, energy from renewable sources and climate protection. Such obligations shall be clearly defined, transparent, non-discriminatory, verifiable and shall guarantee equality of access for natural gas undertakings of the Community to national consumers. In relation to security of supply, energy efficiency/demand-side management and for the fulfilment of environmental goals and goals for energy from renewable sources, as referred to in this paragraph, Member States may introduce the implementation of long-term planning, taking into account the possibility of third parties seeking access to the system.

3.  

Member States shall take appropriate measures to protect final customers, and shall, in particular, ensure that there are adequate safeguards to protect vulnerable customers. In this context, each Member State shall define 1007

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

the concept of vulnerable customers which may refer to energy poverty and, inter alia, to the prohibition of disconnection of gas to such customers in critical times. Member States shall ensure that rights and obligations linked to vulnerable customers are applied. In particular, they shall take appropriate measures to protect final customers in remote areas who are connected to the gas system. Member States may appoint a supplier of last resort for customers connected to the gas system. They shall ensure high levels of consumer protection, particularly with respect to transparency regarding contractual terms and conditions, general information and dispute settlement mechanisms. Member States shall ensure that the eligible customer is in fact able easily to switch to a new supplier. As regards at least household customers those measures shall include those set out in Annex I. 4.  

Member States shall take appropriate measures, such as formulating national energy action plans, providing social security benefits to ensure the necessary gas supply to vulnerable customers, or providing for support for energy efficiency improvements, to address energy poverty where identified, including in the broader context of poverty. Such measures shall not impede the effective opening of the market set out in Article 37 and market functioning and shall be notified to the Commission, where relevant, in accordance with paragraph 11 of this Article. Such notification shall not include measures taken within the general social security system.

5.  

Member States shall ensure that all customers connected to the gas network are entitled to have their gas provided by a supplier, subject to the supplier’s agreement, regardless of the Member State in which the supplier is registered, as long as the supplier follows the applicable trading and balancing rules and subject to security of supply requirements. In this regard, Member States shall take all measures necessary to ensure that administrative procedures do not constitute a barrier for supply undertakings already registered in another Member State.

6.  

Member States shall ensure that: (a)  where a customer, while respecting the contractual conditions, wishes to change supplier, the change is effected by the operator(s) concerned within three weeks; and (b)  customers are entitled to receive all relevant consumption data. 1008

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas



Member States shall ensure that the rights referred to in points (a) and (b) of the first subparagraph are granted to customers in a non-discriminatory manner as regards cost, effort or time.

7.  

Member States shall implement appropriate measures to achieve the objectives of social and economic cohesion and environmental protection, which may include means to combat climate change, and security of supply. Such measures may include, in particular, the provision of adequate economic incentives, using, where appropriate, all existing national and Community tools, for the maintenance and construction of necessary network infrastructure, including interconnection capacity.

8.  

In order to promote energy efficiency, Member States or, where a Member State has so provided, the regulatory authority shall strongly recommend that natural gas undertakings optimise the use of gas, for example by providing energy management services, developing innovative pricing formulas or introducing intelligent metering systems or smart grids where appropriate.

9.  



Member States shall ensure the provision of single points of contact to provide consumers with all necessary information concerning their rights, current legislation and the means of dispute settlement available to them in the event of a dispute. Such contact points may be part of general consumer information points. Member States shall ensure that an independent mechanism such as an energy ombudsman or a consumer body is in place in order to ensure efficient treatment of complaints and out-of-court dispute settlements.

10.   Member States may decide not to apply the provisions of Article 4 with respect to distribution insofar as their application would obstruct, in law or in fact, the performance of the obligations imposed on natural gas undertakings in the general economic interest and insofar as the development of trade would not be affected to such an extent as would be contrary to the interests of the Community. The interests of the Community include, inter alia, competition with regard to eligible customers in accordance with this Directive and Article 86 of the Treaty. 11.   Member States shall, upon implementation of this Directive, inform the 1009

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Commission of all measures adopted to fulfil public service obligations, including consumer and environmental protection, and their possible effect on national and international competition, whether or not such measures require a derogation from the provisions of this Directive. They shall notify the Commission subsequently every two years of any changes to such measures, whether or not they require a derogation from this Directive. 12.   The Commission shall establish, in consultation with relevant stakeholders, including Member States, the national regulatory authorities, consumer organisations and natural gas undertakings, a clear and concise energy consumer checklist of practical information relating to energy consumer rights. Member States shall ensure that gas suppliers or distribution system operators, in cooperation with the regulatory authority, take the necessary steps to provide their consumers with a copy of the energy consumer checklist and ensure that it is made publicly available. Article 4 Authorisation procedure 1.  

In circumstances where an authorisation (for example, licence, permission, concession, consent or approval) is required for the construction or operation of natural gas facilities, the Member States or any competent authority they designate shall grant authorisations to build and/or operate such facilities, pipelines and associated equipment on their territory, in accordance with paragraphs 2 to 4. Member States or any competent authority they designate may also grant authorisations on the same basis for the supply of natural gas and for wholesale customers.

2.  

Where Member States have a system of authorisation, they shall lay down objective and non-discriminatory criteria which shall be met by an undertaking applying for an authorisation to build and/or operate natural gas facilities or applying for an authorisation to supply natural gas. The non-discriminatory criteria and procedures for the granting of authorisations shall be made public. Member States shall ensure that authorisation procedures for facilities, pipelines and associated equipment take into account the importance of the project for the internal market in natural gas where appropriate. Member States shall ensure that the reasons for any refusal to grant an

3.  

1010

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

authorisation are objective and non-discriminatory and that they are given to the applicant. Reasons for such refusals shall be notified to the Commission for information. Member States shall establish a procedure enabling the applicant to appeal against such refusals. 4.  

For the development of newly supplied areas and efficient operation generally, and without prejudice to Article 38, Member States may decline to grant a further authorisation to build and operate distribution pipeline systems in any particular area once such pipeline systems have been or are proposed to be built in that area and if existing or proposed capacity is not saturated.

▼M1 ————— ▼B

Article 6 Regional solidarity

1.  

In order to safeguard a secure supply on the internal market in natural gas, Member States shall cooperate in order to promote regional and bilateral solidarity.

2.  

Such cooperation shall cover situations resulting or likely to result in the short term in a severe disruption of supply affecting a Member State. It shall include: (a)  coordination of national emergency measures referred to in Article 8 of Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply ( 3 ); (b)  identification and, where necessary, development or upgrading of electricity and natural gas interconnections; and (c) 

conditions and practical modalities for mutual assistance.

3.  

The Commission and the other Member States shall be kept informed of such cooperation.

4.  

The Commission may adopt Guidelines for regional cooperation in 1011

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

a spirit of solidarity. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3). Article 7 Promotion of regional cooperation 1.  

Member States as well as the regulatory authorities shall cooperate with each other for the purpose of integrating their national markets at one and more regional levels, as a first step towards the creation of a fully liberalised internal market. In particular, the regulatory authorities where Member States have so provided or Member States shall promote and facilitate the cooperation of transmission system operators at a regional level, including on cross-border issues with the aim of creating a competitive internal market in natural gas, foster the consistency of their legal, regulatory and technical framework and facilitate integration of the isolated systems forming gas islands that persist in the Community. The geographical areas covered by such regional cooperation shall include cooperation in geographical areas defined in accordance with Article 12(3) of Regulation (EC) No  715/2009. Such cooperation may cover other geographical areas.

2.  

The Agency shall cooperate with national regulatory authorities and transmission system operators to ensure the compatibility of regulatory frameworks between the regions with the aim of creating a competitive internal market in natural gas. Where the Agency considers that binding rules on such cooperation are required, it shall make appropriate recommendations.

3.  

Member States shall ensure, through the implementation of this Directive, that transmission system operators have one or more integrated system(s) at regional level covering two or more Member States for capacity allocation and for checking the security of the network.

1012

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

4.  

Where vertically integrated transmission system operators participate in a joint undertaking established for implementing such cooperation, the joint undertaking shall establish and implement a compliance programme which sets out the measures to be taken to ensure that discriminatory and anticompetitive conduct is excluded. That compliance programme shall set out the specific obligations of employees to meet the objective of excluding discriminatory and anticompetitive conduct. It shall be subject to the approval of the Agency. Compliance with the programme shall be independently monitored by the compliance officers of the vertically integrated transmission system operators. Article 8 Technical rules

The regulatory authorities where Member States have so provided or Member States shall ensure that technical safety criteria are defined and that technical rules establishing the minimum technical design and operational requirements for the connection to the system of LNG facilities, storage facilities, other transmission or distribution systems, and direct lines, are developed and made public. Those technical rules shall ensure the interoperability of systems and shall be objective and non-discriminatory. The Agency may make appropriate recommendations towards achieving compatibility of those rules, where appropriate. Those rules shall be notified to the Commission in accordance with Article 8 of Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on Information Society services ( 4 ).

1013

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

CHAPTER III TRANSMISSION, STORAGE AND LNG Article 9 Unbundling of transmission systems and transmission system operators 1.  

Member States shall ensure that from 3 March 2012: (a)  each undertaking which owns a transmission system acts as a transmission system operator; (b)  the same person or persons are entitled neither: (i) 

directly or indirectly to exercise control over an undertaking performing any of the functions of production or supply, and directly or indirectly to exercise control or exercise any right over a transmission system operator or over a transmission system; nor

(ii)  directly or indirectly to exercise control over a transmission system operator or over a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of production or supply; (c) 

the same person or persons are not entitled to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, of a transmission system operator or a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of production or supply; and

(d)  the same person is not entitled to be a member of the supervisory board, the administrative board or bodies legally representing the undertaking, of both an undertaking performing any of the functions of production or supply and a transmission system operator or a transmission system.

1014

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

2.  

The rights referred to in points (b) and (c) of paragraph 1 shall include, in particular: (a)  the power to exercise voting rights; (b)  the power to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking; or (c) 

the holding of a majority share.

3.  

For the purpose of paragraph 1(b), the notion ‘undertaking performing any of the functions of production or supply’ shall include ‘undertaking performing any of the functions of generation and supply’ within the meaning of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity ( 5 ), and the terms ‘transmission system operator’ and ‘transmission system’ shall include ‘transmission system operator’ and ‘transmission system’ within the meaning of that Directive.

4.  

Member States may allow for derogations from points (b) and (c) of paragraphs 1 until 3 March 2013, provided that transmission system operators are not part of a vertically integrated undertaking.

5.  

The obligation set out in paragraph 1(a) of this Article shall be deemed to be fulfilled in a situation where two or more undertakings which own transmission systems have created a joint venture which acts as a transmission system operator in two or more Member States for the transmission systems concerned. No other undertaking may be part of the joint venture, unless it has been approved under Article 14 as an independent system operator or as an independent transmission operator for the purposes of Chapter IV.

6.  

For the implementation of this Article, where the person referred to in points  (b), (c) and  (d) of paragraph  1 is the Member State or another public body, two separate public bodies exercising control over a transmission system operator or over a transmission system on the one hand, and over an undertaking performing any of the functions of production or supply on the other, shall be deemed not to be the same person or persons. 1015

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

7.  

Member States shall ensure that neither commercially sensitive information referred to in Article 16 held by a transmission system operator which was part of a vertically integrated undertaking, nor the staff of such a transmission system operator, is transferred to undertakings performing any of the functions of production and supply.

▼M2 8.   Where on 3 September 2009 the transmission system belonged to a vertically integrated undertaking, a Member State may decide not to apply paragraph 1. As regards the part of the transmission system connecting a Member State with a third country between the border of that Member State and the first connection point with that Member State’s network, where on 23 May 2019 the transmission system belongs to a vertically integrated undertaking, a Member State may decide not to apply paragraph 1. ▼B In such case, the Member State concerned shall either:

(a)  designate an independent system operator in accordance with Article 14, or (b)  comply with the provisions of Chapter IV. ▼M2 9.   Where on 3 September 2009 the transmission system belonged to a vertically integrated undertaking and arrangements are in place which guarantee more effective independence of the transmission system operator than the provisions of Chapter IV, a Member State may decide not to apply paragraph 1 of this Article.



As regards the part of the transmission system connecting a Member State with a third country between the border of that Member State and the first connection point with that Member State’s network, where on 23 May 2019 the transmission system belongs to a vertically integrated undertaking and arrangements are in place which guarantee more effective independence of the transmission system operator than the provisions of Chapter IV, that Member State may decide not to apply paragraph 1 of this Article.

1016

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

▼B 10.   Before an undertaking is approved and designated as a transmission system operator under paragraph 9 of this Article, it shall be certified according to the procedures laid down in Article 10(4), (5) and (6) of this Directive and in Article 3 of Regulation (EC) No 715/2009, pursuant to which the Commission shall verify that the arrangements in place clearly guarantee more effective independence of the transmission system operator than the provisions of Chapter IV.

11.   Vertically integrated undertakings which own a transmission system shall not in any event be prevented from taking steps to comply with paragraph 1. 12.   Undertakings performing any of the functions of production or supply shall not in any event be able to directly or indirectly take control over or exercise any right over unbundled transmission system operators in Member States which apply paragraph 1. Article 10 Designation and certification of transmission system operators 1.  

Before an undertaking is approved and designated as transmission system operator, it shall be certified according to the procedures laid down in paragraphs 4, 5 and 6 of this Article and in Article 3 of Regulation (EC) No 715/2009.

2.  

Undertakings which own a transmission system and which have been certified by the national regulatory authority as having complied with the requirements of Article 9, pursuant to the certification procedure, shall be approved and designated as transmission system operators by Member States. The designation of transmission system operators shall be notified to the Commission and published in the Official Journal of the European Union.

3.  

Transmission system operators shall notify to the regulatory authority any planned transaction which may require a reassessment of their compliance with the requirements of Article 9.

1017

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

4.  

The regulatory authorities shall monitor the continuing compliance of transmission system operators with the requirements of Article 9. They shall open a certification procedure to ensure such compliance: (a)  upon notification by the transmission system operator pursuant to paragraph 3; (b)  on their own initiative where they have knowledge that a planned change in rights or influence over transmission system owners or transmission system operators may lead to an infringement of Article 9, or where they have reason to believe that such an infringement may have occurred; or (c) 

upon a reasoned request from the Commission.

5.  

The regulatory authorities shall adopt a decision on the certification of a transmission system operator within a period of four months from the date of the notification by the transmission system operator or from the date of the Commission request. After expiry of that period, the certification shall be deemed to be granted. The explicit or tacit decision of the regulatory authority shall become effective only after the conclusion of the procedure set out in paragraph 6.

6.  

The explicit or tacit decision on the certification of a transmission system operator shall be notified without delay to the Commission by the regulatory authority, together with all the relevant information with respect to that decision. The Commission shall act in accordance with the procedure laid down in Article 3 of Regulation (EC) No 715/2009.

7.  

The regulatory authorities and the Commission may request from transmission system operators and undertakings performing any of the functions of production or supply any information relevant for the fulfilment of their tasks under this Article.

8.  

The regulatory authorities and the Commission shall preserve the confidentiality of commercially sensitive information.

1018

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 11 Certification in relation to third countries 1.  

Where certification is requested by a transmission system owner or a transmission system operator which is controlled by a person or persons from a third country or third countries, the regulatory authority shall notify the Commission.



The regulatory authority shall also notify to the Commission without delay any circumstances that would result in a person or persons from a third country or third countries acquiring control of a transmission system or a transmission system operator.

2.  

The transmission system operator shall notify to the regulatory authority any circumstances that would result in a person or persons from a third country or third countries acquiring control of the transmission system or the transmission system operator.

3.  

The regulatory authority shall adopt a draft decision on the certification of a transmission system operator within four months from the date of notification by the transmission system operator. It shall refuse the certification if it has not been demonstrated: (a)  that the entity concerned complies with the requirements of Article 9; and (b)  to the regulatory authority or to another competent authority designated by the Member State that granting certification will not put at risk the security of energy supply of the Member State and the Community. In considering that question the regulatory authority or other competent authority so designated shall take into account: (i) 

the rights and obligations of the Community with respect to that third country arising under international law, including any agreement concluded with one or more third countries to which the Community is a party and which addresses the issues of security of energy supply;

1019

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(ii)  the rights and obligations of the Member State with respect to that third country arising under agreements concluded with it, insofar as they are in compliance with Community law; and (iii)  other specific facts and circumstances of the case and the third country concerned. 4.  

The regulatory authority shall notify the decision to the Commission without delay, together with all the relevant information with respect to that decision.

5.  

Member States shall provide for the regulatory authority or the designated competent authority referred to in paragraph  3(b), before the regulatory authority adopts a decision on the certification, to request an opinion from the Commission on whether: (a)  the entity concerned complies with the requirements of Article 9; and (b)  granting certification will not put at risk the security of energy supply to the Community.

6.  

The Commission shall examine the request referred to in paragraph 5 as soon as it is received. Within a period of two months after receiving the request, it shall deliver its opinion to the national regulatory authority or, if the request was made by the designated competent authority, to that authority.



In preparing the opinion, the Commission may request the views of the Agency, the Member State concerned, and interested parties. In the event that the Commission makes such a request, the two-month period shall be extended by two months.



In the absence of an opinion by the Commission within the period referred to in the first and second subparagraphs, the Commission is deemed not to raise objections to the decision of the regulatory authority.

1020

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

7.  

When assessing whether the control by a person or persons from a third country or third countries will put at risk the security of energy supply to the Community, the Commission shall take into account: (a)  the specific facts of the case and the third country or third countries concerned; and (b)  the rights and obligations of the Community with respect to that third country or third countries arising under international law, including an agreement concluded with one or more third countries to which the Community is a party and which addresses the issues of security of supply.

8.  

The national regulatory authority shall, within a period of two months after the expiry of the period referred to in paragraph 6, adopt its final decision on the certification. In adopting its final decision the national regulatory authority shall take utmost account of the Commission’s opinion. In any event Member States shall have the right to refuse certification where granting certification puts at risk the Member State’s security of energy supply or the security of energy supply of another Member State. Where the Member State has designated another competent authority to assess paragraph 3(b), it may require the national regulatory authority to adopt its final decision in accordance with the assessment of that competent authority. The regulatory authority’s final decision and the Commission’s opinion shall be published together. Where the final decision diverges from the Commission’s opinion, the Member State concerned shall provide and publish, together with that decision, the reasoning underlying such decision.

9.  

Nothing in this Article shall affect the right of Member States to exercise, in compliance with Community law, national legal controls to protect legitimate public security interests.

10.   The Commission may adopt Guidelines setting out the details of the procedure to be followed for the application of this Article. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3).

1021

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

11.   This Article, with exception of paragraph 3(a), shall also apply to Member States which are subject to a derogation under Article 49. Article 12 Designation of storage and LNG system operators Member States shall designate, or shall require natural gas undertakings which own storage or LNG facilities to designate, for a period of time to be determined by Member States, having regard to considerations of efficiency and economic balance, one or more storage and LNG system operators. Article 13 Tasks of transmission, storage and/or LNG system operators 1.  

Each transmission, storage and/or LNG system operator shall: (a)  operate, maintain and develop under economic conditions secure, reliable and efficient transmission, storage and/or LNG facilities to secure an open market, with due regard to the environment, ensure adequate means to meet service obligations; (b)  refrain from discriminating between system users or classes of system users, particularly in favour of its related undertakings; (c) 

provide any other transmission system operator, any other storage system operator, any other LNG system operator and/or any distribution system operator, sufficient information to ensure that the transport and storage of natural gas may take place in a manner compatible with the secure and efficient operation of the interconnected system; and

(d)  provide system users with the information they need for efficient access to the system.

1022

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

2.  

Each transmission system operator shall build sufficient cross-border capacity to integrate European transmission infrastructure accommodating all economically reasonable and technically feasible demands for capacity and taking into account security of gas supply.

3.  

Rules adopted by transmission system operators for balancing the gas transmission system shall be objective, transparent and non-discriminatory, including rules for the charging of system users of their networks for energy imbalance. Terms and conditions, including rules and tariffs, for the provision of such services by transmission system operators shall be established pursuant to a methodology compatible with Article 41(6) in a non-discriminatory and cost-reflective way and shall be published.

4.  

The regulatory authorities where Member States have so provided or Member States may require transmission system operators to comply with minimum standards for the maintenance and development of the transmission system, including interconnection capacity.

5.  

Transmission system operators shall procure the energy they use for the carrying out of their functions according to transparent, non-discriminatory and market based procedures. Article 14

Independent system operators ▼M2 1.   Where on 3 September 2009 the transmission system belonged to a vertically integrated undertaking, a Member State may decide not to apply Article 9(1) and to designate an independent system operator upon a proposal from the transmission system owner.

As regards the part of the transmission system connecting a Member State with a third country between the border of that Member State and the first connection point with that Member State’s network, where on 23 May 2019 the transmission system belongs to a vertically integrated undertaking, that Member State may decide not to apply Article 9(1) and to designate an independent system operator upon a proposal from the transmission system owner.

1023

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

▼B 2.  

The designation of an independent system operator shall be subject to approval by the Commission. The Member State may approve and designate an independent system operator only where: (a)  the candidate operator has demonstrated that it complies with the requirements of Article 9(1)(b), (c) and (d); (b)  the candidate operator has demonstrated that it has at its disposal the required financial, technical, physical and human resources to carry out its tasks under Article 13; (c) 

the candidate operator has undertaken to comply with a ten-year network development plan monitored by the regulatory authority;

(d)  the transmission system owner has demonstrated its ability to comply with its obligations under paragraph 5. To that end, it shall provide all the draft contractual arrangements with the candidate undertaking and any other relevant entity; and (e) 

the candidate operator has demonstrated its ability to comply with its obligations under Regulation (EC) No 715/2009 including the cooperation of transmission system operators at European and regional level.

3.  

Undertakings which have been certified by the regulatory authority as having complied with the requirements of Article 11 and of paragraph 2 of this Article shall be approved and designated as independent system operators by Member States. The certification procedure in either Article 10 of this Directive and Article 3 of Regulation (EC) No 715/2009 or in Article 11 of this Directive shall be applicable.

4.  

Each independent system operator shall be responsible for granting and managing third-party access, including the collection of access charges and congestion charges, for operating, maintaining and developing the transmission system, as well as for ensuring the long-term ability of the system to meet reasonable demand through investment planning. When developing the transmission system the independent system operator 1024

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

shall be responsible for planning (including authorisation procedure), construction and commissioning of the new infrastructure. For this purpose, the independent system operator shall act as a transmission system operator in accordance with this Chapter. The transmission system owner shall not be responsible for granting and managing third-party access, nor for investment planning. 5.  

Where an independent system operator has been designated, the transmission system owner shall: (a)  provide all the relevant cooperation and support to the independent system operator for the fulfilment of its tasks, including in particular all relevant information; (b)  finance the investments decided by the independent system operator and approved by the regulatory authority, or give its agreement to financing by any interested party including the independent system operator. The relevant financing arrangements shall be subject to approval by the regulatory authority. Prior to such approval, the regulatory authority shall consult the transmission system owner together with other interested parties; (c) 

provide for the coverage of liability relating to the network assets, excluding the liability relating to the tasks of the independent system operator; and

(d)  provide guarantees to facilitate financing any network expansions with the exception of those investments where, pursuant to point (b), it has given its agreement to financing by any interested party including the independent system operator. 6.  

In close cooperation with the regulatory authority, the relevant national competition authority shall be granted all relevant powers to effectively monitor compliance of the transmission system owner with its obligations under paragraph 5.

1025

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 15 Unbundling of transmission system owners and storage system operators 1.  

A transmission system owner, where an independent system operator has been appointed, and a storage system operator which are part of vertically integrated undertakings shall be independent at least in terms of their legal form, organisation and decision making from other activities not relating to transmission, distribution and storage.



This Article shall apply only to storage facilities that are technically and/ or economically necessary for providing efficient access to the system for the supply of customers pursuant to Article 33.

2.  

In order to ensure the independence of the transmission system owner and storage system operator referred to in paragraph  1, the following minimum criteria shall apply: (a)  persons responsible for the management of the transmission system owner and storage system operator shall not participate in company structures of the integrated natural gas undertaking responsible, directly or indirectly, for the day-to-day operation of the production and supply of natural gas; (b)  appropriate measures shall be taken to ensure that the professional interests of persons responsible for the management of the transmission system owner and storage system operator are taken into account in a manner that ensures that they are capable of acting independently; (c) 

the storage system operator shall have effective decision-making rights, independent from the integrated natural gas undertaking, with respect to assets necessary to operate, maintain or develop the storage facilities. This shall not preclude the existence of appropriate coordination mechanisms to ensure that the economic and management supervision rights of the parent company in respect of return on assets regulated indirectly in accordance with Article 41(6) in a subsidiary are protected. In particular, this shall enable the parent company to approve the annual financial plan, or any equivalent instrument, of the storage system operator and 1026

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

to set global limits on the levels of indebtedness of its subsidiary. It shall not permit the parent company to give instructions regarding day-to-day operations, nor with respect to individual decisions concerning the construction or upgrading of storage facilities, that do not exceed the terms of the approved financial plan, or any equivalent instrument; and (d)  the transmission system owner and the storage system operator shall establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded, and ensure that observance of it is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet those objectives. An annual report, setting out the measures taken, shall be submitted by the person or body responsible for monitoring the compliance programme to the regulatory authority and shall be published. 3.  

The Commission may adopt Guidelines to ensure full and effective compliance of the transmission system owner and of the storage system operator with paragraph 2 of this Article. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3). Article 16 Confidentiality for transmission system operators and transmission system owners

1.  

Without prejudice to Article 30 or any other legal duty to disclose information, each transmission, storage and/or LNG system operator, and each transmission system owner, shall preserve the confidentiality of commercially sensitive information obtained in the course of carrying out its activities, and shall prevent information about its own activities which may be commercially advantageous from being disclosed in a discriminatory manner. In particular, it shall not disclose any commercially sensitive information to the remaining parts of the undertaking, unless this is necessary for carrying out a business transaction. In order to ensure the full respect of the rules on information unbundling, Member States 1027

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

shall ensure that the transmission system owner including, in the case of a combined operator, the distribution system operator, and the remaining part of the undertaking do not use joint services, such as joint legal services, apart from purely administrative or IT functions. 2.  

Transmission, storage and/or LNG system operators shall not, in the context of sales or purchases of natural gas by related undertakings, misuse commercially sensitive information obtained from third parties in the context of providing or negotiating access to the system.

3.  

Information necessary for effective competition and the efficient functioning of the market shall be made public. That obligation shall be without prejudice to protecting commercially sensitive information. CHAPTER IV INDEPENDENT TRANSMISSION OPERATOR Article 17 Assets, equipment, staff and identity

1.  

Transmission system operators shall be equipped with all human, technical, physical and financial resources necessary for fulfilling their obligations under this Directive and carrying out the activity of gas transmission, in particular: (a)  assets that are necessary for the activity of gas transmission, including the transmission system, shall be owned by the transmission system operator; (b)  personnel necessary for the activity of gas transmission, including the performance of all corporate tasks, shall be employed by the transmission system operator; (c) 

leasing of personnel and rendering of services, to and from any other parts of the vertically integrated undertaking shall be prohibited. A transmission system operator may, however, render services to the vertically integrated undertaking as long as: 1028

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(i) 

the provision of those services does not discriminate between system users, is available to all system users on the same terms and conditions and does not restrict, distort or prevent competition in production or supply; and

(ii)  the terms and conditions of the provision of those services are approved by the regulatory authority; (d)  without prejudice to the decisions of the Supervisory Body under Article  20, appropriate financial resources for future investment projects and/or for the replacement of existing assets shall be made available to the transmission system operator in due time by the vertically integrated undertaking following an appropriate request from the transmission system operator. 2.  

The activity of gas transmission shall include at least the following tasks in addition to those listed in Article 13: (a)  the representation of the transmission system operator and contacts to third parties and the regulatory authorities; (b)  the representation of the transmission system operator within the European Network of Transmission System Operators for Gas (ENTSO for Gas); (c) 

granting and managing third-party access on a non-discriminatory basis between system users or classes of system users;

(d)  the collection of all the transmission system related charges including access charges, balancing charges for ancillary services such as gas treatment, purchasing of services (balancing costs, energy for losses); (e) 

the operation, maintenance and development of a secure, efficient and economic transmission system;

(f )  investment planning ensuring the long-term ability of the system to meet reasonable demand and guaranteeing security of supply;

1029

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(g)  the setting up of appropriate joint ventures, including with one or more transmission system operators, gas exchanges, and the other relevant actors pursuing the objective to develop the creation of regional markets or to facilitate the liberalisation process; and (h)  all corporate services, including legal services, accountancy and IT services. 3.  

Transmission system operators shall be organised in a legal form as referred to in Article 1 of Council Directive 68/151/EEC ( 6 ).

4.  

The transmission system operator shall not, in its corporate identity, communication, branding and premises, create confusion in respect of the separate identity of the vertically integrated undertaking or any part thereof.

5.  

The transmission system operator shall not share IT systems or equipment, physical premises and security access systems with any part of the vertically integrated undertaking, nor use the same consultants or external contractors for IT systems or equipment, and security access systems.

6.  

The accounts of transmission system operators shall be audited by an auditor other than the one auditing the vertically integrated undertaking or any part thereof. Article 18 Independence of the transmission system operator

1.  

Without prejudice to the decisions of the Supervisory Body under Article 20, the transmission system operator shall have: (a)  effective decision-making rights, independent from the vertically integrated undertaking, with respect to assets necessary to operate, maintain or develop the transmission system; and (b)  the power to raise money on the capital market in particular through borrowing and capital increase.

1030

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

2.  

The transmission system operator shall at all times act so as to ensure it has the resources it needs in order to carry out the activity of transmission properly and efficiently and develop and maintain an efficient, secure and economic transmission system.

3.  

Subsidiaries of the vertically integrated undertaking performing functions of production or supply shall not have any direct or indirect shareholding in the transmission system operator. The transmission system operator shall neither have any direct or indirect shareholding in any subsidiary of the vertically integrated undertaking performing functions of production or supply, nor receive dividends or any other financial benefit from that subsidiary.

4.  

The overall management structure and the corporate statutes of the transmission system operator shall ensure effective independence of the transmission system operator in compliance with this Chapter. The vertically integrated undertaking shall not determine, directly or indirectly, the competitive behaviour of the transmission system operator in relation to the day to day activities of the transmission system operator and management of the network, or in relation to activities necessary for the preparation of the ten-year network development plan developed pursuant to Article 22.

5.  

In fulfilling their tasks in Article 13 and Article 17(2) of this Directive, and in complying with Article 13(1), Article 14(1)(a), Article 16(2), (3) and (5), Article 18(6) and Article 21(1) of Regulation (EC) No 715/2009, transmission system operators shall not discriminate against different persons or entities and shall not restrict, distort or prevent competition in production or supply.

6.  

Any commercial and financial relations between the vertically integrated undertaking and the transmission system operator, including loans from the transmission system operator to the vertically integrated undertaking, shall comply with market conditions. The transmission system operator shall keep detailed records of such commercial and financial relations and make them available to the regulatory authority upon request.

7.  

The transmission system operator shall submit for approval by the regulatory authority all commercial and financial agreements with the vertically integrated undertaking. 1031

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

8.  

The transmission system operator shall inform the regulatory authority of the financial resources, referred to in Article 17(1)(d), available for future investment projects and/or for the replacement of existing assets.

9.  

The vertically integrated undertaking shall refrain from any action impeding or prejudicing the transmission system operator from complying with its obligations in this Chapter and shall not require the transmission system operator to seek permission from the vertically integrated undertaking in fulfilling those obligations.

10.   An undertaking which has been certified by the regulatory authority as being in compliance with the requirements of this Chapter shall be approved and designated as a transmission system operator by the Member State concerned. The certification procedure in either Article 10 of this Directive and Article 3 of Regulation (EC) No 715/2009 or in Article 11 of this Directive shall apply. Article 19 Independence of the staff and the management of the transmission system operator 1.  

Decisions regarding the appointment and renewal, working conditions including remuneration, and termination of the term of office, of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator shall be taken by the Supervisory Body of the transmission system operator appointed in accordance with Article 20.

2.  

The identity of, and the conditions governing the term, the duration and the termination of office of, the persons nominated by the Supervisory Body for appointment or renewal as persons responsible for the executive management and/or as members of the administrative bodies of the transmission system operator, and the reasons for any proposed decision terminating such term of office, shall be notified to the regulatory authority. Those conditions and the decisions referred to in paragraph 1 shall become binding only if the regulatory authority has raised no objections within three weeks of notification.

1032

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas



The regulatory authority may object to the decisions referred to in paragraph 1 where: (a)  doubts arise as to the professional independence of a nominated person responsible for the management and/or member of the administrative bodies; or (b)  in the case of premature termination of a term of office, doubts exist regarding the justification of such premature termination.

3.  

No professional position or responsibility, interest or business relationship, directly or indirectly, with the vertically integrated undertaking or any part of it or its controlling shareholders other than the transmission system operator shall be exercised for a period of three years before the appointment of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator who are subject to this paragraph.

4.  

The persons responsible for the management and/or members of the administrative bodies, and employees of the transmission system operator shall have no other professional position or responsibility, interest or business relationship, directly or indirectly, with any other part of the vertically integrated undertaking or with its controlling shareholders.

5.  

The persons responsible for the management and/or members of the administrative bodies, and employees of the transmission system operator shall hold no interest in or receive any financial benefit, directly or indirectly, from any part of the vertically integrated undertaking other than the transmission system operator. Their remuneration shall not depend on activities or results of the vertically integrated undertaking other than those of the transmission system operator.

6.  

Effective rights of appeal to the regulatory authority shall be guaranteed for any complaints by the persons responsible for the management and/ or members of the administrative bodies of the transmission system operator against premature terminations of their term of office.

7.  

After termination of their term of office in the transmission system operator, the persons responsible for its management and/or members of its administrative bodies shall have no professional position or respon1033

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

sibility, interest or business relationship with any part of the vertically integrated undertaking other than the transmission system operator, or with its controlling shareholders for a period of not less than four years. 8.  

Paragraph 3 shall apply to the majority of the persons responsible for the management and/or members of the administrative bodies of the transmission system operator.



The persons responsible for the management and/or members of the administrative bodies of the transmission system operator who are not subject to paragraph 3 shall have exercised no management or other relevant activity in the vertically integrated undertaking for a period of at least six months before their appointment.



The first subparagraph of this paragraph and paragraphs 4 to 7 shall be applicable to all the persons belonging to the executive management and to those directly reporting to them on matters related to the operation, maintenance or development of the network. Article 20 Supervisory Body

1.  

The transmission system operator shall have a Supervisory Body which shall be in charge of taking decisions which may have a significant impact on the value of the assets of the shareholders within the transmission system operator, in particular decisions regarding the approval of the annual and longer-term financial plans, the level of indebtedness of the transmission system operator and the amount of dividends distributed to shareholders. The decisions falling under the remit of the Supervisory Body shall exclude those that are related to the day to day activities of the transmission system operator and management of the network, and in relation to activities necessary for the preparation of the ten-year network development plan developed pursuant to Article 22.

2.  

The Supervisory Body shall be composed of members representing the vertically integrated undertaking, members representing third party shareholders and, where the relevant legislation of a Member State so provides, members representing other interested parties such as employees of the transmission system operator. 1034

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

3.  

The first subparagraph of Article 19(2) and Article 19(3) to (7) shall apply to at least half of the members of the Supervisory Body minus one.



Point (b) of the second subparagraph of Article 19(2) shall apply to all the members of the Supervisory Body. Article 21 Compliance programme and compliance officer

1.  

Member States shall ensure that transmission system operators establish and implement a compliance programme which sets out the measures taken in order to ensure that discriminatory conduct is excluded, and ensure that the compliance with that programme is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet those objectives. It shall be subject to approval by the regulatory authority. Without prejudice to the powers of the national regulator, compliance with the program shall be independently monitored by a compliance officer.

2.  

The compliance officer shall be appointed by the Supervisory Body, subject to the approval by the regulatory authority. The regulatory authority may refuse the approval of the compliance officer only for reasons of lack of independence or professional capacity. The compliance officer may be a natural or legal person. Article 19(2) to (8) shall apply to the compliance officer.

3.  

The compliance officer shall be in charge of: (a)  monitoring the implementation of the compliance programme; (b)  elaborating an annual report, setting out the measures taken in order to implement the compliance programme and submitting it to the regulatory authority; (c) 

reporting to the Supervisory Body and issuing recommendations on the compliance programme and its implementation;

1035

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(d)  notifying the regulatory authority on any substantial breaches with regard to the implementation of the compliance programme; and (e) 

reporting to the regulatory authority on any commercial and financial relations between the vertically integrated undertaking and the transmission system operator.

4.  

The compliance officer shall submit the proposed decisions on the investment plan or on individual investments in the network to the regulatory authority. This shall occur at the latest when the management and/or the competent administrative body of the transmission system operator submits them to the Supervisory Body.

5.  

Where the vertically integrated undertaking, in the general assembly or through the vote of the members of the Supervisory Body it has appointed, has prevented the adoption of a decision with the effect of preventing or delaying investments, which under the ten-year network development plan, was to be executed in the following three years, the compliance officer shall report this to the regulatory authority, which then shall act in accordance with Article 22.

6.  

The conditions governing the mandate or the employment conditions of the compliance officer, including the duration of his mandate, shall be subject to approval by the regulatory authority. Those conditions shall ensure the independence of the compliance officer, including by providing it with all the resources necessary for fulfilling his duties. During his mandate, the compliance officer shall have no other professional position, responsibility or interest, directly or indirectly, in or with any part of the vertically integrated undertaking or with its controlling shareholders.

7.  

The compliance officer shall report regularly, either orally or in writing, to the regulatory authority and shall have the right to report regularly, either orally or in writing, to the Supervisory Body of the transmission system operator.

8.  

The compliance officer may attend all meetings of the management or administrative bodies of the transmission system operator, and those of the Supervisory Body and the general assembly. The compliance officer shall attend all meetings that address the following matters: 1036

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(a)  conditions for access to the network, as defined in Regulation (EC) No  715/2009, in particular regarding tariffs, third party access services, capacity allocation and congestion management, transparency, balancing and secondary markets; (b)  projects undertaken in order to operate, maintain and develop the transmission system, including investments in new transport connections, in expansion of capacity and in optimisation of existing capacity; (c)  9.  

energy purchases or sales necessary for the operation of the transmission system.

The compliance officer shall monitor the compliance of the transmission system operator with Article 16.

10.   The compliance officer shall have access to all relevant data and to the offices of the transmission system operator and to all the information necessary for the fulfilment of his task. 11.   After prior approval by the regulatory authority, the Supervisory Body may dismiss the compliance officer. It shall dismiss the compliance officer for reasons of lack of independence or professional capacity upon request of the regulatory authority. 12.   The compliance officer shall have access to the offices of the transmission system operator without prior announcement. Article 22 Network development and powers to make investment decisions 1.  

Every year, transmission system operators shall submit to the regulatory authority a ten-year network development plan based on existing and forecast supply and demand after having consulted all the relevant stakeholders. That network development plan shall contain efficient measures in order to guarantee the adequacy of the system and the security of supply.

1037

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

2.  

The ten-year network development plan shall, in particular: (a)  indicate to market participants the main transmission infrastructure that needs to be built or upgraded over the next ten years; (b)  contain all the investments already decided and identify new investments which have to be executed in the next three years; and (c) 

provide for a time frame for all investment projects.

3.  

When elaborating the ten-year network development plan, the transmission system operator shall make reasonable assumptions about the evolution of the production, supply, consumption and exchanges with other countries, taking into account investment plans for regional and Community-wide networks, as well as investment plans for storage and LNG regasification facilities.

4.  

The regulatory authority shall consult all actual or potential system users on the ten-year network development plan in an open and transparent manner. Persons or undertakings claiming to be potential system users may be required to substantiate such claims. The regulatory authority shall publish the result of the consultation process, in particular possible needs for investments.

5.  

The regulatory authority shall examine whether the ten-year network development plan covers all investment needs identified during the consultation process, and whether it is consistent with the non-binding Community-wide ten-year network development plan (Community-wide network development plan) referred to in Article 8(3)(b) of Regulation (EC) No  715/2009. If any doubt arises as to the consistency with the Community-wide network development plan, the regulatory authority shall consult the Agency. The regulatory authority may require the transmission system operator to amend its ten-year network development plan.

6.  

The regulatory authority shall monitor and evaluate the implementation of the ten-year network development plan.

7.  

In circumstances where the transmission system operator, other than for overriding reasons beyond its control, does not execute an investment, 1038

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

which, under the ten-year network development plan, was to be executed in the following three years, Member States shall ensure that the regulatory authority is required to take at least one of the following measures to ensure that the investment in question is made if such investment is still relevant on the basis of the most recent ten-year network development plan: (a)  to require the transmission system operator to execute the investments in question; (b)  to organise a tender procedure open to any investors for the investment in question; or (c) 



to oblige the transmission system operator to accept a capital increase to finance the necessary investments and allow independent investors to participate in the capital.

Where the regulatory authority has made use of its powers under point (b) of the first subparagraph, it may oblige the transmission system operator to agree to one or more of the following: (a)  financing by any third party; (b)  construction by any third party; (c) 

building the new assets concerned itself;

(d)  operating the new asset concerned itself.

The transmission system operator shall provide the investors with all information needed to realise the investment, shall connect new assets to the transmission network and shall generally make its best efforts to facilitate the implementation of the investment project.



The relevant financial arrangements shall be subject to approval by the regulatory authority.

8.  

Where the regulatory authority has made use of its powers under the first subparagraph of paragraph  7, the relevant tariff regulations shall cover the costs of the investments in question. 1039

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 23 Decision-making powers regarding the connection of storage facilities, LNG regasification facilities and industrial customers to the transmission system 1.  

The transmission system operator shall establish and publish transparent and efficient procedures and tariffs for non-discriminatory connection of storage facilities, LNG regasification facilities and industrial customers to the transmission system. Those procedures shall be subject to approval by the regulatory authority.

2.  

The transmission system operator shall not be entitled to refuse the connection of a new storage facility, LNG regasification facility or industrial customer on the grounds of possible future limitations to available network capacities or additional costs linked with necessary capacity increase. The transmission system operator shall ensure sufficient entry and exit capacity for the new connection. CHAPTER V DISTRIBUTION AND SUPPLY Article 24 Designation of distribution system operators

Member States shall designate, or shall require undertakings which own or are responsible for distribution systems to designate, for a period of time to be determined by Member States, having regard to considerations of efficiency and economic balance, one or more distribution system operators and shall ensure that those operators act in accordance with Articles 25, 26 and 27.

1040

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 25 Tasks of distribution system operators 1.  

Each distribution system operator shall be responsible for ensuring the long-term ability of the system to meet reasonable demands for the distribution of gas, and for operating, maintaining and developing under economic conditions a secure, reliable and efficient system in its area, with due regard for the environment and energy efficiency.

2.  

In any event, the distribution system operator shall not discriminate between system users or classes of system users, particularly in favour of its related undertakings.

3.  

Each distribution system operator shall provide any other distribution, transmission, LNG, and/or storage system operator with sufficient information to ensure that the transport and storage of natural gas takes place in a manner compatible with the secure and efficient operation of the interconnected system.

4.  

Each distribution system operator shall provide system users with the information they need for efficient access to, including use of, the system.

5.  

Where a distribution system operator is responsible for balancing the distribution system, rules adopted by it for that purpose shall be objective, transparent and non-discriminatory, including rules for the charging of system users for energy imbalance. Terms and conditions, including rules and tariffs, for the provision of such services by distribution system operators shall be established pursuant to a methodology compatible with Article 41(6) in a non-discriminatory and cost-reflective way and shall be published. Article 26 Unbundling of distribution system operators

1.  

Where the distribution system operator is part of a vertically integrated undertaking, it shall be independent at least in terms of its legal form, organisation and decision making from other activities not relating to dis1041

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

tribution. Those rules shall not create an obligation to separate the ownership of assets of the distribution system from the vertically integrated undertaking. 2.  

In addition to the requirements under paragraph 1, where the distribution system operator is part of a vertically integrated undertaking, it shall be independent in terms of its organisation and decision-making from the other activities not related to distribution. In order to achieve this, the following minimum criteria shall apply: (a)  those persons responsible for the management of the distribution system operator must not participate in company structures of the integrated natural gas undertaking responsible, directly or indirectly, for the day-to-day operation of the production, transmission and supply of natural gas; (b)  appropriate measures must be taken to ensure that the professional interests of persons responsible for the management of the distribution system operator are taken into account in a manner that ensures that they are capable of acting independently; (c) 

the distribution system operator must have effective decision-making rights, independent from the integrated natural gas undertaking, with respect to assets necessary to operate, maintain or develop the network. In order to fulfil those tasks, the distribution system operator shall have at its disposal the necessary resources including human, technical, financial and physical resources. This should not prevent the existence of appropriate coordination mechanisms to ensure that the economic and management supervision rights of the parent company in respect of return on assets, regulated indirectly in accordance with Article 41(6) in a subsidiary are protected. In particular, this shall enable the parent company to approve the annual financial plan, or any equivalent instrument, of the distribution system operator and to set global limits on the levels of indebtedness of its subsidiary. It shall not permit the parent company to give instructions regarding day-to-day operations, nor with respect to individual decisions concerning the construction or upgrading of distribution lines, that do not exceed the terms of the approved financial plan, or any equivalent instrument; and

1042

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(d)  the distribution system operator must establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded, and ensure that observance of it is adequately monitored. The compliance programme shall set out the specific obligations of employees to meet that objective. An annual report, setting out the measures taken, shall be submitted by the person or body responsible for monitoring the compliance programme, the compliance officer of the distribution system operator, to the regulatory authority referred to in Article 39(1) and shall be published. The compliance officer of the distribution system operator shall be fully independent and shall have access to all the necessary information of the distribution system operator and any affiliated undertaking to fulfil his task. 3.  

Where the distribution system operator is part of a vertically integrated undertaking, the Member States shall ensure that the activities of the distribution system operator are monitored by regulatory authorities or other competent bodies so that it cannot take advantage of its vertical integration to distort competition. In particular, vertically integrated distribution system operators shall not, in their communication and branding, create confusion in respect of the separate identity of the supply branch of the vertically integrated undertaking.

4.  

Member States may decide not to apply paragraphs 1, 2 and 3 to integrated natural gas undertakings serving less than 100 000 connected customers. Article 27 Confidentiality obligations of distribution system operators

1.  

Without prejudice to Article 30 or any other legal duty to disclose information, each distribution system operator shall preserve the confidentiality of commercially sensitive information obtained in the course of carrying out its business, and shall prevent information about its own activities which may be commercially advantageous from being disclosed in a discriminatory manner.

1043

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

2.  

Distribution system operators shall not, in the context of sales or purchases of natural gas by related undertakings, abuse commercially sensitive information obtained from third parties in the context of providing or negotiating access to the system. Article 28 Closed distribution systems

1.  

Member States may provide for national regulatory authorities or other competent authorities to classify a system which distributes gas within a geographically confined industrial, commercial or shared services site and does not, without prejudice to paragraph 4, supply household customers, as a closed distribution system if: (a)  for specific technical or safety reasons, the operations or the production process of the users of that system are integrated; or (b)  that system distributes gas primarily to the owner or operator of the system or to their related undertakings.

2.  

Member States may provide for national regulatory authorities to exempt the operator of a closed distribution system from the requirement under Article 32(1) that tariffs, or the methodologies underlying their calculation, are approved prior to their entry into force in accordance with Article 41.

3.  

Where an exemption is granted under paragraph 2, the applicable tariffs, or the methodologies underlying their calculation, shall be reviewed and approved in accordance with Article  41 upon request by a user of the closed distribution system.

4.  

Incidental use by a small number of households with employment or similar associations with the owner of the distribution system and located within the area served by a closed distribution system shall not preclude an exemption under paragraph 2 being granted.

1044

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 29 Combined operator Article 26(1) shall not prevent the operation of a combined transmission, LNG, storage and distribution system operator provided that operator complies with Articles 9(1), or 14 and 15, or Chapter IV or falls under Article 49(6). CHAPTER VI UNBUNDLING AND TRANSPARENCY OF ACCOUNTS Article 30 Right of access to accounts 1.  

Member States or any competent authority they designate, including the regulatory authorities referred to in Article 39(1) and the dispute settlement authorities referred to in Article 34(3), shall, insofar as necessary to carry out their functions, have right of access to the accounts of natural gas undertakings as set out in Article 31.

2.  

Member States and any designated competent authority, including the regulatory authorities referred to in Article 39(1) and the dispute settlement authorities, shall preserve the confidentiality of commercially sensitive information. Member States may provide for the disclosure of such information where this is necessary in order for the competent authorities to carry out their functions. Article 31 Unbundling of accounts

1.  

Member States shall take the necessary steps to ensure that the accounts of natural gas undertakings are kept in accordance with paragraphs 2 to 5 of this Article. Where natural gas undertakings benefit from a derogation from this provision on the basis of Article  49(2) and  (4), they shall at least keep their internal accounts in accordance with this Article. 1045

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

2.  

Natural gas undertakings, whatever their system of ownership or legal form, shall draw up, submit to audit and publish their annual accounts in accordance with the rules of national law concerning the annual accounts of limited liability companies adopted pursuant to the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 44(2)(g) ( *2 ) of the Treaty on the annual accounts of certain types of companies ( 7 ).



Undertakings which are not legally obliged to publish their annual accounts shall keep a copy thereof at the disposal of the public at their head office.

3.  

Natural gas undertakings shall, in their internal accounting, keep separate accounts for each of their transmission, distribution, LNG and storage activities as they would be required to do if the activities in question were carried out by separate undertakings, with a view to avoiding discrimination, cross-subsidisation and distortion of competition. They shall also keep accounts, which may be consolidated, for other gas activities not relating to transmission, distribution, LNG and storage. Until 1 July 2007, they shall keep separate accounts for supply activities for eligible customers and supply activities for non-eligible customers. Revenue from ownership of the transmission or distribution network shall be specified in the accounts. Where appropriate, they shall keep consolidated accounts for other, non-gas activities. The internal accounts shall include a balance sheet and a profit and loss account for each activity.

4.  

The audit, referred to in paragraph 2, shall, in particular, verify that the obligation to avoid discrimination and cross-subsidies referred to in paragraph 3 is respected.

5.  

Undertakings shall specify in their internal accounting the rules for the allocation of assets and liabilities, expenditure and income as well as for depreciation, without prejudice to nationally applicable accounting rules, which they follow in drawing up the separate accounts referred to in paragraph 3. Those internal rules may be amended only in exceptional cases. Such amendments shall be mentioned and duly substantiated.

6.  

The annual accounts shall indicate in notes any transaction of a certain size conducted with related undertakings.

1046

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

CHAPTER VII ORGANISATION OF ACCESS TO THE SYSTEM Article 32 Third-party access 1.  

Member States shall ensure the implementation of a system of third party access to the transmission and distribution system, and LNG facilities based on published tariffs, applicable to all eligible customers, including supply undertakings, and applied objectively and without discrimination between system users. Member States shall ensure that those tariffs, or the methodologies underlying their calculation are approved prior to their entry into force in accordance with Article 41 by a regulatory authority referred to in Article 39(1) and that those tariffs — and the methodologies, where only methodologies are approved — are published prior to their entry into force.

2.  

Transmission system operators shall, if necessary for the purpose of carrying out their functions including in relation to cross-border transmission, have access to the network of other transmission system operators.

3.  

The provisions of this Directive shall not prevent the conclusion of longterm contracts in so far as they comply with Community competition rules Article 33 Access to storage

1.  

For the organisation of access to storage facilities and linepack when technically and/or economically necessary for providing efficient access to the system for the supply of customers, as well as for the organisation of access to ancillary services, Member States may choose either or both of the procedures referred to in paragraphs 3 and 4. Those procedures shall operate in accordance with objective, transparent and non-discriminatory criteria.

1047

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas



The regulatory authorities where Member States have so provided or Member States shall define and publish criteria according to which the access regime applicable to storage facilities and linepack may be determined. They shall make public, or oblige storage and transmission system operators to make public, which storage facilities, or which parts of those storage facilities, and which linepack is offered under the different procedures referred to in paragraphs 3 and 4.



The obligation referred to in the second sentence of the second subparagraph shall be without prejudice to the right of choice granted to Member States in the first subparagraph.

2.  

The provisions of paragraph  1 shall not apply to ancillary services and temporary storage that are related to LNG facilities and are necessary for the re-gasification process and subsequent delivery to the transmission system.

3.  

In the case of negotiated access, Member States or, where Member States have so provided, the regulatory authorities shall take the necessary measures for natural gas undertakings and eligible customers either inside or outside the territory covered by the interconnected system to be able to negotiate access to storage facilities and linepack, when technically and/ or economically necessary for providing efficient access to the system, as well as for the organisation of access to other ancillary services. The parties shall be obliged to negotiate access to storage, linepack and other ancillary services in good faith.



Contracts for access to storage, linepack and other ancillary services shall be negotiated with the relevant storage system operator or natural gas undertakings. The regulatory authorities where Member States have so provided or Member States shall require storage system operators and natural gas undertakings to publish their main commercial conditions for the use of storage, linepack and other ancillary services by 1 January 2005 and on an annual basis every year thereafter.



When developing the conditions referred to in the second subparagraph, storage operators and natural gas undertakings shall consult system users.

1048

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

4.  

In the case of regulated access, the regulatory authorities where Member States have so provided or Member States shall take the necessary measures to give natural gas undertakings and eligible customers either inside or outside the territory covered by the interconnected system a right to access to storage, linepack and other ancillary services, on the basis of published tariffs and/or other terms and obligations for use of that storage and linepack, when technically and/or economically necessary for providing efficient access to the system, as well as for the organisation of access to other ancillary services. The regulatory authorities where Member States have so provided or Member States shall consult system users when developing those tariffs or the methodologies for those tariffs. The right of access for eligible customers may be given by enabling them to enter into supply contracts with competing natural gas undertakings other than the owner and/or operator of the system or a related undertaking. Article 34 Access to upstream pipeline networks

1.  

Member States shall take the necessary measures to ensure that natural gas undertakings and eligible customers, wherever they are located, are able to obtain access to upstream pipeline networks, including facilities supplying technical services incidental to such access, in accordance with this Article, except for the parts of such networks and facilities which are used for local production operations at the site of a field where the gas is produced. The measures shall be notified to the Commission in accordance with the provisions of Article 54.

2.  

The access referred to in paragraph 1 shall be provided in a manner determined by the Member State in accordance with the relevant legal instruments. Member States shall apply the objectives of fair and open access, achieving a competitive market in natural gas and avoiding any abuse of a dominant position, taking into account security and regularity of supplies, capacity which is or can reasonably be made available, and environmental protection. The following matters may be taken into account: (a)  the need to refuse access where there is an incompatibility of technical specifications which cannot reasonably be overcome;

1049

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(b)  the need to avoid difficulties which cannot reasonably be overcome and could prejudice the efficient, current and planned future production of hydrocarbons, including that from fields of marginal economic viability; (c) 

the need to respect the duly substantiated reasonable needs of the owner or operator of the upstream pipeline network for the transport and processing of gas and the interests of all other users of the upstream pipeline network or relevant processing or handling facilities who may be affected; and

(d)  the need to apply their laws and administrative procedures, in conformity with Community law, for the grant of authorisation for production or upstream development. 3.  

Member States shall ensure that they have in place dispute-settlement arrangements, including an authority independent of the parties with access to all relevant information, to enable disputes relating to access to upstream pipeline networks to be settled expeditiously, taking into account the criteria in paragraph 2 and the number of parties which may be involved in negotiating access to such networks.

▼M2 4.   In the event of cross-border disputes, the dispute-settlement arrangements for the Member State having jurisdiction over the upstream pipeline network which refuses access shall be applied. Where, in cross-border disputes, more than one Member State covers the network concerned, the Member States concerned shall consult each other with a view to ensuring that the provisions of this Directive are applied consistently. Where the upstream pipeline network originates from a third country and connects to at least one Member State, the Member States concerned shall consult each other and the Member State where the first entry point to the Member States’ network is located shall consult the third country concerned where the upstream pipeline network originates, with a view to ensuring, as regards the network concerned, that this Directive is applied consistently in the territory of the Member States. ▼B

1050

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 35 Refusal of access 1.  

Natural gas undertakings may refuse access to the system on the basis of lack of capacity or where the access to the system would prevent them from carrying out the public service obligations referred to in Article 3(2) which are assigned to them or on the basis of serious economic and financial difficulties with take-or-pay contracts having regard to the criteria and procedures set out in Article 48 and the alternative chosen by the Member State in accordance with paragraph 1 of that Article. Duly substantiated reasons shall be given for any such a refusal.

2.  

Member States may take the measures necessary to ensure that the natural gas undertaking refusing access to the system on the basis of lack of capacity or a lack of connection makes the necessary enhancements as far as it is economic to do so or when a potential customer is willing to pay for them. In circumstances where Member States apply Article 4(4), Member States shall take such measures. Article 36 New infrastructure

1.  

Major new gas infrastructure, i.e. interconnectors, LNG and storage facilities, may, upon request, be exempted, for a defined period of time, from the provisions of Articles 9, 32, 33 and 34 and Article 41(6), (8) and (10) under the following conditions: (a)  the investment must enhance competition in gas supply and enhance security of supply; (b)  the level of risk attached to the investment must be such that the investment would not take place unless an exemption was granted; (c) 

the infrastructure must be owned by a natural or legal person which is separate at least in terms of its legal form from the system operators in whose systems that infrastructure will be built;

1051

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(d)  charges must be levied on users of that infrastructure; and ▼M2 (e)  the exemption must not be detrimental to competition in the relevant markets which are likely to be affected by the investment, to the effective functioning of the internal market in natural gas, the efficient functioning of the regulated systems concerned, or to security of supply of natural gas in the Union. ▼B 2.   Paragraph 1 shall also apply to significant increases of capacity in existing infrastructure and to modifications of such infrastructure which enable the development of new sources of gas supply. ▼M2 3.   The regulatory authority referred to in Chapter VIII may, on a case-bycase basis, decide on the exemption referred to in paragraphs 1 and 2.

Before the adoption of the decision on the exemption, the national regulatory authority, or where appropriate another competent authority of that Member State, shall consult: (a)  the national regulatory authorities of the Member States the markets of which are likely to be affected by the new infrastructure; and (b)  the relevant authorities of the third countries, where the infrastructure in question is connected with the Union network under the jurisdiction of a Member State, and originates from or ends in one or more third countries.



▼B 4.  

▼M2

Where the third-country authorities consulted do not respond to the consultation within a reasonable time frame or within a set deadline not exceeding three months, the national regulatory authority concerned may adopt the necessary decision. Where the infrastructure in question is located in the territory of more than one Member State, the Agency may submit an advisory opinion to the regulatory authorities of the Member States concerned, which may be used as a basis for their decision, within two months from the date on which the request for exemption was received by the last of those regulatory authorities.

1052

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas



▼B

Where all the regulatory authorities concerned agree on the request for exemption within six months of the date on which it was received by the last of the regulatory authorities, they shall inform the Agency of their decision. Where the infrastructure concerned is a transmission line between a Member State and a third country, before the adoption of the decision on the exemption, the national regulatory authority, or where appropriate another competent authority of the Member State where the first interconnection point with the Member States’ network is located, may consult the relevant authority of that third country with a view to ensuring, as regards the infrastructure concerned, that this Directive is applied consistently in the territory and, where applicable, in the territorial sea of that Member State. Where the third country authority consulted does not respond to the consultation within a reasonable time or within a set deadline not exceeding three months, the national regulatory authority concerned may adopt the necessary decision. The Agency shall exercise the tasks conferred on the regulatory authorities of the Member States concerned by the present Article: (a)  where all regulatory authorities concerned have not been able to reach an agreement within a period of six months from the date on which the request for exemption was received by the last of those regulatory authorities; or (b)  upon a joint request from the regulatory authorities concerned.



All regulatory authorities concerned may, jointly, request that the period referred to in point (a) of the third subparagraph is extended by up to three months.

5.  

Before taking a decision, the Agency shall consult the relevant regulatory authorities and the applicants.

6.  

An exemption may cover all or part of the capacity of the new infrastructure, or of the existing infrastructure with significantly increased capacity.



In deciding to grant an exemption, consideration shall be given, on a caseby-case basis, to the need to impose conditions regarding the duration of the exemption and non-discriminatory access to the infrastructure. When deciding on those conditions, account shall, in particular, be taken 1053

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

of the additional capacity to be built or the modification of existing capacity, the time horizon of the project and national circumstances.

Before granting an exemption, the regulatory authority shall decide upon the rules and mechanisms for management and allocation of capacity. The rules shall require that all potential users of the infrastructure are invited to indicate their interest in contracting capacity before capacity allocation in the new infrastructure, including for own use, takes place. The regulatory authority shall require congestion management rules to include the obligation to offer unused capacity on the market, and shall require users of the infrastructure to be entitled to trade their contracted capacities on the secondary market. In its assessment of the criteria referred to in points (a), (b) and (e) of paragraph 1, the regulatory authority shall take into account the results of that capacity allocation procedure.



The exemption decision, including any conditions referred to in the second subparagraph of this paragraph, shall be duly reasoned and published.

7.  

Notwithstanding paragraph  3, Member States may provide that their regulatory authority or the Agency, as the case may be, shall submit, for the purposes of the formal decision, to the relevant body in the Member State its opinion on the request for an exemption. That opinion shall be published together with the decision.

8.  

The regulatory authority shall transmit to the Commission, without delay, a copy of every request for exemption as of its receipt. The decision shall be notified, without delay, by the competent authority to the Commission, together with all the relevant information with respect to the decision. That information may be submitted to the Commission in aggregate form, enabling the Commission to reach a well-founded decision.



In particular, the information shall contain: (a)  the detailed reasons on the basis of which the regulatory authority, or Member State, granted or refused the exemption together with a reference to paragraph 1 including the relevant point or points of that paragraph on which such decision is based, including the financial information justifying the need for the exemption;

1054

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(b)  the analysis undertaken of the effect on competition and the effective functioning of the internal market in natural gas resulting from the grant of the exemption; (c) 

the reasons for the time period and the share of the total capacity of the gas infrastructure in question for which the exemption is granted;

(d)  in case the exemption relates to an interconnector, the result of the consultation with the regulatory authorities concerned; and (e) 

the contribution of the infrastructure to the diversification of gas supply.

9.  

Within a period of two months from the day following the receipt of a notification, the Commission may take a decision requiring the regulatory authority to amend or withdraw the decision to grant an exemption. That two-month period may be extended by an additional period of two months where further information is sought by the Commission. That additional period shall begin on the day following the receipt of the complete information. The initial two-month period may also be extended with the consent of both the Commission and the regulatory authority.



Where the requested information is not provided within the period set out in the request, the notification shall be deemed to be withdrawn unless, before the expiry of that period, either the period has been extended with the consent of both the Commission and the regulatory authority, or the regulatory authority, in a duly reasoned statement, has informed the Commission that it considers the notification to be complete.



The regulatory authority shall comply with the Commission decision to amend or withdraw the exemption decision within a period of one month and shall inform the Commission accordingly.



The Commission shall preserve the confidentiality of commercially sensitive information.



The Commission’s approval of an exemption decision shall lose its effect two years from its adoption in the event that construction of the infrastructure has not yet started, and five years from its adoption in the event 1055

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

that the infrastructure has not become operational unless the Commission decides that any delay is due to major obstacles beyond control of the person to whom the exemption has been granted. 10.   The Commission may adopt Guidelines for the application of the conditions laid down in paragraph 1 of this Article and to set out the procedure to be followed for the application of paragraphs 3, 6, 8 and 9 of this Article. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3). Article 37 Market opening and reciprocity 1.  

Member States shall ensure that the eligible customers comprise: (a)  until 1 July 2004, eligible customers as specified in Article 18 of Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas ( 8 ). Member States shall publish, by 31 January each year, the criteria for the definition of those eligible customers; (b)  from 1 July 2004, all non-household customers; (c) 

2.  

from 1 July 2007, all customers.

To avoid imbalance in the opening of the gas markets: (a)  contracts for the supply with an eligible customer in the system of another Member State shall not be prohibited if the customer is eligible in both systems involved; and (b)  where transactions as described in point (a) are refused because the customer is eligible in only one of the two systems, the Commission may, taking into account the situation in the market and the common interest, oblige the refusing party to execute the requested supply, at the request of one of the Member States of the two systems. 1056

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 38 Direct lines 1.  

Member States shall take the necessary measures to enable: (a)  natural gas undertakings established within their territory to supply the eligible customers through a direct line; and (b)  any such eligible customer within their territory to be supplied through a direct line by natural gas undertakings.

2.  

In circumstances where an authorisation (for example, licence, permission, concession, consent or approval) is required for the construction or operation of direct lines, the Member States or any competent authority they designate shall lay down the criteria for the grant of authorisations for the construction or operation of such lines in their territory. Those criteria shall be objective, transparent and non-discriminatory.

3.  

Member States may issue an authorisation to construct a direct line subject either to the refusal of system access on the basis of Article 35 or to the opening of a dispute-settlement procedure under Article 41. CHAPTER VIII NATIONAL REGULATORY AUTHORITIES Article 39 Designation and independence of regulatory authorities

1.  

Each Member State shall designate a single national regulatory authority at national level.

2.  

Paragraph 1 of this Article shall be without prejudice to the designation of other regulatory authorities at regional level within Member States, provided that there is one senior representative for representation and contact purposes at Community level within the Board of Regulators of the Agency in accordance with Article 14(1) of Regulation (EC) No 713/2009. 1057

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

3.  

By way of derogation from paragraph 1 of this Article, a Member State may designate regulatory authorities for small systems on a geographically separate region whose consumption, in 2008, accounted for less than 3 % of the total consumption of the Member State of which it is part. That derogation shall be without prejudice to the appointment of one senior representative for representation and contact purposes at Community level within the Board of Regulators of the Agency in compliance with Article 14(1) of Regulation (EC) No 713/2009.

4.  

Member States shall guarantee the independence of the regulatory authority and shall ensure that it exercises its powers impartially and transparently. For this purpose, Member States shall ensure that, when carrying out the regulatory tasks conferred upon it by this Directive and related legislation, the regulatory authority: (a)  is legally distinct and functionally independent from any other public or private entity; (b)  ensures that its staff and the persons responsible for its management: (i) 

act independently from any market interest; and

(ii)  do not seek or take direct instructions from any government or other public or private entity when carrying out the regulatory tasks. That requirement is without prejudice to close cooperation, as appropriate, with other relevant national authorities or to general policy guidelines issued by the government not related to the regulatory powers and duties under Article 41. 5.  

In order to protect the independence of the regulatory authority, Member States shall in particular ensure that: (a)  the regulatory authority can take autonomous decisions, independently from any political body, and has separate annual budget allocations, with autonomy in the implementation of the allocated budget, and adequate human and financial resources to carry out its duties; and

1058

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(b)  the members of the board of the regulatory authority or, in the absence of a board, the regulatory authority’s top management are appointed for a fixed term of five up to seven years, renewable once.

In regard to point  (b) of the first subparagraph, Member States shall ensure an appropriate rotation scheme for the board or the top management. The members of the board or, in the absence of a board, members of the top management may be relieved from office during their term only if they no longer fulfil the conditions set out in this Article or have been guilty of misconduct under national law. Article 40 General objectives of the regulatory authority

In carrying out the regulatory tasks specified in this Directive, the regulatory authority shall take all reasonable measures in pursuit of the following objectives within the framework of their duties and powers as laid down in Article 41, in close consultation with other relevant national authorities, including competition authorities, as appropriate, and without prejudice to their competencies: (a)  promoting, in close cooperation with the Agency, regulatory authorities of other Member States and the Commission, a competitive, secure and environmentally sustainable internal market in natural gas within the Community, and effective market opening for all customers and suppliers in the Community, and ensuring appropriate conditions for the effective and reliable operation of gas networks, taking into account long-term objectives; (b)  developing competitive and properly functioning regional markets within the Community in view of the achievement of the objectives referred to in point (a); (c) 

eliminating restrictions on trade in natural gas between Member States, including developing appropriate cross-border transmission capacities to meet demand and enhancing the integration of national markets which may facilitate natural gas flow across the Community; 1059

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(d)  helping to achieve, in the most cost-effective way, the development of secure, reliable and efficient non-discriminatory systems that are consumer oriented, and promoting system adequacy and, in line with general energy policy objectives, energy efficiency as well as the integration of large and small scale production of gas from renewable energy sources and distributed production in both transmission and distribution networks; (e) 

facilitating access to the network for new production capacity, in particular removing barriers that could prevent access for new market entrants and of gas from renewable energy sources;

(f )  ensuring that system operators and system users are granted appropriate incentives, in both the short and the long term, to increase efficiencies in system performance and foster market integration; (g)  ensuring that customers benefit through the efficient functioning of their national market, promoting effective competition and helping to ensure consumer protection; (h)  helping to achieve high standards of public service for natural gas, contributing to the protection of vulnerable customers and contributing to the compatibility of necessary data exchange processes for customer switching. Article 41 Duties and powers of the regulatory authority 1.  

The regulatory authority shall have the following duties: (a)  fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies; (b)  ensuring compliance of transmission and distribution system operators, and where relevant, system owners, as well as of any natural gas undertakings, with their obligations under this Directive and other relevant Community legislation, including as regards crossborder issues; ▼M2 1060

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(c) 

cooperating with regard to cross-border issues with the regulatory authority or authorities of the Member States concerned and with the Agency. In respect of infrastructure to and from a third country, the regulatory authority of the Member State where the first interconnection point with the Member States’ network is located may cooperate with the relevant authorities of the third country, after consulting the regulatory authorities of other Member States concerned, aiming at, as regards this infrastructure, consistent application of this Directive in the territory of the Member States;

▼B (d)  complying with, and implementing, any relevant legally binding decisions of the Agency and of the Commission;

(e) 

reporting annually on its activity and the fulfilment of its duties to the relevant authorities of the Member States, the Agency and the Commission. Such reports shall cover the steps taken and the results obtained as regards each of the tasks listed in this Article;

(f )  ensuring that there are no cross-subsidies between transmission, distribution, storage, LNG and supply activities; (g)  monitoring investment plans of the transmission system operators, and providing in its annual report an assessment of the investment plans of the transmission system operators as regards their consistency with the Community-wide network development plan referred to in Article 8(3)(b) of Regulation (EC) No 715/2009; such assessment may include recommendations to amend those investment plans; (h)  monitoring compliance with and reviewing the past performance of network security and reliability rules and setting or approving standards and requirements for quality of service and supply or contributing thereto together with other competent authorities; (i) 

monitoring the level of transparency, including of wholesale prices, and ensuring compliance of natural gas undertakings with transparency obligations;

1061

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(j) 

monitoring the level and effectiveness of market opening and competition at wholesale and retail levels, including on natural gas exchanges, prices for household customers including prepayment systems, switching rates, disconnection rates, charges for and the execution of maintenance services and complaints by household customers, as well as any distortion or restriction of competition, including providing any relevant information, and bringing any relevant cases to the relevant competition authorities;

(k)  monitoring the occurrence of restrictive contractual practices, including exclusivity clauses which may prevent large non-household customers from contracting simultaneously with more than one supplier or restrict their choice to do so, and, where appropriate, informing the national competition authorities of such practices; (l) 

respecting contractual freedom with regard to interruptible supply contracts as well as with regard to long-term contracts provided that they are compatible with Community law and consistent with Community policies;

(m)  monitoring the time taken by transmission and distribution system operators to make connections and repairs; (n)  monitoring and reviewing the access conditions to storage, linepack and other ancillary services as provided for in Article 33. In the event that the access regime to storage is defined according to Article 33(3), that task shall exclude the reviewing of tariffs; (o)  helping to ensure, together with other relevant authorities, that the consumer protection measures, including those set out in Annex I, are effective and enforced; (p)  publishing recommendations, at least annually, in relation to compliance of supply prices with Article 3, and providing those to the competition authorities, where appropriate; (q)  ensuring access to customer consumption data, the provision for optional use, of an easily understandable harmonised format at national level for consumption data and prompt access for all customers to such data under point (h) of Annex I; 1062

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(r) 

monitoring the implementation of rules relating to the roles and responsibilities of transmission system operators, distribution system operators, suppliers and customers and other market parties pursuant to Regulation (EC) No 715/2009;

(s) 

monitoring the correct application of the criteria that determine whether a storage facility falls under Article 33(3) or (4); and

(t) 

monitoring the implementation of safeguards measures as referred to in Article 46;

(u)  contributing to the compatibility of data exchange processes for the most important market processes at regional level. 2.  

Where a Member State has so provided, the monitoring duties set out in paragraph 1 may be carried out by other authorities than the regulatory authority. In such a case, the information resulting from such monitoring shall be made available to the regulatory authority as soon as possible.



While preserving their independence, without prejudice to their own specific competencies and consistent with the principles of better regulation, the regulatory authority shall, as appropriate, consult transmission system operators and, as appropriate, closely cooperate with other relevant national authorities when carrying out the duties set out in paragraph 1.



Any approvals given by a regulatory authority or the Agency under this Directive are without prejudice to any duly justified future use of its powers by the regulatory authority under this Article or to any penalties imposed by other relevant authorities or the Commission.

3.  

In addition to the duties conferred upon it under paragraph 1 of this Article, when an independent system operator has been designated under Article 14, the regulatory authority shall: (a)  monitor the transmission system owner’s and the independent system operator’s compliance with their obligations under this Article, and issue penalties for non compliance in accordance with paragraph 4(d);

1063

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(b)  monitor the relations and communications between the independent system operator and the transmission system owner so as to ensure compliance of the independent system operator with its obligations, and in particular approve contracts and act as a dispute settlement authority between the independent system operator and the transmission system owner in respect of any complaint submitted by either party pursuant to paragraph 11; (c) 

without prejudice to the procedure under Article 14(2)(c), for the first ten-year network development plan, approve the investments planning and the multi-annual network development plan presented annually by the independent system operator;

(d)  ensure that network access tariffs collected by the independent system operator include remuneration for the network owner or network owners, which provides for adequate remuneration of the network assets and of any new investments made therein, provided they are economically and efficiently incurred; and (e) 

4.  

have the powers to carry out inspections, including unannounced inspections, at the premises of transmission system owner and independent system operator.

Member States shall ensure that regulatory authorities are granted the powers enabling them to carry out the duties referred to in paragraph 1, 3 and 6 in an efficient and expeditious manner. For this purpose, the regulatory authority shall have at least the following powers: (a)  to issue binding decisions on natural gas undertakings; (b)  to carry out investigations into the functioning of the gas markets, and to decide upon and impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market. Where appropriate, the regulatory authority shall also have the power to cooperate with the national competition authority and the financial market regulators or the Commission in conducting an investigation relating to competition law;

1064

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(c) 

to require any information from natural gas undertakings relevant for the fulfilment of its tasks, including the justification for any refusal to grant third-party access, and any information on measures necessary to reinforce the network;

(d)  to impose effective, proportionate and dissuasive penalties on natural gas undertakings not complying with their obligations under this Directive or any relevant legally binding decisions of the regulatory authority or of the Agency, or to propose to a competent court to impose such penalties. This shall include the power to impose or propose the imposition of penalties of up to 10 % of the annual turnover of the transmission system operator or of up to 10 % of the annual turnover of the vertically integrated undertaking on the transmission system operator or on the vertically integrated undertaking, as the case may be, for non compliance with their respective obligations pursuant to this Directive; and (e)  5.  

appropriate rights of investigations and relevant powers of instructions for dispute settlement under paragraphs 11 and 12.

In addition to the duties and powers conferred on it under paragraphs 1 and 4 of this Article, when a transmission system operator has been designated in accordance with Chapter IV, the regulatory authority shall be granted at least the following duties and powers: (a)  to issue penalties in accordance with paragraph 4(d) for discriminatory behaviour in favour of the vertically integrated undertaking; (b)  to monitor communications between the transmission system operator and the vertically integrated undertaking so as to ensure compliance of the transmission system operator with its obligations; (c) 

to act as dispute settlement authority between the vertically integrated undertaking and the transmission system operator in respect of any complaint submitted pursuant to paragraph 11;

1065

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(d)  to monitor commercial and financial relations including loans between the vertically integrated undertaking and the transmission system operator; (e) 

to approve all commercial and financial agreements between the vertically integrated undertaking and the transmission system operator, on the condition that they comply with market conditions;

(f )  to request justification from the vertically integrated undertaking when notified by the compliance officer in accordance with Article 21(4). Such justification shall in particular include evidence to the end that no discriminatory behaviour to the advantage of the vertically integrated undertaking has occurred; (g)  to carry out inspections, including unannounced inspections, on the premises of the vertically integrated undertaking and the transmission system operator; and (h)  to assign all or specific tasks of the transmission system operator to an independent system operator appointed in accordance with Article 14 in case of a persistent breach by the transmission system operator of its obligations under this Directive, in particular in case of repeated discriminatory behaviour to the benefit of the vertically integrated undertaking. 6.  

The regulatory authorities shall be responsible for fixing or approving sufficiently in advance of their entry into force at least the methodologies used to calculate or establish the terms and conditions for: (a)  connection and access to national networks, including transmission and distribution tariffs, and terms, conditions and tariffs for access to LNG facilities. Those tariffs or methodologies shall allow the necessary investments in the networks and LNG facilities to be carried out in a manner allowing those investments to ensure the viability of the networks and LNG facilities;

1066

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(b)  the provision of balancing services which shall be performed in the most economic manner and provide appropriate incentives for network users to balance their input and off-takes. The balancing services shall be provided in a fair and non-discriminatory manner and be based on objective criteria; and (c) 

access to cross-border infrastructures, including the procedures for the allocation of capacity and congestion management.

7.  

The methodologies or the terms and conditions referred to in paragraph 6 shall be published.

8.  

In fixing or approving the tariffs or methodologies and the balancing services, the regulatory authorities shall ensure that transmission and distribution system operators are granted appropriate incentive, over both the short and long term, to increase efficiencies, foster market integration and security of supply and support the related research activities.

9.  

The regulatory authorities shall monitor congestion management of national gas transmission networks including interconnectors, and the implementation of congestion management rules. To that end, transmission system operators or market operators shall submit their congestion management rules, including capacity allocation, to the national regulatory authorities. National regulatory authorities may request amendments to those rules.

10.   Regulatory authorities shall have the authority to require transmission, storage, LNG and distribution system operators, if necessary, to modify the terms and conditions, including tariffs and methodologies referred to in this Article, to ensure that they are proportionate and applied in a non-discriminatory manner. In the event that the access regime to storage is defined according to Article 33(3), that task shall exclude the modification of tariffs. In the event of delay in the fixing of transmission and distribution tariffs, regulatory authorities shall have the power to fix or approve provisional transmission and distribution tariffs or methodologies and to decide on the appropriate compensatory measures if the final tariffs or methodologies deviate from those provisional tariffs or methodologies.

1067

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

11.   Any party having a complaint against a transmission, storage, LNG or distribution system operator in relation to that operator’s obligations under this Directive may refer the complaint to the regulatory authority which, acting as dispute settlement authority, shall issue a decision within a period of two months after receipt of the complaint. That period may be extended by two months where additional information is sought by the regulatory authorities. That extended period may be further extended with the agreement of the complainant. The regulatory authority’s decision shall have binding effect unless and until overruled on appeal. 12.   Any party who is affected and who has a right to complain concerning a decision on methodologies taken pursuant to this Article or, where the regulatory authority has a duty to consult, concerning the proposed tariffs or methodologies, may, at the latest within two months, or a shorter time period as provided by Member States, following publication of the decision or proposal for a decision, submit a complaint for review. Such a complaint shall not have suspensive effect. 13.   Member States shall create appropriate and efficient mechanisms for regulation, control and transparency so as to avoid any abuse of a dominant position, in particular to the detriment of consumers, and any predatory behaviour. Those mechanisms shall take account of the provisions of the Treaty, and in particular Article 82 thereof. 14.   Member States shall ensure that the appropriate measures are taken, including administrative action or criminal proceedings in conformity with their national law, against the natural or legal persons responsible where confidentiality rules imposed by this Directive have not been respected. 15.   Complaints referred to in paragraphs 11 and 12 shall be without prejudice to the exercise of rights of appeal under Community or national law. 16.   Decisions taken by regulatory authorities shall be fully reasoned and justified to allow for judicial review. The decisions shall be available to the public while preserving the confidentiality of commercially sensitive information. 17.   Member States shall ensure that suitable mechanisms exist at national level under which a party affected by a decision of a regulatory authority has a right of appeal to a body independent of the parties involved and of any government. 1068

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 42 Regulatory regime for cross-border issues 1.  

Regulatory authorities shall closely consult and cooperate with each other, and shall provide each other and the Agency with any information necessary for the fulfilment of their tasks under this Directive. In respect of the information exchanged, the receiving authority shall ensure the same level of confidentiality as that required of the originating authority.

2.  

Regulatory authorities shall cooperate at least at a regional level to: (a)  foster the creation of operational arrangements in order to enable an optimal management of the network, promote joint gas exchanges and the allocation of cross-border capacity, and to enable an adequate level of interconnection capacity, including through new interconnections, within the region and between regions to allow for development of effective competition and improvement of security of supply without discriminating between supply undertakings in different Member States; (b)  coordinate the development of all network codes for the relevant transmission system operators and other market actors; and (c) 

coordinate the development of the rules governing the management of congestion.

3.  

National regulatory authorities shall have the right to enter into cooperative arrangements with each other to foster regulatory cooperation.

4.  

The actions referred to in paragraph 2 shall be carried out, as appropriate, in close consultation with other relevant national authorities and without prejudice to their specific competencies.

5.  

The Commission may adopt Guidelines on the extent of the duties of the regulatory authorities to cooperate with each other and with the Agency. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3).

▼M2

1069

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

6.  

▼B

Regulatory authorities, or where appropriate other competent authorities, may consult and cooperate with the relevant authorities of third countries in relation to the operation of gas infrastructure to and from third countries with a view to ensuring, as regards the infrastructure concerned, that this Directive is applied consistently in the territory and territorial sea of a Member State. Article 43 Compliance with the Guidelines

1.  

Any regulatory authority and the Commission may request the opinion of the Agency on the compliance of a decision taken by a regulatory authority with the Guidelines referred to in this Directive or in Regulation (EC) No 715/2009.

2.  

The Agency shall provide its opinion to the regulatory authority which has requested it or to the Commission, respectively, and to the regulatory authority which has taken the decision in question within three months from the date of receipt of the request.

3.  

Where the regulatory authority which has taken the decision does not comply with the Agency’s opinion within four months from the date of receipt of that opinion, the Agency shall inform the Commission accordingly.

4.  

Any regulatory authority may inform the Commission where it considers that a decision relevant for cross border-trade taken by another regulatory authority does not comply with the Guidelines referred to in this Directive or in Regulation (EC) No 715/2009 within two months from the date of that decision.

5.  

Where the Commission, within two months of having been informed by the Agency in accordance with paragraph 3, or by a regulatory authority in accordance with paragraph 4, or on its own initiative, within three months from the date of the decision, finds that the decision of a regulatory authority raises serious doubts as to its compatibility with the Guidelines referred to in this Directive or in Regulation (EC) No 715/2009, the Commission may decide to examine the case further. In such a case, 1070

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

it shall invite the regulatory authority and the parties to the proceedings before the regulatory authority to submit observations. 6.  

Where the Commission takes a decision to examine the case further, it shall, within four months of the date of such decision, issue a final decision: (a)  not to raise objections against the decision of the regulatory authority; or (b)  to require the regulatory authority concerned to withdraw its decision on the basis that the Guidelines have not been complied with.

7.  

Where the Commission has not taken a decision to examine the case further or a final decision within the time-limits set in paragraphs 5 and 6 respectively, it shall be deemed not to have raised objections to the decision of the regulatory authority.

8.  

The regulatory authority shall comply with the Commission decision to withdraw its decision within a period of two months and shall inform the Commission accordingly.

9.  

The Commission may adopt Guidelines setting out the details of the procedure to be followed by the regulatory authorities, the Agency and the Commission as regards the compliance of decisions taken by regulatory authorities with the Guidelines referred to in this Article. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3). Article 44 Record keeping

1.  

Member States shall require supply undertakings to keep at the disposal of the national authorities, including the regulatory authority, the national competition authorities and the Commission, for the fulfilment of their tasks, for at least five years, the relevant data relating to all transactions in gas supply contracts and gas derivatives with wholesale customers and transmission system operators as well as storage and LNG operators. 1071

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

2.  

The data shall include details on the characteristics of the relevant transactions such as duration, delivery and settlement rules, the quantity, the dates and times of execution and the transaction prices and means of identifying the wholesale customer concerned, as well as specified details of all unsettled gas supply contracts and gas derivatives.

3.  

The regulatory authority may decide to make available to market participants elements of this information provided that commercially sensitive information on individual market players or individual transactions is not released. This paragraph shall not apply to information about financial instruments which fall within the scope of Directive 2004/39/EC.

4.  

To ensure the uniform application of this Article, the Commission may adopt Guidelines which define the methods and arrangements for record keeping as well as the form and content of the data that shall be kept. Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 51(3).

5.  

With respect to transactions in gas derivatives of supply undertakings with wholesale customers and transmission system operators as well as storage and LNG operators, this Article shall apply only once the Commission has adopted the Guidelines referred to in paragraph 4.

6.  

The provisions of this Article shall not create additional obligations towards the authorities referred to in paragraph 1 for entities falling within the scope of Directive 2004/39/EC.

7.  

In the event that the authorities referred to in paragraph 1 need access to data kept by entities falling within the scope of Directive 2004/39/EC, the authorities responsible under that Directive shall provide them with the required data.

1072

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

CHAPTER IX RETAIL MARKETS Article 45 Retail markets In order to facilitate the emergence of well functioning and transparent retail markets in the Community, Member States shall ensure that the roles and responsibilities of transmission system operators, distribution system operators, supply undertakings and customers and if necessary other market parties are defined with respect to contractual arrangements, commitment to customers, data exchange and settlement rules, data ownership and metering responsibility. Those rules shall be made public, be designed with the aim to facilitate customers’ and suppliers’ access to networks and they shall be subject to review by the regulatory authorities or other relevant national authorities. CHAPTER X FINAL PROVISIONS Article 46 Safeguard measures 1.  

In the event of a sudden crisis in the energy market or where the physical safety or security of persons, apparatus or installations or system integrity is threatened, a Member State may temporarily take the necessary safeguard measures.

2.  

Such measures shall cause the least possible disturbance to the functioning of the internal market and shall be no wider in scope than is strictly necessary to remedy the sudden difficulties which have arisen.

3.  

The Member State concerned shall, without delay, notify those measures to the other Member States, and to the Commission, which may decide that the Member State concerned must amend or abolish such measures, 1073

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

insofar as they distort competition and adversely affect trade in a manner which is at variance with the common interest. Article 47 Level playing field 1.  

Measures that the Member States may take pursuant to this Directive in order to ensure a level playing field shall be compatible with the Treaty, notably Article 30 thereof, and with the legislation of the Community.

2.  

The measures referred to in paragraph 1 shall be proportionate, non-discriminatory and transparent. Those measures may be put into effect only following the notification to and approval by the Commission.

3.  

The Commission shall act on the notification referred to in paragraph 2 within two months of the receipt of the notification. That period shall begin on the day following receipt of the complete information. In the event that the Commission has not acted within that two-month period, it shall be deemed not to have raised objections to the notified measures. Article 48 Derogations in relation to take-or-pay commitments

1.  

If a natural gas undertaking encounters, or considers it would encounter, serious economic and financial difficulties because of its take-or-pay commitments accepted in one or more gas-purchase contracts, it may send an application for a temporary derogation from Article  32 to the Member State concerned or the designated competent authority. Applications shall, in accordance with the choice of Member States, be presented on a caseby-case basis either before or after refusal of access to the system. Member States may also give the natural gas undertaking the choice of presenting an application either before or after refusal of access to the system. Where a natural gas undertaking has refused access, the application shall be presented without delay. The applications shall be accompanied by all relevant information on the nature and extent of the problem and on the efforts undertaken by the natural gas undertaking to solve the problem. 1074

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas



If alternative solutions are not reasonably available, and taking into account paragraph 3, the Member State or the designated competent authority may decide to grant a derogation.

2.  

The Member State, or the designated competent authority, shall notify the Commission without delay of its decision to grant a derogation, together with all the relevant information with respect to the derogation. That information may be submitted to the Commission in an aggregated form, enabling the Commission to reach a well-founded decision. Within eight weeks of receipt of that notification, the Commission may request that the Member State or the designated competent authority concerned amend or withdraw the decision to grant a derogation.



If the Member State or the designated competent authority concerned does not comply with that request within a period of four weeks, a final decision shall be taken expeditiously in accordance with the advisory procedure referred to in Article 51(2).



The Commission shall preserve the confidentiality of commercially sensitive information.

3.  

When deciding on the derogations referred to in paragraph 1, the Member State, or the designated competent authority, and the Commission shall take into account, in particular, the following criteria: (a)  the objective of achieving a competitive gas market; (b)  the need to fulfil public-service obligations and to ensure security of supply; (c) 

the position of the natural gas undertaking in the gas market and the actual state of competition in that market;

(d)  the seriousness of the economic and financial difficulties encountered by natural gas undertakings and transmission undertakings or eligible customers; (e) 

the dates of signature and terms of the contract or contracts in question, including the extent to which they allow for market changes; 1075

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

(f )  the efforts made to find a solution to the problem; (g)  the extent to which, when accepting the take-or-pay commitments in question, the undertaking could reasonably have foreseen, having regard to the provisions of this Directive, that serious difficulties were likely to arise; (h)  the level of connection of the system with other systems and the degree of interoperability of those systems; and (i) 

the effects the granting of a derogation would have on the correct application of this Directive as regards the smooth functioning of the internal market in natural gas.



A decision on a request for a derogation concerning take-or-pay contracts concluded before 4 August 2003 should not lead to a situation in which it is impossible to find economically viable alternative outlets. Serious difficulties shall in any case be deemed not to exist when the sales of natural gas do not fall below the level of minimum offtake guarantees contained in gas-purchase take-or-pay contracts or in so far as the relevant gas-purchase take-or-pay contract can be adapted or the natural gas undertaking is able to find alternative outlets.

4.  

Natural gas undertakings which have not been granted a derogation as referred to in paragraph 1 of this Article shall not refuse, or shall no longer refuse, access to the system because of take-or-pay commitments accepted in a gas purchase contract. Member States shall ensure that the relevant provisions of Articles 32 to 44 are complied with.

5.  

Any derogation granted under the above provisions shall be duly substantiated. The Commission shall publish the decision in the Official Journal of the European Union.

6.  

The Commission shall, within 4 August 2008, submit a review report on the experience gained from the application of this Article, so as to allow the European Parliament and the Council to consider, in due course, the need to adjust it.

1076

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

▼M2

Article 48a

Technical agreements regarding the operation of transmission lines This Directive does not affect the freedom of transmission system operators or other economic operators to maintain in force or to conclude technical agreements on issues concerning the operation of transmission lines between a Member State and a third country, insofar as those agreements are compatible with Union law and relevant decisions of the national regulatory authorities of the Member States concerned. Such agreements shall be notified to the regulatory authorities of the Member States concerned. ▼B Article 49 Emergent and isolated markets 1.  

Member States not directly connected to the interconnected system of any other Member State and having only one main external supplier may derogate from Articles 4, 9, 37 and/or 38. A supply undertaking having a market share of more than 75 % shall be considered to be a main supplier. Any such derogation shall automatically expire where at least one of the conditions referred to in this subparagraph no longer applies. Any such derogation shall be notified to the Commission.



Cyprus may derogate from Articles 4, 9, 37 and/or 38. Such derogation shall expire from the moment when Cyprus is not qualifying as an isolated market.



Articles 4, 9, 37 and/or 38 shall not apply to Estonia, Latvia and/or Finland until any of those Member States is directly connected to the interconnected system of any Member State other than Estonia, Latvia, Lithuania and Finland. This subparagraph is without prejudice to derogations under the first subparagraph of this paragraph.

2.  

A Member State, qualifying as an emergent market, which, because of the implementation of this Directive, would experience substantial problems may derogate from Articles 4 and 9, Article 13(1) and (3), Articles 14 and 24, Article 25(5), Articles 26, 31 and 32, Article 37(1) and/or Ar1077

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

ticle  38. Such derogation shall automatically expire from the moment when the Member State no longer qualifies as an emergent market. Any such derogation shall be notified to the Commission.

Cyprus may derogate from Articles 4 and 9, Article 13(1) and (3), Articles 14 and 24, Article 25(5), Articles 26, 31 and 32, Article 37(1) and/or Article 38. Such derogation shall expire from the moment when Cyprus is not qualifying as an emergent market.

3.  

On the date at which the derogation referred to in the first subparagraph of paragraph  2 expires, the definition of eligible customers shall result in an opening of the market equal to at least 33  % of the total annual gas consumption of the national gas market. Two years thereafter, Article 37(1)(b) shall apply, and three years thereafter, Article 37(1)(c) shall apply. Until Article 37(1)(b) applies the Member State referred to in paragraph 2 of this Article may decide not to apply Article 32 as far as ancillary services and temporary storage for the re-gasification process and its subsequent delivery to the transmission system are concerned.

4.  

Where the implementation of this Directive would cause substantial problems in a geographically limited area of a Member State, in particular concerning the development of the transmission and major distribution infrastructure, and with a view to encouraging investments, the Member State may apply to the Commission for a temporary derogation from Articles 4 and 9, Article 13(1) and (3), Articles 14 and 24, Article 25(5), Articles 26, 31 and 32, Article 37(1) and/or Article 38 for developments within that area.

5.  

The Commission may grant the derogation referred to in paragraph 4, taking into account, in particular, the following criteria: — 

the need for infrastructure investments, which would not be economic to operate in a competitive market environment,

— 

the level and pay-back prospects of investments required,

— 

the size and maturity of the gas system in the area concerned,

— 

the prospects for the gas market concerned,

1078

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

— 

the geographical size and characteristics of the area or region concerned, and socioeconomic and demographic factors,



For gas infrastructure other than distribution infrastructure, a derogation may be granted only if no gas infrastructure has been established in the area or if gas infrastructure has been established for less than 10 years. The temporary derogation shall not exceed 10 years from the time gas is first supplied in the area.



For distribution infrastructure a derogation may be granted for a period not exceeding 20 years from when gas is first supplied through the said infrastructure in the area.

6.  

Article 9 shall not apply to Cyprus, Luxembourg and/or Malta.

7.  

The Commission shall inform the Member States of applications made under paragraph  4 prior to taking a decision pursuant to paragraph  5, taking into account respect for confidentiality. That decision, as well as the derogations referred to in paragraphs 1 and 2, shall be published in the Official Journal of the European Union.

8.  

Greece may derogate from Articles  4, 24, 25, 26, 32, 37 and/or 38 of this Directive for the geographical areas and time periods specified in the licences issued by it, prior to 15 March 2002 and in accordance with Directive 98/30/EC, for the development and exclusive exploitation of distribution networks in certain geographical areas.

▼M2

Article 49a Derogations in relation to transmission lines to and from third countries 1.  

In respect of gas transmission lines between a Member State and a third country completed before 23  May 2019, the Member State where the first connection point of such a transmission line with a Member State’s network is located may decide to derogate from Articles 9, 10, 11 and 32 and Article 41(6), (8) and (10) for the sections of such gas transmission line located in its territory and territorial sea, for objective reasons such as to enable the recovery of the investment made or for reasons of security of supply, provided that the derogation would not be detrimental to com1079

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

petition on or the effective functioning of the internal market in natural gas, or to security of supply in the Union.

The derogation shall be limited in time up to 20 years based on objective justification, renewable if justified and may be subject to conditions which contribute to the achievement of the above conditions.



Such derogations shall not apply to transmission lines between a Member State and a third country which has the obligation to transpose this Directive and which effectively implements this Directive in its legal order under an agreement concluded with the Union.

2.  

Where the transmission line concerned is located in the territory of more than one Member State, the Member State in the territory of which the first connection point with the Member States’ network is located shall decide whether to grant a derogation for that transmission line after consulting all the Member States concerned.



Upon request by the Member States concerned, the Commission may decide to act as an observer in the consultation between the Member State in the territory of which the first connection point is located and the third country concerning the consistent application of this Directive in the territory and territorial sea of the Member State where the first interconnection point is located, including the granting of derogations for such transmission lines.

3.  

Decisions pursuant to paragraphs 1 and 2 shall be adopted by 24 May 2020. Member States shall notify any such decisions to the Commission and shall publish them. Article 49b Empowerment procedure

1.  

Without prejudice to other obligations under Union law, and to the allocation of competence between the Union and the Member States, existing agreements between a Member State and a third country on the operation of a transmission line or an upstream pipeline network may be maintained in force until the entry into force of a subsequent agreement 1080

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

between the Union and the same third country or until the procedure under paragraphs 2 to 15 of this Article applies. 2.  

Without prejudice to the allocation of competence between the Union and the Member States, where a Member State intends to enter into negotiations with a third country in order to amend, extend, adapt, renew or conclude an agreement on the operation of a transmission line with a third country concerning matters falling, entirely or partly, within the scope of this Directive, it shall notify the Commission of its intention in writing.



Such a notification shall include the relevant documentation and an indication of the provisions to be addressed in the negotiations or to be renegotiated, the objectives of the negotiations and any other relevant information, and shall be transmitted to the Commission at least five months before the intended start of the negotiations.

3.  

Further to any notification pursuant to paragraph 2, the Commission shall authorise the Member State concerned to enter into formal negotiations with a third country for the part which may affect Union common rules unless it considers that the opening of such negotiations would: (a)  be in conflict with Union law other than the incompatibilities arising from the allocation of competence between the Union and the Member States; (b)  be detrimental to the functioning of the internal market in natural gas, competition or security of supply in a Member State or in the Union; (c) 

undermine the objectives of pending negotiations of intergovernmental agreements by the Union with a third country;

(d)  be discriminatory. 4.  

When carrying out the assessment under paragraph 3, the Commission shall take into account whether the intended agreement concerns a transmission line or an upstream pipeline that contributes to the diversification of natural gas supplies and suppliers by means of new natural gas sources. 1081

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

5.  

Within 90 days of receipt of the notification referred to in paragraph 2, the Commission shall adopt a decision authorising or refusing to authorise a Member State to enter into negotiations in order to amend, extend, adapt, renew or conclude an agreement with a third country. Where additional information is needed to adopt a decision, the 90-day period shall run from the date of receipt of such additional information.

6.  

In the event that the Commission adopts a decision refusing to authorise a Member State to enter into negotiations in order to amend, extend, adapt, renew or conclude an agreement with a third country, it shall inform the Member State concerned accordingly and shall give the reasons therefor.

7.  

Decisions authorising or refusing to authorise a Member State to enter into negotiations in order to amend, extend, adapt, renew or conclude an agreement with a third country shall be adopted, by means of implementing acts, in accordance with the procedure referred to in Article 51(2).

8.  

The Commission may provide guidance and may request the inclusion of particular clauses in the agreement envisaged, in order to ensure compatibility with Union law in accordance with Decision (EU) 2017/684 of the European Parliament and of the Council ( 9 ).

9.  

The Commission shall be kept informed of the progress and results of the negotiations to amend, extend, adapt, renew or to conclude an agreement throughout the different stages of such negotiations and may request to participate in such negotiations between the Member State and the third country in accordance with Decision (EU) 2017/684.

10.   The Commission shall inform the European Parliament and the Council of the decisions adopted pursuant to paragraph 5. 11.   Before signing an agreement with a third country, the Member State concerned shall notify the Commission of the outcome of negotiations and shall transmit the text of the negotiated agreement to the Commission. 12.   Upon notification pursuant to paragraph 11, the Commission shall assess the negotiated agreement pursuant to paragraph 3. Where the Commission finds that the negotiations have resulted in an agreement which complies with paragraph 3, it shall authorise the Member State to sign and conclude the agreement. 1082

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

13.   Within 90 days of receipt of the notification referred to in paragraph 11, the Commission shall adopt a decision authorising or refusing to authorise a Member State to sign and conclude the agreement with a third country. Where additional information is needed to adopt a decision, the 90-day period shall run from the date of receipt of such additional information. 14.   Where the Commission adopts a decision pursuant to paragraph 13, authorising a Member State to sign and conclude the agreement with a third country, the Member State concerned shall notify the Commission of the conclusion and entry into force of the agreement, and of any subsequent changes to the status of that agreement. 15.   In the event that the Commission adopts a decision refusing to authorise a Member State to sign and conclude the agreement with a third country pursuant to paragraph 13, it shall inform the Member State concerned accordingly and shall give the reasons therefor. ▼B Article 50 Review procedure In the event that in the report referred to in Article  52(6), the Commission reaches the conclusion that, given the effective manner in which network access has been carried out in a Member State — which gives rise to fully effective, non-discriminatory and unhindered network access — certain obligations imposed by this Directive on undertakings (including those with respect to legal unbundling for distribution system operators) are not proportionate to the objective pursued, the Member State in question may submit a request to the Commission for exemption from the requirement in question. Such request shall be notified, without delay, by the Member State to the Commission, together with all the relevant information necessary to demonstrate that the conclusion reached in the report on effective network access being ensured will be maintained. Within three months of its receipt of a notification, the Commission shall adopt an opinion with respect to the request by the Member State concerned, and where appropriate, submit proposals to the European Parliament and to the 1083

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Council to amend the relevant provisions of this Directive. The Commission may propose, in the proposals to amend this Directive, to exempt the Member State concerned from specific requirements subject to that Member State implementing equally effective measures as appropriate. Article 51 Committee 1.  

The Commission shall be assisted by a committee.

2.  

Where reference is made to this paragraph, Articles 3 and 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article  8 thereof.

3.  

Where reference is made to this paragraph, Article 5a(1) to (4), and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.

▼M1

Article 52 Reporting The Commission shall monitor and review the application of this Directive and submit an overall progress report to the European Parliament and to the Council as an annex to the State of the Energy Union Report referred to in Article 35 of Regulation (EU) 2018/1999 of the European Parliament and of the Council ( 10 ). ▼B Article 53 Repeal Directive 2003/55/EC is repealed from 3 March 2011 without prejudice to the obligations of Member States concerning the deadlines for transposition and application of the said Directive. References to the repealed Directive shall be construed as references to this Directive and shall be read in accordance with the correlation table in Annex II. 1084

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 54 Transposition 1.  

Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 3 March 2011. They shall forthwith inform the Commission thereof.



They shall apply those measures from 3 March 2011 with the exception of Article 11, which they shall apply from 3 March 2013.



Where Member States adopt those measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States.

2.  

Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 55 Entry into force

This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union. Article 56 Addressees This Directive is addressed to the Member States.

1085

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

ANNEX I MEASURES ON CONSUMER PROTECTION 1.

Without prejudice to Community rules on consumer protection, in particular Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts ( 11 ) and Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts ( 12 ), the measures referred to in Article 3 are to ensure that customers: (a)  have a right to a contract with their gas service provider that specifies: — 

the identity and address of the supplier,

— 

the services provided, the service quality levels offered, as well as the time for the initial connection,

— 

the types of maintenance service offered,

— 

the means by which up-to-date information on all applicable tariffs and maintenance charges may be obtained,

— 

the duration of the contract, the conditions for renewal and termination of services and of the contract, and whether withdrawal from the contract without charge is permitted,

— 

any compensation and the refund arrangements which apply if contracted service quality levels are not met including inaccurate and delayed billing,

— 

the method of initiating procedures for settlement of disputes in accordance with point (f ); and,

— 

information relating to consumer rights, including on the complaint handling and all of the information referred to in this point, clearly communicated through billing or the natural gas undertaking’s web site, 1086

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas



Conditions shall be fair and well-known in advance. In any event, that information should be provided prior to the conclusion or confirmation of the contract. Where contracts are concluded through intermediaries, the information relating to the matters set out in this point shall also be provided prior to the conclusion of the contract;

(b)  are given adequate notice of any intention to modify contractual conditions and are informed about their right of withdrawal when the notice is given. Service providers shall notify their subscribers directly of any increase in charges, at an appropriate time no later than one normal billing period after the increase comes into effect in a transparent and comprehensible manner. Member States shall ensure that customers are free to withdraw from contracts if they do not accept the new conditions notified to them by their gas service provider; (c)

  receive transparent information on applicable prices and tariffs and on standard terms and conditions, in respect of access to and use of gas services;

(d)  are offered a wide choice of payment methods, which do not unduly discriminate between customers. Prepayment systems shall be fair and adequately reflect likely consumption. Any difference in terms and conditions shall reflect the costs to the supplier of the different payment systems. General terms and conditions shall be fair and transparent. They shall be given in clear and comprehensible language and shall not include non-contractual barriers to the exercise of customers’ rights, for example excessive contractual documentation. Customers shall be protected against unfair or misleading selling methods; (e) 

are not charged for changing supplier;

(f )  benefit from transparent, simple and inexpensive procedures for dealing with their complaints. In particular, all consumers shall have the right to a good standard of service and complaint handling by their gas service provider. Such out-of-court dispute settlements procedures shall enable disputes to be settled fairly and promptly, preferably within three months, with provision, where 1087

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

warranted, for a system of reimbursement and/or compensation. They should, wherever possible, be in line with the principles set out in Commission Recommendation 98/257/EC of 30  March 1998 on the principles applicable to the bodies responsible for outof-court settlement of consumer disputes ( 13 ); (g)  connected to the gas system are informed about their rights to be supplied, under the national legislation applicable, with natural gas of a specified quality at reasonable prices; (h)  have at their disposal their consumption data, and shall be able to, by explicit agreement and free of charge, give any registered supply undertaking access to its metering data. The party responsible for data management shall be obliged to give those data to the undertaking. Member States shall define a format for the data and a procedure for suppliers and consumers to have access to the data. No additional costs shall be charged to the consumer for that service; (i) 

are properly informed of actual gas consumption and costs frequently enough to enable them to regulate their own gas consumption. That information shall be given by using a sufficient time frame, which takes account of the capability of customer’s metering equipment. Due account shall be taken of the cost-efficiency of such measures. No additional costs shall be charged to the consumer for that service;

(j) 

receive a final closure account following any change of natural gas supplier no later than six weeks after the change of supplier has taken place.

2.

Member States shall ensure the implementation of intelligent metering systems that shall assist the active participation of consumers in the gas supply market. The implementation of those metering systems may be subject to an economic assessment of all the long-term costs and benefits to the market and the individual consumer or which form of intelligent metering is economically reasonable and cost-effective and which timeframe is feasible for their distribution.



Such assessment shall take place by 3 September 2012.

1088

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas



Subject to that assessment, Member States or any competent authority they designate, shall prepare a timetable for the implementation of intelligent metering systems.



The Member States or any competent authority they designate, shall ensure the interoperability of those metering systems to be implemented within their territories and shall have due regard to the use of appropriate standards and best practice and the importance of the development of the internal market in natural gas.

1089

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

ANNEX II CORRELATION TABLE Directive 2003/55/EC

This Directive

Article 1

Article 1

Article 2

Article 2

Article 3

Article 3

Article 4

Article 4

Article 5

Article 5

—

Article 6

—

Article 7

Article 6

Article 8

Article 9

Article 9

Article 7

Article 10

—

Article 11

Article 7

Article 12

Article 8

Article 13

—

Article 14

—

Article 15

Article 10

Article 16

—

Article 17

—

Article 18

—

Article 19

—

Article 20

—

Article 21

—

Article 22

—

Article 23

Article 11

Article 24

Article 12

Article 25

Article 13

Article 26

Article 14

Article 27

Article 15

Article 29

Article 16

Article 30

Article 17

Article 31

Article 18

Article 32

Article 19

Article 33

Article 20

Article 34

1090

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Article 21

Article 35

Article 22

Article 36

Article 23

Article 37

Article 24

Article 38

Article 25(1) (first and second sentence)

Article 39

—

Article 40

Article 25 (rest)

Article 41

—

Article 42

—

Article 43

—

Article 44

—

Article 45

Article 26

Article 46

—

Article 47

Article 27

Article 48

Article 28

Article 49

Article 29

Article 50

Article 30

Article 51

Article 31

Article 52

Article 32

Article 53

Article 33

Article 54

Article 34

Article 55

Article 35

Article 56

Annex A

Annex I

1091

Appendix 2 Dir 2009/73/EC – Common rules for the internal market in natural gas

Notes ( *1 )  The title of Directive 83/349/EEC has been adjusted to take account of the renumbering of the Articles of the Treaty establishing the European Community in accordance with Article 12 of the Treaty of Amsterdam; the original reference was to Article 54(3)(g). ( 1 )  OJ L 193, 18.7.1983, p. 1. ( 2 )  OJ L 145, 30.4.2004, p. 1. ( 3 )  OJ L 127, 29.4.2004, p. 92. ( 4 )  OJ L 204, 21.7.1998, p. 37. ( 5 )  See page 55 of this Official Journal. ( 6 )  First Council Directive 68/151/EEC of 9 March 1968 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the Community (OJ  L  65, 14.3.1968, p. 8). ( *2 )  The title of Directive 78/660/EEC has been adjusted to take account of the renumbering of the Articles of the Treaty establishing the European Community in accordance with Article 12 of the Treaty of Amsterdam; the original reference was to Article 54(3)(g). ( 7 )  OJ L 222, 14.8.1978, p. 11. ( 8 )  OJ L 204, 21.7.1998, p. 1. ( 9 )  Decision (EU) 2017/684 of the European Parliament and of the Council of 5 April 2017 on establishing an information exchange mechanism with regard to intergovernmental agreements and non-binding instruments between Member States and third countries in the field of energy, and repealing Decision No 994/2012/EU (OJ L 99, 12.4.2017, p. 1). (10)  Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11  December 2018 on the Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/ EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, p. 1). (11)  OJ L 144, 4.6.1997, p. 19. (12)  OJ L 95, 21.4.1993, p. 29. (13)  OJ L 115, 17.4.1998, p. 31. 1092

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

Appendix 3

This document is meant purely as a documentation tool and the institutions do not assume any liability for its contents ►B REGULATION (EC) No 714/2009 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (Text with EEA relevance) (OJ L 211, 14.8.2009, p.15) Amended by: Official Journal No page date ►M1 REGULATION (EU) No 347/2013 L 115 39 25.4.2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 April 2013    ►M2 COMMISSION REGULATION (EU) No 543/2013 of 14 June 2013

1093

L 163 1

15.6.2013

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

▼B

REGULATION (EC) No 714/2009 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 95 thereof, Having regard to the proposal from the Commission, Having regard to the opinion of the European Economic and Social Committee ( 1 ), Having regard to the opinion of the Committee of the Regions ( 2 ), Acting in accordance with the procedure laid down in Article 251 of the Treaty ( 3 ), Whereas: (1)

The internal market in electricity, which has been progressively implemented since 1999, aims to deliver real choice for all consumers in the Community, be they citizens or businesses, new business opportunities and more cross-border trade, so as to achieve efficiency gains, competitive prices and higher standards of service, and to contribute to security of supply and sustainability.

(2)

Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in 1094

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

electricity  ( 4 ) and Regulation (EC) No 1228/2003 of the European Parliament and of the Council of 26 June 2003 on conditions for access to the network for cross-border exchanges in electricity ( 5 ) have made significant contributions towards the creation of such an internal market in electricity. (3)

However, at present, there are obstacles to the sale of electricity on equal terms, without discrimination or disadvantage in the Community. In particular, non-discriminatory network access and an equally effective level of regulatory supervision do not yet exist in each Member State, and isolated markets persist.

(4)

The Communication of the Commission of 10 January 2007 entitled ‘An Energy Policy for Europe’ highlighted the importance of completing the internal market in electricity and creating a level playing field for all electricity undertakings in the Community. The Communications of the Commission of 10 January 2007 entitled ‘Prospects for the internal gas and electricity market’ and ‘Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity sectors (Final Report)’ demonstrated that the present rules and measures neither provide the necessary framework nor provide for the creation of interconnection capacities to achieve the objective of a well-functioning, efficient and open internal market.

(5)

In addition to thoroughly implementing the existing regulatory framework, the regulatory framework for the internal market in electricity set out in Regulation (EC) No 1228/2003 should be adapted in line with those communications.

(6)

In particular, increased cooperation and coordination among transmission system operators is required to create network codes for providing and managing effective and transparent access to the transmission networks across borders, and to ensure coordinated and sufficiently forwardlooking planning and sound technical evolution of the transmission system in the Community, including the creation of interconnection capacities, with due regard to the environment. Those network codes should be in line with framework guidelines, which are non-binding in nature (framework guidelines) and which are developed by the Agency for the Cooperation of Energy Regulators established by Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 1095

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

July 2009 establishing an Agency for the Cooperation of Energy Regulators ( 6 ) (the Agency). The Agency should have a role in reviewing, based on matters of fact, draft network codes, including their compliance with the framework guidelines, and it should be enabled to recommend them for adoption by the Commission. The Agency should assess proposed amendments to the network codes and it should be enabled to recommend them for adoption by the Commission. Transmission system operators should operate their networks in accordance with those network codes. (7)

In order to ensure optimal management of the electricity transmission network and to allow trading and supplying electricity across borders in the Community, a European Network of Transmission System Operators for Electricity (the ENTSO for Electricity), should be established. The tasks of the ENTSO for Electricity should be carried out in compliance with Community competition rules which remain applicable to the decisions of the ENTSO for Electricity. The tasks of the ENTSO for Electricity should be well-defined and its working method should ensure efficiency, transparency and the representative nature of the ENTSO for Electricity. The network codes prepared by the ENTSO for Electricity are not intended to replace the necessary national network codes for noncross-border issues. Given that more effective progress may be achieved through an approach at regional level, transmission system operators should set up regional structures within the overall cooperation structure, whilst ensuring that results at regional level are compatible with network codes and non-binding ten-year network development plans at Community level. Member States should promote cooperation and monitor the effectiveness of the network at regional level. Cooperation at regional level should be compatible with progress towards a competitive and efficient internal market in electricity.

(8)

All market participants have an interest in the work expected of the ENTSO for Electricity. An effective consultation process is therefore essential and existing structures that are set up to facilitate and streamline the consultation process, such as the Union for the Coordination of Transmission of Electricity, national regulators or the Agency, should play an important role.

1096

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(9)

In order to ensure greater transparency regarding the entire electricity transmission network in the Community, the ENTSO for Electricity should draw up, publish and regularly update a non-binding Community-wide ten-year network development plan (Community-wide network development plan). Viable electricity transmission networks and necessary regional interconnections, relevant from a commercial or security of supply point of view, should be included in that network development plan.

(10) This Regulation should lay down basic principles with regard to tarification and capacity allocation, whilst providing for the adoption of Guidelines detailing further relevant principles and methodologies, in order to allow rapid adaptation to changed circumstances. (11) In an open, competitive market, transmission system operators should be compensated for costs incurred as a result of hosting cross-border flows of electricity on their networks by the operators of the transmission systems from which cross-border flows originate and the systems where those flows end. (12) Payments and receipts resulting from compensation between transmission system operators should be taken into account when setting national network tariffs. (13) The actual amount payable for cross-border access to the system can vary considerably, depending on the transmission system operator involved and as a result of differences in the structure of the tarification systems applied in Member States. A certain degree of harmonisation is therefore necessary in order to avoid distortions of trade. (14) A proper system of long-term locational signals is necessary, based on the principle that the level of the network access charges should reflect the balance between generation and consumption of the region concerned, on the basis of a differentiation of the network access charges on producers and/or consumers. (15) It would not be appropriate to apply distance-related tariffs or, provided appropriate locational signals are in place, a specific tariff to be paid only by exporters or importers in addition to the general charge for access to the national network. 1097

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(16) The precondition for effective competition in the internal market in electricity is non-discriminatory and transparent charges for network use including interconnecting lines in the transmission system. The available capacity of those lines should be set at the maximum levels consistent with the safety standards of secure network operation. (17) It is important to avoid distortion of competition resulting from the differing safety, operational and planning standards used by transmission system operators in Member States. Moreover, there should be transparency for market participants concerning available transfer capacities and the security, planning and operational standards that affect the available transfer capacities. (18) Market monitoring undertaken over recent years by the national regulatory authorities and by the Commission has shown that current transparency requirements and rules on access to infrastructure are not sufficient to secure a genuine, well-functioning, open and efficient internal market in electricity. (19) Equal access to information on the physical status and efficiency of the system is necessary to enable all market participants to assess the overall demand and supply situation and identify the reasons for movements in the wholesale price. This includes more precise information on electricity generation, supply and demand including forecasts, network and interconnection capacity, flows and maintenance, balancing and reserve capacity. (20) To enhance trust in the market, its participants need to be sure that those engaging in abusive behaviour can be subject to effective, proportionate and dissuasive penalties. The competent authorities should be given the competence to investigate effectively allegations of market abuse. To that end, it is necessary that competent authorities have access to data that provides information on operational decisions made by supply undertakings. In the electricity market, many relevant decisions are made by the generators, which should keep information in relation thereto available to and easily accessible by the competent authorities for a fixed period of time. The competent authorities should, furthermore, regularly monitor the compliance of the transmission system operators with the rules. Small generators with no real ability to distort the market should be exempt from that obligation. 1098

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(21) There should be rules on the use of revenues flowing from congestionmanagement procedures, unless the specific nature of the interconnector concerned justifies an exemption from those rules. (22) The management of congestion problems should provide correct economic signals to transmission system operators and market participants and should be based on market mechanisms. (23) Investments in major new infrastructure should be promoted strongly while ensuring the proper functioning of the internal market in electricity. In order to enhance the positive effect of exempted direct current interconnectors on competition and security of supply, market interest during the project-planning phase should be tested and congestion-management rules should be adopted. Where direct current interconnectors are located in the territory of more than one Member State, the Agency should handle as a last resort the exemption request in order to take better account of its cross-border implications and to facilitate its administrative handling. Moreover, given the exceptional risk profile of constructing those exempt major infrastructure projects, undertakings with supply and production interests should be able to benefit from a temporary derogation from the full unbundling rules for the projects concerned. Exemptions granted under Regulation (EC) No 1228/2003 continue to apply until the scheduled expiry date as decided in the granted exemption decision. (24) To ensure the smooth functioning of the internal market in electricity, provision should be made for procedures which allow the adoption of decisions and Guidelines with regard, inter alia, to tarification and capacity allocation by the Commission whilst ensuring the involvement of Member States’ regulatory authorities in that process, where appropriate through their European association. Regulatory authorities, together with other relevant authorities in the Member States, have an important role to play in contributing to the proper functioning of the internal market in electricity. (25) National regulatory authorities should ensure compliance with the rules contained in this Regulation and the Guidelines adopted pursuant thereto.

1099

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(26) The Member States and the competent national authorities should be required to provide relevant information to the Commission. Such information should be treated confidentially by the Commission. Where necessary, the Commission should have an opportunity to request relevant information directly from undertakings concerned, provided that the competent national authorities are informed. (27) Member States should lay down rules on penalties applicable to infringements of the provisions of this Regulation and ensure that they are implemented. Those penalties must be effective, proportionate and dissuasive. (28) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission ( 7 ). (29) In particular, the Commission should be empowered to establish or adopt the Guidelines necessary for providing the minimum degree of harmonisation required to achieve the aims of this Regulation. Since those measures are of general scope and are designed to amend non-essential elements of this Regulation, by supplementing it with new non-essential elements, they must be adopted in accordance with the regulatory procedure with scrutiny provided for in Article 5a of Decision 1999/468/EC. (30) Since the objective of this Regulation, namely the provision of a harmonised framework for cross-border exchanges of electricity, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity, as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective. (31) Given the scope of the amendments that are being made herein to Regulation (EC) No 1228/2003, it is desirable, for reasons of clarity and rationalisation, that the provisions in question should be recast by bringing them all together in a single text in a new Regulation,

1100

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

HAVE ADOPTED THIS REGULATION: Article 1 Subject-matter and scope This Regulation aims at: (a)  setting fair rules for cross-border exchanges in electricity, thus enhancing competition within the internal market in electricity, taking into account the particular characteristics of national and regional markets. This will involve the establishment of a compensation mechanism for cross-border flows of electricity and the setting of harmonised principles on crossborder transmission charges and the allocation of available capacities of interconnections between national transmission systems; (b)

facilitating the emergence of a well-functioning and transparent wholesale market with a high level of security of supply in electricity. It provides for mechanisms to harmonise the rules for cross-border exchanges in electricity. Article 2 Definitions

1.  

For the purpose of this Regulation, the definitions contained in Article 2 of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity ( 8 ) apply, with the exception of the definition of ‘interconnector’ which shall be replaced by the following: — 

2.  

‘interconnector’ means a transmission line which crosses or spans a border between Member States and which connects the national transmission systems of the Member States.

The following definitions shall apply: (a)  ‘regulatory authorities’ means the regulatory authorities referred to in Article 35(1) of Directive 2009/72/EC; 1101

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(b)  ‘cross-border flow’ means a physical flow of electricity on a transmission network of a Member State that results from the impact of the activity of producers and/or consumers outside that Member State on its transmission network; (c) 

‘congestion’ means a situation in which an interconnection linking national transmission networks cannot accommodate all physical flows resulting from international trade requested by market participants, because of a lack of capacity of the interconnectors and/ or the national transmission systems concerned;

(d)  ‘declared export’ means the dispatch of electricity in one Member State on the basis of an underlying contractual arrangement to the effect that the simultaneous corresponding take-up (declared import) of electricity will take place in another Member State or a third country; (e) 

‘declared transit’ means a circumstance where a declared export of electricity occurs and where the nominated path for the transaction involves a country in which neither the dispatch nor the simultaneous corresponding take-up of the electricity will take place;

(f )  ‘declared import’ means the take-up of electricity in a Member State or a third country simultaneously with the dispatch of electricity (declared export) in another Member State; (g)  ‘new interconnector’ means an interconnector not completed by 4 August 2003.

For the purpose of the inter-transmission system operator compensation mechanism referred to in Article 13 only, where transmission networks of two or more Member States form part, in whole or in part, of a single control block, the control block as a whole shall be considered as forming part of the transmission network of one of the Member States concerned, in order to avoid flows within control blocks being considered as cross-border flows under point (b) of the first subparagraph of this paragraph and giving rise to compensation payments under Article 13. The regulatory authorities of the Member States concerned may decide which of 1102

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

the Member States concerned shall be that of which the control block as a whole is to be considered to form part. Article 3 Certification of transmission system operators 1.  

The Commission shall examine any notification of a decision on the certification of a transmission system operator as laid down in Article 10(6) of Directive 2009/72/EC as soon as it is received. Within two months of the day of receipt of such notification, the Commission shall deliver its opinion to the relevant national regulatory authority as to its compatibility with Article 10(2) or Article 11, and Article 9 of Directive 2009/72/ EC.



When preparing the opinion referred to in the first subparagraph, the Commission may request the Agency to provide its opinion on the national regulatory authority’s decision. In such a case, the two-month period referred to in the first subparagraph shall be extended by two further months.



In the absence of an opinion by the Commission within the periods referred to in the first and second subparagraphs, the Commission shall be deemed not to raise objections to the regulatory authority’s decision.

2.  

Within two months of receiving an opinion of the Commission, the national regulatory authority shall adopt its final decision regarding the certification of the transmission system operator, taking the utmost account of that opinion. The regulatory authority’s decision and the Commission’s opinion shall be published together.

3.  

At any time during the procedure, regulatory authorities and/or the Commission may request from a transmission system operator and/or an undertaking performing any of the functions of generation or supply any information relevant to the fulfilment of their tasks under this Article.

4.  

Regulatory authorities and the Commission shall preserve the confidentiality of commercially sensitive information.

1103

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

5.  

The Commission may adopt Guidelines setting out the details of the procedure to be followed for the application of paragraphs 1 and 2 of this Article. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(2).

6.  

Where the Commission has received notification of the certification of a transmission system operator under Article 9(10) of Directive 2009/72/ EC, the Commission shall take a decision relating to certification. The regulatory authority shall comply with the Commission decision. Article 4 European network of transmission system operators for electricity

All transmission system operators shall cooperate at Community level through the ENTSO for Electricity, in order to promote the completion and functioning of the internal market in electricity and cross-border trade and to ensure the optimal management, coordinated operation and sound technical evolution of the European electricity transmission network. Article 5 Establishment of the ENTSO for Electricity 1.  

By 3 March 2011, the transmission system operators for electricity shall submit to the Commission and to the Agency the draft statutes, a list of members and draft rules of procedure, including the rules of procedures on the consultation of other stakeholders, of the ENTSO for Electricity to be established.

2.  

Within two months of the day of the receipt, the Agency, after formally consulting the organisations representing all stakeholders, in particular the system users, including customers, shall provide an opinion to the Commission on the draft statutes, list of members and draft rules of procedure.

1104

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

3.  

The Commission shall deliver an opinion on the draft statutes, list of members and draft rules of procedures taking into account the opinion of the Agency provided for in paragraph 2 and within three months of the day of the receipt of the opinion of the Agency.

4.  

Within three months of the day of receipt of the Commission’s opinion, the transmission system operators shall establish the ENTSO for Electricity and adopt and publish its statutes and rules of procedure. Article 6 Establishment of network codes

1.  

The Commission shall, after consulting the Agency, the ENTSO for Electricity and the other relevant stakeholders, establish an annual priority list identifying the areas set out in Article 8(6) to be included in the development of network codes.

2.  

The Commission shall request the Agency to submit to it within a reasonable period of time not exceeding six months a non-binding framework guideline (framework guideline) setting out clear and objective principles, in accordance with Article 8(7), for the development of network codes relating to the areas identified in the priority list. Each framework guideline shall contribute to non-discrimination, effective competition and the efficient functioning of the market. Upon a reasoned request from the Agency, the Commission may extend that period.

3.  

The Agency shall formally consult the ENTSO for Electricity and the other relevant stakeholders in regard to the framework guideline, during a period of no less than two months, in an open and transparent manner.

4.  

If the Commission considers that the framework guideline does not contribute to non-discrimination, effective competition and the efficient functioning of the market, it may request the Agency to review the framework guideline within a reasonable period of time and re-submit it to the Commission.

1105

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

5.  

If the Agency fails to submit or re-submit a framework guideline within the period set by the Commission under paragraphs 2 or 4, the Commission shall elaborate the framework guideline in question.

6.  

The Commission shall request the ENTSO for Electricity to submit a network code which is in line with the relevant framework guideline, to the Agency within a reasonable period of time not exceeding 12 months.

7.  

Within a period of three months of the day of the receipt of a network code, during which the Agency may formally consult the relevant stakeholders, the Agency shall provide a reasoned opinion to the ENTSO for Electricity on the network code.

8.   9.  

The ENTSO for Electricity may amend the network code in the light of the opinion of the Agency and re-submit it to the Agency. When the Agency is satisfied that the network code is in line with the relevant framework guideline, the Agency shall submit the network code to the Commission and may recommend that it be adopted within a reasonable time period. The Commission shall provide reasons in the event that it does not adopt that network code.

10.   Where the ENTSO for Electricity has failed to develop a network code within the period of time set by the Commission under paragraph 6, the Commission may request the Agency to prepare a draft network code on the basis of the relevant framework guideline. The Agency may launch a further consultation in the course of preparing a draft network code under this paragraph. The Agency shall submit a draft network code prepared under this paragraph to the Commission and may recommend that it be adopted. 11.   The Commission may adopt, on its own initiative, where the ENTSO for Electricity has failed to develop a network code, or the Agency has failed to develop a draft network code as referred to in paragraph 10 of this Article, or upon recommendation of the Agency under paragraph 9 of this Article, one or more network codes in the areas listed in Article 8(6).

1106

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges



Where the Commission proposes to adopt a network code on its own initiative, the Commission shall consult the Agency, the ENTSO for Electricity and all relevant stakeholders in regard to the draft network code during a period of no less than two months. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(2).

12.   This Article shall be without prejudice to the Commission’s right to adopt and amend the Guidelines as laid down in Article 18. Article 7 Amendments of network codes 1.  

Draft amendments to any network code adopted under Article 6 may be proposed to the Agency by persons who are likely to have an interest in that network code, including the ENTSO for Electricity, transmission system operators, system users and consumers. The Agency may also propose amendments on its own initiative.

2.  

The Agency shall consult all stakeholders in accordance with Article 10 of Regulation (EC) No 713/2009. Following that process, the Agency may make reasoned proposals for amendments to the Commission, explaining how such proposals are consistent with the objectives of the network codes set out in Article 6(2).

3.  

The Commission may adopt, taking account of the Agency’s proposals, amendments to any network code adopted under Article 6. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(2).

4.  

Consideration of proposed amendments under the procedure set out in Article 23(2) shall be limited to consideration of the aspects related to the proposed amendment. Those proposed amendments are without prejudice to other amendments which the Commission may propose.

1107

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

Article 8 Tasks of the ENTSO for Electricity 1.  

The ENTSO for Electricity shall elaborate network codes in the areas referred to in paragraph 6 of this Article upon a request addressed to it by the Commission in accordance with Article 6(6).

2.  

The ENTSO for Electricity may elaborate network codes in the areas set out in paragraph 6 with a view to achieving the objectives set out in Article 4 where those network codes do not relate to areas covered by a request addressed to it by the Commission. Those network codes shall be submitted to the Agency for an opinion. That opinion shall be duly taken into account by the ENTSO for Electricity.

3.  

The ENTSO for Electricity shall adopt:

▼M1

(a)  common network operation tools to ensure coordination of network operation in normal and emergency conditions, including a common incident classification scale, and research plans. These tools shall specify inter alia: (i) 

the information, including appropriate day ahead, intra-day and real-time information, useful for improving operational coordination, as well as the optimal frequency for the collection and sharing of such information;

(ii)  the technological platform for the exchange of information in real time and where appropriate, the technological platforms for the collection, processing and transmission of the other information referred to in point (i), as well as for the implementation of the procedures capable of increasing operational coordination between transmission system operators with a view to such coordination becoming Union-wide; (iii)  how transmission system operators make available the operational information to other transmission system operators or any entity duly mandated to support them to achieve operational coordination, and to the Agency; and 1108

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(iv)  that transmission system operators designate a contact point in charge of answering inquiries from other transmission system operators or from any entity duly mandated as referred to in point (iii), or from the Agency concerning such information.

The ENTSO for Electricity shall submit the adopted specifications on points (i) to (iv) above to the Agency and to the Commission by 16 May 2015.



Within 12 months of the adoption of the specifications, the Agency shall issue an opinion in which it considers whether they sufficiently contribute to the promotion of cross-border trade and to ensuring the optimal management, coordinated operation, efficient use and sound technical evolution of the European electricity transmission network;

▼B

(b)  a non-binding Community-wide ten-year network development plan, (Community-wide network development plan), including a European generation adequacy outlook, every two years; (c) 

recommendations relating to the coordination of technical cooperation between Community and third-country transmission system operators;

(d)  an annual work programme; (e) 

an annual report;

(f )  annual summer and winter generation adequacy outlooks. 4.  

The European generation adequacy outlook referred to in point (b) of paragraph 3 shall cover the overall adequacy of the electricity system to supply current and projected demands for electricity for the next five-year period as well as for the period between five and 15 years from the date of that outlook. The European generation adequacy outlook shall build on national generation adequacy outlooks prepared by each individual transmission system operator.

1109

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

5.  

The annual work programme referred to in point (d) of paragraph 3 shall contain a list and description of the network codes to be prepared, a plan on coordination of operation of the network, and research and development activities, to be realised in that year, and an indicative calendar.

6.  

The network codes referred to in paragraphs 1 and 2 shall cover the following areas, taking into account, if appropriate, regional specificities: (a)  network security and reliability rules including rules for technical transmission reserve capacity for operational network security; (b)  network connection rules; (c) 

third-party access rules;

(d)  data exchange and settlement rules; (e) 

interoperability rules;

(f )  operational procedures in an emergency; (g)  capacity-allocation and congestion-management rules; (h)  rules for trading related to technical and operational provision of network access services and system balancing; (i) 

transparency rules;

(j) 

balancing rules including network-related reserve power rules;

(k)  rules regarding harmonised transmission tariff structures including locational signals and inter-transmission system operator compensation rules; and (l)  7.  

energy efficiency regarding electricity networks.

The network codes shall be developed for cross-border network issues and market integration issues and shall be without prejudice to the Member States’ right to establish national network codes which do not affect cross-border trade. 1110

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

8.  

The ENTSO for Electricity shall monitor and analyse the implementation of the network codes and the Guidelines adopted by the Commission in accordance with Article 6(11), and their effect on the harmonisation of applicable rules aimed at facilitating market integration. The ENTSO for Electricity shall report its findings to the Agency and shall include the results of the analysis in the annual report referred to in point (e) of paragraph 3 of this Article.

9.  

The ENTSO for Electricity shall make available all information required by the Agency to fulfil its tasks under Article 9(1).

10.   The ENTSO for Electricity shall adopt and publish a Community-wide network development plan every two years. The Community-wide network development plan shall include the modelling of the integrated network, scenario development, a European generation adequacy outlook and an assessment of the resilience of the system. The Community-wide network development plan shall, in particular: ▼M1 (a)  build on national investment plans, taking into account regional investment plans as referred to in Article 12(1), and, if appropriate, Union aspects of network planning as set out in Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy infrastructure ( 9 ); it shall be subject to a cost-benefit analysis using the methodology established as set out in Article 11 of that Regulation; ▼B (b)  regarding cross-border interconnections, also build on the reasonable needs of different system users and integrate long-term commitments from investors referred to in Article 8 and Articles 13 and 22 of Directive 2009/72/EC; and (c) 

identify investment gaps, notably with respect to cross-border capacities.

In regard to point (c) of the second subparagraph, a review of barriers to the increase of cross-border capacity of the network arising from different approval procedures or practices may be annexed to the Communitywide network development plan. 1111

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

11.   The Agency shall provide an opinion on the national ten-year network development plans to assess their consistency with the Community-wide network development plan. If the Agency identifies inconsistencies between a national ten-year network development plan and the Community-wide network development plan, it shall recommend amending the national ten-year network development plan or the Community-wide network development plan as appropriate. If such national ten-year network development plan is elaborated in accordance with Article 22 of Directive 2009/72/EC, the Agency shall recommend that the competent national regulatory authority amend the national ten-year network development plan in accordance with Article 22(7) of that Directive and inform the Commission thereof. 12.   Upon request of the Commission, the ENTSO for Electricity shall give its views to the Commission on the adoption of the Guidelines as laid down in Article 18. Article 9 Monitoring by the Agency 1.  

The Agency shall monitor the execution of the tasks referred to in Article 8(1), (2) and (3) of the ENTSO for Electricity and report to the Commission.



The Agency shall monitor the implementation by the ENTSO for Electricity of network codes elaborated under Article 8(2) and network codes which have been developed in accordance with Article 6(1) to (10) but which have not been adopted by the Commission under Article 6(11). Where the ENTSO for Electricity has failed to implement such network codes, the Agency shall request the ENTSO for Electricity to provide a duly reasoned explanation as to why it has failed to do so. The Agency shall inform the Commission of that explanation and provide its opinion thereon.



The Agency shall monitor and analyse the implementation of the network codes and the Guidelines adopted by the Commission as laid down in Article 6(11), and their effect on the harmonisation of applicable rules aimed at facilitating market integration as well as on non-discrimination, 1112

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

effective competition and the efficient functioning of the market, and report to the Commission. 2.  

The ENTSO for Electricity shall submit the draft Community-wide network development plan, the draft annual work programme, including the information regarding the consultation process, and the other documents referred to in Article 8(3) to the Agency for its opinion.



Within two months from the day of receipt, the Agency shall provide a duly reasoned opinion as well as recommendations to the ENTSO for Electricity and to the Commission where it considers that the draft annual work programme or the draft Community-wide network development plan submitted by the ENTSO for Electricity do not contribute to non-discrimination, effective competition, the efficient functioning of the market or a sufficient level of cross-border interconnection open to third-party access. Article 10 Consultations

1.  

While preparing the network codes, the draft Community-wide network development plan and the annual work programme referred to in Article 8(1), (2) and (3), the ENTSO for Electricity shall conduct an extensive consultation process, at an early stage and in an open and transparent manner, involving all relevant market participants, and, in particular, the organisations representing all stakeholders, in accordance with the rules of procedure referred to in Article 5(1). That consultation shall also involve national regulatory authorities and other national authorities, supply and generation undertakings, system users including customers, distribution system operators, including relevant industry associations, technical bodies and stakeholder platforms. It shall aim at identifying the views and proposals of all relevant parties during the decision-making process.

2.  

All documents and minutes of meetings related to the consultations referred to in paragraph 1 shall be made public.

1113

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

3.  

▼M1

Before adopting the annual work programme and the network codes referred to in Article 8(1), (2) and (3), the ENTSO for Electricity shall indicate how the observations received during the consultation have been taken into consideration. It shall provide reasons where observations have not been taken into account. Article 11 Costs

The costs related to the activities of the ENTSO for Electricity referred to in Articles 4 to 12 of this Regulation, and in Article 11 of Regulation (EU) No 347/2013 shall be borne by the transmission system operators and shall be taken into account in the calculation of tariffs. Regulatory authorities shall approve those costs only if they are reasonable and appropriate. ▼B Article 12 Regional cooperation of transmission system operators 1.  

Transmission system operators shall establish regional cooperation within the ENTSO for Electricity to contribute to the activities referred to in Article 8(1), (2) and (3). In particular, they shall publish a regional investment plan every two years, and may take investment decisions based on that regional investment plan.

2.  

Transmission system operators shall promote operational arrangements in order to ensure the optimum management of the network and shall promote the development of energy exchanges, the coordinated allocation of cross-border capacity through non-discriminatory market-based solutions, paying due attention to the specific merits of implicit auctions for short-term allocations, and the integration of balancing and reserve power mechanisms.

3.  

For the purposes of achieving the goals set in paragraphs 1 and 2 of this Article, the geographical area covered by each regional cooperation structure may be defined by the Commission, taking into account existing regional cooperation structures. Each Member State shall be allowed to 1114

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

promote cooperation in more than one geographical area. The measure referred to in the first sentence, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(2).

For that purpose, the Commission shall consult the Agency and the ENTSO for Electricity. Article 13 Inter-transmission system operator compensation mechanism

1.  

Transmission system operators shall receive compensation for costs incurred as a result of hosting cross-border flows of electricity on their networks.

2.  

The compensation referred to in paragraph 1 shall be paid by the operators of national transmission systems from which cross-border flows originate and the systems where those flows end.

3.  

Compensation payments shall be made on a regular basis with regard to a given period of time in the past. Ex-post adjustments of compensation paid shall be made where necessary, to reflect costs actually incurred.



The first period of time for which compensation payments shall be made shall be determined in the Guidelines referred to in Article 18.

4.  

The Commission shall decide on the amounts of compensation payments payable. That measure, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(2).

5.  

The magnitude of cross-border flows hosted and the magnitude of crossborder flows designated as originating and/or ending in national transmission systems shall be determined on the basis of the physical flows of electricity actually measured during a given period of time.

1115

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

6.  

The costs incurred as a result of hosting cross-border flows shall be established on the basis of the forward-looking long-run average incremental costs, taking into account losses, investment in new infrastructure, and an appropriate proportion of the cost of existing infrastructure, in so far as such infrastructure is used for the transmission of cross-border flows, in particular taking into account the need to guarantee security of supply. When establishing the costs incurred, recognised standard-costing methodologies shall be used. Benefits that a network incurs as a result of hosting cross-border flows shall be taken into account to reduce the compensation received. Article 14 Charges for access to networks

1.  

Charges applied by network operators for access to networks shall be transparent, take into account the need for network security and reflect actual costs incurred insofar as they correspond to those of an efficient and structurally comparable network operator and are applied in a nondiscriminatory manner. Those charges shall not be distance-related.

2.  

Where appropriate, the level of the tariffs applied to producers and/or consumers shall provide locational signals at Community level, and take into account the amount of network losses and congestion caused, and investment costs for infrastructure.

3.  

When setting the charges for network access, the following shall be taken into account: (a)  payments and receipts resulting from the inter-transmission system operator compensation mechanism; (b)  actual payments made and received as well as payments expected for future periods of time, estimated on the basis of past periods.

4.  

Setting the charges for network access under this Article shall be without prejudice to charges on declared exports and declared imports resulting from congestion management referred to in Article 16.

1116

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

5.  

There shall be no specific network charge on individual transactions for declared transits of electricity. Article 15 Provision of information

1.  

Transmission system operators shall put in place coordination and information exchange mechanisms to ensure the security of the networks in the context of congestion management.

2.  

The safety, operational and planning standards used by transmission system operators shall be made public. The information published shall include a general scheme for the calculation of the total transfer capacity and the transmission reliability margin based upon the electrical and physical features of the network. Such schemes shall be subject to the approval of the regulatory authorities.

3.  

Transmission system operators shall publish estimates of available transfer capacity for each day, indicating any available transfer capacity already reserved. Those publications shall be made at specified intervals before the day of transport and shall include, in any event, week-ahead and monthahead estimates, as well as a quantitative indication of the expected reliability of the available capacity.

4.  

Transmission system operators shall publish relevant data on aggregated forecast and actual demand, on availability and actual use of generation and load assets, on availability and use of the networks and interconnections, and on balancing power and reserve capacity. For availability and actual use of small generation and load units, aggregated estimate data may be used.

5.  

The market participants concerned shall provide the transmission system operators with the relevant data.

6.  

Generation undertakings which own or operate generation assets, where at least one generation asset has an installed capacity of at least 250 MW, shall keep at the disposal of the national regulatory authority, the national competition authority and the Commission, for five years all hourly data 1117

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

per plant that is necessary to verify all operational dispatching decisions and the bidding behaviour at power exchanges, interconnection auctions, reserve markets and over-the-counter-markets. The per-plant and per hour information to be stored shall include, but shall not be limited to, data on available generation capacity and committed reserves, including allocation of those committed reserves on a per-plant level, at the times the bidding is carried out and when production takes place. Article 16 General principles of congestion management 1.  

Network congestion problems shall be addressed with non-discriminatory market-based solutions which give efficient economic signals to the market participants and transmission system operators involved. Network congestion problems shall preferentially be solved with non-transaction based methods, i.e. methods that do not involve a selection between the contracts of individual market participants.

2.  

Transaction curtailment procedures shall only be used in emergency situations where the transmission system operator must act in an expeditious manner and re-dispatching or countertrading is not possible. Any such procedure shall be applied in a non-discriminatory manner.



Except in cases of force majeure, market participants who have been allocated capacity shall be compensated for any curtailment.

3.  

The maximum capacity of the interconnections and/or the transmission networks affecting cross-border flows shall be made available to market participants, complying with safety standards of secure network operation.

4.  

Market participants shall inform the transmission system operators concerned a reasonable time in advance of the relevant operational period whether they intend to use allocated capacity. Any allocated capacity that will not be used shall be reattributed to the market, in an open, transparent and non-discriminatory manner.

1118

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

5.  

Transmission system operators shall, as far as technically possible, net the capacity requirements of any power flows in opposite direction over the congested interconnection line in order to use that line to its maximum capacity. Having full regard to network security, transactions that relieve the congestion shall never be denied.

6.  

Any revenues resulting from the allocation of interconnection shall be used for the following purposes: (a)  guaranteeing the actual availability of the allocated capacity; and/ or (b)  maintaining or increasing interconnection capacities through network investments, in particular in new interconnectors.



If the revenues cannot be efficiently used for the purposes set out in points (a) and/or (b) of the first subparagraph, they may be used, subject to approval by the regulatory authorities of the Member States concerned, up to a maximum amount to be decided by those regulatory authorities, as income to be taken into account by the regulatory authorities when approving the methodology for calculating network tariffs and/or fixing network tariffs.



The rest of revenues shall be placed on a separate internal account line until such time as it can be spent on the purposes set out in points (a) and/ or (b) of the first subparagraph. The regulatory authority shall inform the Agency of the approval referred to in the second subparagraph. Article 17 New interconnectors

1.  

New direct current interconnectors may, upon request, be exempted, for a limited period of time, from the provisions of Article 16(6) of this Regulation and Articles 9, 32 and Article 37(6) and (10) of Directive 2009/72/EC under the following conditions:

1119

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(a)  the investment must enhance competition in electricity supply; (b)  the level of risk attached to the investment is such that the investment would not take place unless an exemption is granted; (c) 

the interconnector must be owned by a natural or legal person which is separate at least in terms of its legal form from the system operators in whose systems that interconnector will be built;

(d)  charges are levied on users of that interconnector; (e) 

since the partial market opening referred to in Article 19 of Directive 96/92/EC of the European Parliament and of the Council of 19 December 1996 concerning common rules for the internal market in electricity ( 10 ), no part of the capital or operating costs of the interconnector has been recovered from any component of charges made for the use of transmission or distribution systems linked by the interconnector; and

(f )  the exemption must not be to the detriment of competition or the effective functioning of the internal market in electricity, or the efficient functioning of the regulated system to which the interconnector is linked. 2.  

Paragraph 1 shall also apply, in exceptional cases, to alternating current interconnectors provided that the costs and risks of the investment in question are particularly high when compared with the costs and risks normally incurred when connecting two neighbouring national transmission systems by an alternating current interconnector.

3.  

Paragraph 1 shall also apply to significant increases of capacity in existing interconnectors.

4. 

The decision on the exemption under paragraphs 1, 2 and 3 shall be taken on a case-by-case basis by the regulatory authorities of the Member States concerned. An exemption may cover all or part of the capacity of the new interconnector, or of the existing interconnector with significantly increased capacity.

1120

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges





Within two months from the date on which the request for exemption was received by the last of the regulatory authorities concerned, the Agency may submit an advisory opinion to those regulatory authorities which could provide a basis for their decision. In deciding to grant an exemption, consideration shall be given, on a caseby-case basis, to the need to impose conditions regarding the duration of the exemption and non-discriminatory access to the interconnector. When deciding those conditions, account shall, in particular, be taken of additional capacity to be built or the modification of existing capacity, the time-frame of the project and national circumstances.



Before granting an exemption, the regulatory authorities of the Member States concerned shall decide upon the rules and mechanisms for management and allocation of capacity. Congestion-management rules shall include the obligation to offer unused capacity on the market and users of the facility shall be entitled to trade their contracted capacities on the secondary market. In the assessment of the criteria referred to in points (a), (b) and (f ) of paragraph 1, the results of the capacity-allocation procedure shall be taken into account.



Where all the regulatory authorities concerned have reached agreement on the exemption decision within six months, they shall inform the Agency of that decision.



The exemption decision, including any conditions referred to in the second subparagraph of this paragraph, shall be duly reasoned and published.

5.  

The decision referred to in paragraph 4 shall be taken by the Agency: (a)  where all the regulatory authorities concerned have not been able to reach an agreement within six months from the date the exemption was requested before the last of those regulatory authorities; or (b)  upon a joint request from the regulatory authorities concerned.



Before taking such a decision, the Agency shall consult the regulatory authorities concerned and the applicants. 1121

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

6.  

Notwithstanding paragraphs 4 and 5, Member States may provide for the regulatory authority or the Agency, as the case may be, to submit, for formal decision, to the relevant body in the Member State, its opinion on the request for an exemption. That opinion shall be published together with the decision.

7.  

A copy of every request for exemption shall be transmitted for information without delay by the regulatory authorities to the Agency and to the Commission on receipt. The decision shall be notified, without delay, by the regulatory authorities concerned or by the Agency (notifying bodies), to the Commission, together with all the relevant information with respect to the decision. That information may be submitted to the Commission in aggregate form, enabling the Commission to reach a wellfounded decision. In particular, the information shall contain: (a)  the detailed reasons on the basis of which the exemption was granted or refused, including the financial information justifying the need for the exemption; (b)  the analysis undertaken of the effect on competition and the effective functioning of the internal market in electricity resulting from the grant of the exemption; (c) 

the reasons for the time period and the share of the total capacity of the interconnector in question for which the exemption is granted; and

(d)  the result of the consultation of the regulatory authorities concerned. 8.  

Within a period of two months from the day following receipt of notification under paragraph 7, the Commission may take a decision requesting the notifying bodies to amend or withdraw the decision to grant an exemption. That two-month period may be extended by an additional period of two months where further information is sought by the Commission. That additional period shall begin on the day following receipt of the complete information. The initial two-month period may also be extended by consent of both the Commission and the notifying bodies.

1122

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges



When the requested information is not provided within the period set out in the request, the notification shall be deemed to be withdrawn unless, before the expiry of that period, either the period is extended by consent of both the Commission and the notifying bodies, or the notifying bodies, in a duly reasoned statement, inform the Commission that they consider the notification to be complete.



The notifying bodies shall comply with a Commission decision to amend or withdraw the exemption decision within one month and shall inform the Commission accordingly.



The Commission shall preserve the confidentiality of commercially sensitive information.



The Commission’s approval of an exemption decision shall expire two years after the date of its adoption in the event that construction of the interconnector has not yet started by that date, and five years after the date of its adoption if the interconnector has not become operational by that date, unless the Commission decides that any delay is due to major obstacles beyond the control of the person to whom the exemption has been granted.

9.  

The Commission may adopt Guidelines for the application of the conditions laid down in paragraph 1 of this Article and set out the procedure to be followed for the application of paragraphs 4, 7 and 8 of this Article. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(2). Article 18 Guidelines

1.  

Where appropriate, Guidelines relating to the inter-transmission system operator compensation mechanism shall specify, in accordance with the principles set out in Articles 13 and 14:

1123

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(a)  details of the procedure for determining which transmission system operators are liable to pay compensation for cross-border flows including as regards the split between the operators of national transmission systems from which cross-border flows originate and the systems where those flows end, in accordance with Article 13(2); (b)  details of the payment procedure to be followed, including the determination of the first period for which compensation is to be paid, in accordance with the second subparagraph of Article 13(3); (c) 

details of methodologies for determining the cross-border flows hosted for which compensation is to be paid under Article 13, in terms of both quantity and type of flows, and the designation of the magnitudes of such flows as originating and/or ending in transmission systems of individual Member States, in accordance with Article 13(5);

(d)  details of the methodology for determining the costs and benefits incurred as a result of hosting cross-border flows, in accordance with Article 13(6); (e) 

details of the treatment in the context of the inter-transmission system operator compensation mechanism of electricity flows originating or ending in countries outside the European Economic Area; and

(f )  the participation of national systems which are interconnected through direct current lines, in accordance with Article 13. 2.  

Guidelines may also determine appropriate rules leading to a progressive harmonisation of the underlying principles for the setting of charges applied to producers and consumers (load) under national tariff systems, including the reflection of the inter-transmission system operator compensation mechanism in national network charges and the provision of appropriate and efficient locational signals, in accordance with the principles set out in Article 14.

1124

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges



The Guidelines shall make provision for appropriate and efficient harmonised locational signals at Community level.



Any such harmonisation shall not prevent Member States from applying mechanisms to ensure that network access charges borne by consumers (load) are comparable throughout their territory.

3.  

Where appropriate, Guidelines providing the minimum degree of harmonisation required to achieve the aim of this Regulation shall also specify: (a)  details relating to provision of information, in accordance with the principles set out in Article 15; (b)  details of rules for the trading of electricity; (c) 

details of investment incentive rules for interconnector capacity including locational signals;

(d)  details of the areas listed in Article 8(6). 4.  

For that purpose, the Commission shall consult the Agency and the ENTSO for Electricity.

Guidelines on the management and allocation of available transmission capacity of interconnections between national systems are laid down in Annex I.

▼M1 4a.   The Commission may adopt guidelines on the implementation of operational coordination between transmission system operators at Union level. Those guidelines shall be consistent with and build upon the network codes referred to in Article 6 of this Regulation and build upon the adopted specifications and the Agency opinion referred to in Article 8(3) (a) of this Regulation. When adopting those guidelines, the Commission shall take into account differing regional and national operational requirements.

▼B

Those guidelines shall be adopted in accordance with the examination procedure referred to in Article 23(3).

1125

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

5.  

The Commission may adopt Guidelines on the issues listed in paragraphs 1, 2 and 3 of this Article. It may amend the Guidelines referred to in paragraph 4 of this Article, in accordance with the principles set out in Articles 15 and 16, in particular so as to include detailed Guidelines on all capacity-allocation methodologies applied in practice and to ensure that congestion-management mechanisms evolve in a manner compatible with the objectives of the internal market. Where appropriate, in the course of such amendments common rules on minimum safety and operational standards for the use and operation of the network, as referred to in Article 15(2) shall be established. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 23(2).



When adopting or amending Guidelines, the Commission shall: (a)  ensure that the Guidelines provide the minimum degree of harmonisation required to achieve the aims of this Regulation and do not go beyond what is necessary for that purpose; and (b)  indicate what actions it has taken with respect to the conformity of rules in third countries, which form part of the Community electricity system, with the Guidelines in question.



When adopting Guidelines under this Article for the first time, the Commission shall ensure that they cover in a single draft measure at least the issues referred to in points (a) and (d) of paragraph 1 and in paragraph 2. Article 19 Regulatory authorities

The regulatory authorities, when carrying out their responsibilities, shall ensure compliance with this Regulation and the Guidelines adopted pursuant to Article 18. Where appropriate to fulfil the aims of this Regulation the regulatory authorities shall cooperate with each other, with the Commission and the Agency in compliance with Chapter IX of Directive 2009/72/EC.

1126

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

Article 20 Provision of information and confidentiality 1.  

Member States and the regulatory authorities shall, on request, provide to the Commission all information necessary for the purposes of Article 13(4) and Article 18.



In particular, for the purposes of Article 13(4) and (6), regulatory authorities shall, on a regular basis, provide information on the actual costs incurred by national transmission system operators, as well as data and all relevant information relating to the physical flows in transmission system operators’ networks and the cost of the networks.



The Commission shall fix a reasonable time limit within which the information is to be provided, taking into account the complexity of the information required and the urgency with which the information is needed.

2.  

If the Member State or the regulatory authority concerned does not provide the information referred to in paragraph 1 within the given time-limit pursuant to paragraph 1 of this Article, the Commission may request all information necessary for the purpose of Article 13(4) and Article 18 directly from the undertakings concerned.



When sending a request for information to an undertaking, the Commission shall at the same time forward a copy of the request to the regulatory authorities of the Member State in whose territory the seat of the undertaking is situated.

3.  

In its request for information under paragraph 1, the Commission shall state the legal basis of the request, the time-limit within which the information is to be provided, the purpose of the request, and the penalties provided for in Article 22(2) for supplying incorrect, incomplete or misleading information. The Commission shall fix a reasonable time-limit taking into account the complexity of the information required and the urgency with which the information is needed.

4.  

The owners of the undertakings or their representatives and, in the case of legal persons, the persons authorised to represent them by law or by their instrument of incorporation, shall supply the information request1127

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

ed. Where lawyers duly authorised so to act supply the information on behalf of their clients, the client shall remain fully responsible in the event that the information supplied is incomplete, incorrect or misleading. 5.  

Where an undertaking does not provide the information requested within the time-limit fixed by the Commission or supplies incomplete information, the Commission may by decision require the information to be provided. That decision shall specify what information is required and fix an appropriate time-limit within which it is to be supplied. It shall indicate the penalties provided for in Article 22(2). It shall also indicate the right to have the decision reviewed by the Court of Justice of the European Communities.



The Commission shall, at the same time, send a copy of its decision to the regulatory authorities of the Member State within the territory of which the person is resident or the seat of the undertaking is situated.

6.  

The information referred to in paragraphs 1 and 2 shall be used only for the purposes of Article 13(4) and Article 18.



The Commission shall not disclose information acquired pursuant to this Regulation of the kind covered by the obligation of professional secrecy. Article 21 Right of Member States to provide for more detailed measures

This Regulation shall be without prejudice to the rights of Member States to maintain or introduce measures that contain more detailed provisions than those set out herein or in the Guidelines referred to in Article 18. Article 22 Penalties 1.  

Without prejudice to paragraph 2, the Member States shall lay down rules on penalties applicable to infringements of the provisions of this Regulation and shall take all measures necessary to ensure that those provisions 1128

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

are implemented. The penalties provided for must be effective, proportionate and dissuasive. The Member States shall notify the Commission by 1 July 2004 of those rules corresponding to the provisions laid down in Regulation (EC) No 1228/2003 and shall notify the Commission without delay of any subsequent amendment affecting them. They shall notify the Commission of those rules not corresponding to the provisions laid down in Regulation (EC) No 1228/2003 by 3 March 2011 and shall notify the Commission without delay of any subsequent amendment affecting them. 2.  

The Commission may, by decision, impose on undertakings fines not exceeding 1 % of the total turnover in the preceding business year where, intentionally or negligently, they supply incorrect, incomplete or misleading information in response to a request made pursuant to Article 20(3) or fail to supply information within the time-limit fixed by a decision adopted pursuant to the first subparagraph of Article 20(5).



In setting the amount of a fine, the Commission shall have regard to the gravity of the failure to comply with the requirements of the first subparagraph.

3.  

Penalties provided for pursuant to paragraph 1 and decisions taken pursuant to paragraph 2 shall not be of a criminal law nature.

Article 23 Committee procedure 1.  

The Commission shall be assisted by the committee set up by Article 46 of Directive 2009/72/EC.

2.  

Where reference is made to this paragraph, Article 5a(1) to (4), and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.

▼M1 3.   Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers ( 11 ) shall apply. 1129

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

▼B

Article 24 Commission report

The Commission shall monitor the implementation of this Regulation. In its report under Article 47(6) of Directive 2009/72/EC, the Commission shall also report on the experience gained in the application of this Regulation. In particular the report shall examine to what extent this Regulation has been successful in ensuring non-discriminatory and cost-reflective network access conditions for cross border exchanges of electricity in order to contribute to customer choice in a well- functioning internal market in electricity and to long-term security of supply, as well as to what extent effective locational signals are in place. If necessary, the report shall be accompanied by appropriate proposals and/or recommendations. Article 25 Repeal Regulation (EC) No 1228/2003 shall be repealed from 3 March 2011. References made to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table in Annex II. Article 26 Entry into force This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from 3 March 2011. This Regulation shall be binding in its entirety and directly applicable in all Member States.

1130

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

ANNEX I GUIDELINES ON THE MANAGEMENT AND ALLOCATION OF AVAILABLE TRANSFER CAPACITY OF INTERCONNECTIONS BETWEEN NATIONAL SYSTEMS 1.    General Provisions 1.1. Transmission system operators (TSOs) shall endeavour to accept all commercial transactions, including those involving cross-border-trade. 1.2. When there is no congestion, there shall be no restriction of access to the interconnection. Where this is usually the case, there need be no permanent general allocation procedure for access to a cross-border transmission service. 1.3. Where scheduled commercial transactions are not compatible with secure network operation, the TSOs shall alleviate congestion in compliance with the requirements of network operational security while endeavouring to ensure that any associated costs remain at an economically efficient level. Curative re-dispatching or countertrading shall be envisaged in case lower cost measures cannot be applied. 1.4. If structural congestion appears, appropriate congestion-management methods and arrangements defined and agreed upon in advance shall be implemented immediately by the TSOs. The congestion-management methods shall ensure that the physical power flows associated with all allocated transmission capacity comply with network security standards. 1.5. The methods adopted for congestion management shall give efficient economic signals to market participants and TSOs, promote competition and be suitable for regional and Community-wide application. 1.6. No transaction-based distinction shall be applied in congestion management. A particular request for transmission service shall be denied only when the following cumulative conditions are fulfilled:

1131

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(a)  the incremental physical power flows resulting from the acceptance of that request imply that secure operation of the power system may no longer be guaranteed, and (b)  the monetary value of the request in the congestion-management procedure is lower than all other requests intended to be accepted for the same service and conditions. 1.7. When defining appropriate network areas in and between which congestion management is to apply, TSOs shall be guided by the principles of cost-effectiveness and minimisation of negative impacts on the internal market in electricity. Specifically, TSOs shall not limit interconnection capacity in order to solve congestion inside their own control area, save for the abovementioned reasons and reasons of operational security  ( 12 ). If such a situation occurs, this shall be described and transparently presented by the TSOs to all the system users. Such a situation shall be tolerated only until a long-term solution is found. The methodology and projects for achieving the long-term solution shall be described and transparently presented by the TSOs to all the system users. 1.8. When balancing the network inside the control area through operational measures in the network and through re-dispatching, the TSO shall take into account the effect of those measures on neighbouring control areas. 1.9. By 1 January 2008, mechanisms for the intra-day congestion management of interconnector capacity shall be established in a coordinated way and under secure operational conditions, in order to maximise opportunities for trade and to provide for cross-border balancing. 1.10. The national regulatory authorities shall regularly evaluate the congestion-management methods, paying particular attention to compliance with the principles and rules established in this Regulation and those Guidelines and with the terms and conditions set by the regulatory authorities themselves under those principles and rules. Such evaluation shall include consultation of all market participants and dedicated studies.

1132

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

2.   Congestion-management methods 2.1. Congestion-management methods shall be market-based in order to facilitate efficient cross-border trade. For that purpose, capacity shall be allocated only by means of explicit (capacity) or implicit (capacity and energy) auctions. Both methods may coexist on the same interconnection. For intra-day trade continuous trading may be used. 2.2. Depending on competition conditions, the congestion-management mechanisms may need to allow for both long and short-term transmission capacity allocation. 2.3. Each capacity-allocation procedure shall allocate a prescribed fraction of the available interconnection capacity plus any remaining capacity not previously allocated and any capacity released by capacity holders from previous allocations. 2.4. TSOs shall optimise the degree to which capacity is firm, taking into account the obligations and rights of the TSOs involved and the obligations and rights of market participants, in order to facilitate effective and efficient competition. A reasonable fraction of capacity may be offered to the market at a reduced degree of firmness, but the exact conditions for transport over cross-border lines shall, at all times, be made known to market participants. 2.5. The access rights for long and medium-term allocations shall be firm transmission capacity rights. They shall be subject to the use-it-or-lose-it or use-it-or-sell-it principles at the time of nomination. 2.6. TSOs shall define an appropriate structure for the allocation of capacity between different timeframes. This may include an option for reserving a minimum percentage of interconnection capacity for daily or intradaily allocation. Such an allocation structure shall be subject to review by the respective regulatory authorities. In drawing up their proposals, the TSOs shall take into account: (a)  the characteristics of the markets; (b)  the operational conditions, such as the implications of netting firmly declared schedules; 1133

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(c) 

the level of harmonisation of the percentages and timeframes adopted for the different capacity-allocation mechanisms in place.

2.7. Capacity allocation shall not discriminate between market participants that wish to use their rights to make use of bilateral supply contracts or to bid into power exchanges. The highest value bids, whether implicit or explicit in a given timeframe, shall be successful. 2.8. In regions where forward financial electricity markets are well developed and have shown their efficiency, all interconnection capacity may be allocated through implicit auctioning. 2.9. Other than in the case of new interconnectors which benefit from an exemption under Article 7 of Regulation (EC) No 1228/2003 or Article 17 of this Regulation, establishing reserve prices in capacity-allocation methods shall not be allowed. 2.10. In principle, all potential market participants shall be permitted to participate in the allocation process without restriction. To avoid creating or aggravating problems related to the potential use of dominant position of any market player, the relevant regulatory and/or competition authorities, where appropriate, may impose restrictions in general or on an individual company on account of market dominance. 2.11. Market participants shall firmly nominate their use of the capacity to the TSOs by a defined deadline for each timeframe. That deadline shall be such that TSOs are able to reassign unused capacity for reallocation in the next relevant timeframe — including intra-day sessions. 2.12. Capacity shall be freely tradable on a secondary basis, provided that the TSO is informed sufficiently in advance. Where a TSO refuses any secondary trade (transaction), this must be clearly and transparently communicated and explained to all the market participants by that TSO and notified to the regulatory authority. 2.13. The financial consequences of failure to honour obligations associated with the allocation of capacity shall be attributed to those who are responsible for such a failure. Where market participants fail to use the capacity that they have committed to use, or, in the case of explicitly auctioned capacity, fail to trade on a secondary basis or give the capacity 1134

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

back in due time, they shall lose the rights to such capacity and pay a costreflective charge. Any cost-reflective charges for the non-use of capacity shall be justified and proportionate. Likewise, if a TSO does not fulfil its obligation, it shall be liable to compensate the market participant for the loss of capacity rights. No consequential losses shall be taken into account for that purpose. The key concepts and methods for the determination of liabilities that accrue upon failure to honour obligations shall be set out in advance in respect of the financial consequences, and shall be subject to review by the relevant national regulatory authority or authorities. 3.    Coordination 3.1. Capacity allocation at an interconnection shall be coordinated and implemented using common allocation procedures by the TSOs involved. In cases where commercial exchanges between two countries (TSOs) are expected to affect physical flow conditions in any third-country (TSO) significantly, congestion-management methods shall be coordinated between all the TSOs so affected through a common congestion-management procedure. National regulatory authorities and TSOs shall ensure that no congestion-management procedure with significant effects on physical electric power flows in other networks is devised unilaterally. 3.2. A common coordinated congestion-management method and procedure for the allocation of capacity to the market at least annually, monthly and day-ahead shall be applied by 1 January 2007 between countries in the following regions: (a)  Northern Europe (i.e. Denmark, Sweden, Finland, Germany and Poland), (b)  North-West Europe (i.e. Benelux, Germany and France), (c) 

Italy (i.e. Italy, France, Germany, Austria, Slovenia and Greece),

(d)  Central Eastern Europe (i.e. Germany, Poland, Czech Republic, Slovakia, Hungary, Austria and Slovenia), (e) 

South-West Europe (i.e. Spain, Portugal and France),

(f )  UK, Ireland and France, 1135

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(g)  Baltic states (i.e. Estonia, Latvia and Lithuania).

At an interconnection involving countries belonging to more than one region, the congestion-management method applied may differ in order to ensure the compatibility with the methods applied in the other regions to which those countries belong. In that case, the relevant TSOs shall propose the method which shall be subject to review by the relevant regulatory authorities.

3.3. The regions referred to in point 2.8. may allocate all interconnection capacity through day-ahead allocation. 3.4. Compatible congestion-management procedures shall be defined in all those seven regions with a view to forming a truly integrated internal market in electricity. Market participants shall not be confronted with incompatible regional systems. 3.5. With a view to promoting fair and efficient competition and cross-border trade, coordination between TSOs within the regions set out in point 3.2. shall include all the steps from capacity calculation and optimisation of allocation to secure operation of the network, with clear assignments of responsibility. Such coordination shall include, in particular: (a)  the use of a common transmission model dealing efficiently with interdependent physical loop-flows and having regard to discrepancies between physical and commercial flows, (b)  allocation and nomination of capacity to deal efficiently with interdependent physical loop-flows, (c) 

identical obligations on capacity holders to provide information on their intended use of the capacity, i.e. nomination of capacity (for explicit auctions),

(d)  identical timeframes and closing times, (e) 

identical structure for the allocation of capacity among different timeframes (for example, 1 day, 3 hours, 1 week, etc.) and in terms of blocks of capacity sold (amount of power in MW, MWh, etc.),

1136

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

(f )  consistent contractual framework with market participants, (g)  verification of flows to comply with the network security requirements for operational planning and for real-time operation, (h)  accounting and settlement of congestion-management actions. 3.6. Coordination shall also include the exchange of information between TSOs. The nature, time and frequency of information exchange shall be compatible with the activities set out in point 3.5 and the functioning of the electricity markets. That information exchange shall, in particular, enable the TSOs to make the best possible forecast of the global network situation in order to assess the flows in their network and the available interconnection capacities. Any TSO collecting information on behalf of other TSOs shall give back to the participating TSO the results of the collection of data. 4.    Timetable for market operations 4.1. The allocation of the available transmission capacity shall take place sufficiently in advance. Prior to each allocation, the involved TSOs shall, jointly, publish the capacity to be allocated, taking into account where appropriate the capacity released from any firm transmission rights and, where relevant, associated netted nominations, along with any time periods during which the capacity will be reduced or not available (for the purpose of maintenance, for example). 4.2. Having full regard to network security, the nomination of transmission rights shall take place sufficiently in advance, before the day-ahead sessions of all the relevant organised markets and before the publication of the capacity to be allocated under the day-ahead or intra-day allocation mechanism. Nominations of transmission rights in the opposite direction shall be netted in order to make efficient use of the interconnection. 4.3. Successive intra-day allocations of available transmission capacity for day D shall take place on days D-1 and D, after the issuing of the indicated or actual day-ahead production schedules. 4.4. When preparing day-ahead network operation, the TSOs shall exchange information with neighbouring TSOs, including their forecast network 1137

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

topology, the availability and forecasted production of generation units, and load flows in order to optimise the use of the overall network through operational measures in compliance with the rules for secure network operation. 5.    Transparency 5.1. TSOs shall publish all relevant data related to network availability, network access and network use, including a report on where and why congestion exists, the methods applied for managing the congestion and the plans for its future management. 5.2. TSOs shall publish a general description of the congestion-management method applied under different circumstances for maximising the capacity available to the market, and a general scheme for the calculation of the interconnection capacity for the different timeframes, based upon the electrical and physical realities of the network. Such a scheme shall be subject to review by the regulatory authorities of the Member States concerned. 5.3. The congestion management and capacity-allocation procedures in use, together with the times and procedures for applying for capacity, a description of the products offered and the obligations and rights of both the TSOs and the party obtaining the capacity, including the liabilities that accrue upon failure to honour obligations, shall be described in detail and made available in a transparent manner to all potential network users by TSOs. 5.4. The operational and planning security standards shall form an integral part of the information that TSOs publish in an open and public document. That document shall also be subject to review of the national regulatory authorities. ▼M2 ————— ▼B 5.10. TSOs shall exchange regularly a set of sufficiently accurate network and load flow data in order to enable load flow calculations for each TSO in their relevant area. The same set of data shall be made available to the regulatory authorities and to the Commission upon request. The regulatory authorities and the Commission shall ensure the confidential treatment of that set of data, by themselves and by any consultant carrying out analytical work for them on the basis of those data. 1138

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

6.    Use of congestion income 6.1. Congestion-management procedures associated with a pre-specified timeframe may generate revenue only in the event of congestion which arises for that timeframe, except in the case of new interconnectors which benefit from an exemption under Article 7 of Regulation (EC) No 1228/2003 or Article 17 of this Regulation. The procedure for the distribution of those revenues shall be subject to review by the regulatory authorities and shall neither distort the allocation process in favour of any party requesting capacity or energy nor provide a disincentive to reduce congestion. 6.2. National regulatory authorities shall be transparent regarding the use of revenues resulting from the allocation of interconnection capacity. 6.3. The congestion income shall be shared among the TSOs involved in accordance with criteria agreed between the TSOs involved and reviewed by the respective regulatory authorities. 6.4. TSOs shall clearly establish beforehand the use they will make of any congestion income they may obtain and report on the actual use of that income. Regulatory authorities shall verify that such use complies with this Regulation and those Guidelines and that the total amount of congestion income resulting from the allocation of interconnection capacity is devoted to one or more of the three purposes set out in Article 16(6) of this Regulation. 6.5. On an annual basis, and by 31 July each year, the regulatory authorities shall publish a report setting out the amount of revenue collected for the 12-month period up to 30 June of the same year and the use made of the revenues in question, together with verification that that use complies with this Regulation and those Guidelines and that the total amount of congestion income is devoted to one or more of the three prescribed purposes. 6.6. The use of congestion income for investment to maintain or increase interconnection capacity shall preferably be assigned to specific predefined projects which contribute to relieving the existing associated congestion and which may also be implemented within a reasonable time, particularly as regards the authorisation process. 1139

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

ANNEX II CORRELATION TABLE

Regulation (EC) No 1228/2003

This Regulation

Article 1

Article 1

Article 2

Article 2

—

Article 3

—

Article 4

—

Article 5

—

Article 6

—

Article 7

—

Article 8

—

Article 9

—

Article 10

—

Article 11

—

Article 12

Article 3

Article 13

Article 4

Article 14

Article 5

Article 15

Article 6

Article 16

Article 7

Article 17

Article 8

Article 18

Article 9

Article 19

Article 10

Article 20

Article 11

Article 21

Article 12

Article 22

Article 13

Article 23

Article 14

Article 24

—

Article 25

Article 15

Article 26

Annex

Annex I

1140

Appendix 3 Reg (EC) 714/2009 – Access to the network for cross-border exchanges

Notes ( 1 )  OJ C 211, 19.8.2008, p. 23. ( 2 )  OJ C 172, 5.7.2008, p. 55. ( 3 )  Opinion of the European Parliament of 18 June 2008 (not yet published in the Official Journal), Council Common Position of 9 January 2009 (OJ C 75 E, 31.3.2009, p. 16) and Position of the European Parliament of 22 April 2009 (not yet published in the Official Journal). Council Decision of 25 June 2009. ( 4 )  OJ L 176, 15.7.2003, p. 37. ( 5 )  OJ L 176, 15.7.2003, p. 1. ( 6 )  See page 1 of this Official Journal. ( 7 )  OJ L 184, 17.7.1999, p. 23. ( 8 )  See page 55 of this Official Journal. ( 9 )  OJ L 115, 25.4.2013, p. 39. (10)  OJ L 27, 30.1.1997, p. 20. (11) OJ L 55, 28.2.2011, p. 13. (12) Operational security means ‘keeping the transmission system within agreed security limits’.

1141

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Appendix 4 This text is meant purely as a documentation tool and has no legal effect. The Union’s institutions do not assume any liability for its contents. The authentic versions of the relevant acts, including their preambles, are those published in the Official Journal of the European Union and available in EUR-Lex. Those official texts are directly accessible through the links embedded in this document ►B REGULATION (EC) No 715/2009 OF THE

EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (Text with EEA relevance)



(OJ L 211 14.8.2009, p. 36)

Amended by:        ►M1 COMMISSION DECISION  2010/685/EU of 10 November 2010 ►M2 COMMISSION DECISION  2012/490/EU of 24 August 2012 ►M3 REGULATION (EU) No 347/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  of 17 April 2013

1143

Official Journal No page date L 293 67 11.11.2010   L 231 16 28.8.2012 L 115 39

25.4.2013

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

►M4 COMMISSION DECISION L 114 9 (EU) 2015/715 Text with EEA relevance  of 30 April 2015 ►M5 REGULATION (EU) 2018/1999 OF L 328 1 THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  of 11 December 2018    Corrected by: ►C1 Corrigendum, OJ L 229, 1.9.2009, p.  29 (715/2009) ►C2 Corrigendum, OJ L 309, 24.11.2009, p.  87 (715/2009)

5.5.2015 21.12.2018

▼B

REGULATION (EC) No 715/2009 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (Text with EEA relevance) Article 1 Subject matter and scope This Regulation aims at: (a)  setting non-discriminatory rules for access conditions to natural gas transmission systems taking into account the special characteristics of national and regional markets with a view to ensuring the proper functioning of the internal market in gas; (b)  setting non-discriminatory rules for access conditions to LNG facilities and storage facilities taking into account the special characteristics of national and regional markets; and 1144

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(c) 

facilitating the emergence of a well-functioning and transparent wholesale market with a high level of security of supply in gas and providing mechanisms to harmonise the network access rules for cross-border exchanges in gas.

The objectives referred to in the first subparagraph shall include the setting of harmonised principles for tariffs, or the methodologies underlying their calculation, for access to the network, but not to storage facilities, the establishment of third-party access services and harmonised principles for capacity-allocation and congestion-management, the determination of transparency requirements, balancing rules and imbalance charges, and the facilitation of capacity trading. This Regulation, with the exception of Article 19(4), shall apply only to storage facilities falling under Article 33(3) or (4) of Directive 2009/73/EC. The Member States may establish an entity or body set up in compliance with Directive 2009/73/EC for the purpose of carrying out one or more functions typically attributed to the transmission system operator, which shall be subject to the requirements of this Regulation. That entity or body shall be subject to certification in accordance with Article 3 of this Regulation and shall be subject to designation in accordance with Article 10 of Directive 2009/73/EC. Article 2 Definitions 1.  

For the purpose of this Regulation, the following definitions apply: 1) 

‘transmission’ means the transport of natural gas through a network, which mainly contains high-pressure pipelines, other than an upstream pipeline network and other than the part of highpressure pipelines primarily used in the context of local distribution of natural gas, with a view to its delivery to customers, but not including supply;

2) 

‘transport contract’ means a contract which the transmission system operator has concluded with a network user with a view to carrying out transmission;

1145

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

3) 

‘capacity’ means the maximum flow, expressed in normal cubic meters per time unit or in energy unit per time unit, to which the network user is entitled in accordance with the provisions of the transport contract;

4) 

‘unused capacity’ means firm capacity which a network user has acquired under a transport contract but which that user has not nominated by the deadline specified in the contract;

5) 

‘congestion management’ means management of the capacity portfolio of the transmission system operator with a view to optimal and maximum use of the technical capacity and the timely detection of future congestion and saturation points;

6) 

‘secondary market’ means the market of the capacity traded otherwise than on the primary market;

7) 

‘nomination’ means the prior reporting by the network user to the transmission system operator of the actual flow that the network user wishes to inject into or withdraw from the system;

8) 

‘re-nomination’ means the subsequent reporting of a corrected nomination;

9) 

‘system integrity’ means any situation in respect of a transmission network including necessary transmission facilities in which the pressure and the quality of the natural gas remain within the minimum and maximum limits laid down by the transmission system operator, so that the transmission of natural gas is guaranteed from a technical standpoint;

10)  ‘balancing period’ means the period within which the off-take of an amount of natural gas, expressed in units of energy, must be offset by every network user by means of the injection of the same amount of natural gas into the transmission network in accordance with the transport contract or the network code;

1146

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

11)  ‘network user’ means a customer or a potential customer of a transmission system operator, and transmission system operators themselves in so far as it is necessary for them to carry out their functions in relation to transmission; 12)  ‘interruptible services’ means services offered by the transmission system operator in relation to interruptible capacity; 13)  ‘interruptible capacity’ means gas transmission capacity that may be interrupted by the transmission system operator in accordance with the conditions stipulated in the transport contract; 14)  ‘long-term services’ means services offered by the transmission system operator with a duration of one year or more; 15)  ‘short-term services’ means services offered by the transmission system operator with a duration of less than one year; 16)  ‘firm capacity’ means gas transmission capacity contractually guaranteed as uninterruptible by the transmission system operator; 17)  ‘firm services’ mean services offered by the transmission system operator in relation to firm capacity; 18)  ‘technical capacity’ means the maximum firm capacity that the transmission system operator can offer to the network users, taking account of system integrity and the operational requirements of the transmission network; 19)  ‘contracted capacity’ means capacity that the transmission system operator has allocated to a network user by means of a transport contract; 20)  ‘available capacity’ means the part of the technical capacity that is not allocated and is still available to the system at that moment; 21)  ‘contractual congestion’ means a situation where the level of firm capacity demand exceeds the technical capacity;

1147

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

22)  ‘primary market’ means the market of the capacity traded directly by the transmission system operator; 23)  ‘physical congestion’ means a situation where the level of demand for actual deliveries exceeds the technical capacity at some point in time; 24)  ‘LNG facility capacity’ means capacity at an LNG terminal for the liquefaction of natural gas or the importation, offloading, ancillary services, temporary storage and re-gasification of LNG; 25)  ‘space’ means the volume of gas which a user of a storage facility is entitled to use for the storage of gas; 26)  ‘deliverability’ means the rate at which the storage facility user is entitled to withdraw gas from the storage facility; 27)  ‘injectability’ means the rate at which the storage facility user is entitled to inject gas into the storage facility; 28)  ‘storage capacity’ means any combination of space, injectability and deliverability. 2.  

Without prejudice to the definitions in paragraph 1 of this Article, the definitions contained in Article 2 of Directive 2009/73/EC, which are relevant for the application of this Regulation, also apply, with the exception of the definition of transmission in point 3 of that Article.



The definitions in points 3 to 23 of paragraph 1 of this Article in relation to transmission apply by analogy in relation to storage and LNG facilities. Article 3 Certification of transmission system operators

1.  

The Commission shall examine any notification of a decision on the certification of a transmission system operator as laid down in Article 10(6) of Directive 2009/73/EC as soon as it is received. Within two months 1148

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

of the day of receipt of such notification, the Commission shall deliver its opinion to the relevant national regulatory authority in regard to its compatibility with Article 10(2) or Article 11, and Article 9 of Directive 2009/73/EC.

When preparing the opinion referred to in the first subparagraph, the Commission may request the Agency to provide its opinion on the national regulatory authority’s decision. In such a case, the two-month period referred to in the first subparagraph shall be extended by two further months.



In the absence of an opinion by the Commission within the periods referred to in the first and second subparagraphs, the Commission shall be deemed not to raise objections against the regulatory authority’s decision.

2.  

Within two months of receiving an opinion of the Commission, the national regulatory authority shall adopt its final decision regarding the certification of the transmission system operator, taking the utmost account of that opinion. The regulatory authority’s decision and the Commission’s opinion shall be published together.

3.  

At any time during the procedure regulatory authorities and/or the Commission may request from a transmission system operator and/or an undertaking performing any of the functions of production or supply any information relevant to the fulfilment of their tasks under this Article.

4.  

Regulatory authorities and the Commission shall preserve the confidentiality of commercially sensitive information.

5.  

The Commission may adopt Guidelines setting out the details of the procedure to be followed for the application of paragraphs 1 and 2 of this Article. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 28(2).

6.  

Where the Commission has received notification of the certification of a transmission system operator under Article 9(10) of Directive 2009/73/ EC, the Commission shall take a decision relating to certification. The regulatory authority shall comply with the Commission decision. 1149

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Article 4 European network of transmission system operators for gas All transmission system operators shall cooperate at Community level through the ENTSO for Gas, in order to promote the completion and functioning of the internal market in natural gas and cross-border trade and to ensure the optimal management, coordinated operation and sound technical evolution of the natural gas transmission network. Article 5 Establishment of the ENTSO for Gas 1.  

By 3 March 2011, the transmission system operators for gas shall submit to the Commission and to the Agency the draft statutes, a list of members and draft rules of procedure, including the rules of procedures on the consultation of other stakeholders, of the ENTSO for Gas to be established.

2.  

Within two months of the day of the receipt, the Agency, after formally consulting the organisations representing all stakeholders, in particular the system users including customers, shall provide an opinion to the Commission on the draft statutes, list of members and draft rules of procedure.

3.  

The Commission shall deliver an opinion on the draft statutes, list of members and draft rules of procedures taking into account the opinion of the Agency provided for in paragraph 2 and within three months of the day of the receipt of the opinion of the Agency.

4.  

Within three months of the day of receipt of the Commission’s opinion, the transmission system operators shall establish the ENTSO for Gas, adopt and publish its statutes and rules of procedure.

1150

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Article 6 Establishment of network codes 1.  

The Commission shall, after consulting the Agency, the ENTSO for Gas and the other relevant stakeholders establish an annual priority list identifying the areas set out in Article 8(6) to be included in the development of network codes.

2.  

The Commission shall request the Agency to submit to it within a reasonable period of time not exceeding six months a non-binding framework guideline (framework guideline) setting out clear and objective principles, in accordance with Article 8(7), for the development of network codes relating to the areas identified in the priority list. Each framework guideline shall contribute to non-discrimination, effective competition and the efficient functioning of the market. Upon a reasoned request from the Agency, the Commission may extend that period.

3.  

The Agency shall formally consult the ENTSO for Gas and the other relevant stakeholders in regard to the framework guideline, during a period of no less than two months, in an open and transparent manner.

4.  

If the Commission considers that the framework guideline does not contribute to non-discrimination, effective competition and the efficient functioning of the market, it may request the Agency to review the framework guideline within a reasonable period of time and re-submit it to the Commission.

5.  

If the Agency fails to submit or re-submit a framework guideline within the period set by the Commission under paragraphs 2 or 4, the Commission shall elaborate the framework guideline in question.

6.  

The Commission shall request the ENTSO for Gas to submit a network code which is in line with the relevant framework guideline, to the Agency within a reasonable period of time not exceeding 12 months.

7.  

Within a period of three months after the day of receipt of a network code, during which the Agency may formally consult the relevant stakeholders, the Agency shall provide a reasoned opinion to the ENTSO for Gas on the network code. 1151

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

8.  

The ENTSO for Gas may amend the network code in the light of the opinion of the Agency and re-submit it to the Agency.

9.  

Once the Agency is satisfied that the network code is in line with the relevant framework guideline, the Agency shall submit the network code to the Commission and may recommend that it be adopted within a reasonable time period. The Commission shall provide reasons in the event that it does not adopt that network code.

10.   Where the ENTSO for Gas has failed to develop a network code within the period of time set by the Commission under paragraph 6, the Commission may request the Agency to prepare a draft network code on the basis of the relevant framework guideline. The Agency may launch a further consultation in the course of preparing a draft network code under this paragraph. The Agency shall submit a draft network code prepared under this paragraph to the Commission and may recommend that it be adopted. 11.   The Commission may adopt, on its own initiative where the ENTSO for Gas has failed to develop a network code, or the Agency has failed to develop a draft network code as referred to in paragraph 10 of this Article, or upon recommendation of the Agency under paragraph 9 of this Article, one or more network codes in the areas listed in Article 8(6).

Where the Commission proposes to adopt a network code on its own initiative, the Commission shall consult the Agency, the ENTSO for Gas and all relevant stakeholders in regard to the draft network code during a period of no less than two months. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 28(2).

12.   This Article shall be without prejudice to the Commission’s right to adopt and amend the Guidelines as laid down in Article 23.

1152

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Article 7 Amendments of network codes 1.  

Draft amendments to any network code adopted under Article 6 may be proposed to the Agency by persons who are likely to have an interest in that network code, including the ENTSO for Gas, transmission system operators, network users and consumers. The Agency may also propose amendments of its own initiative.

2.  

The Agency shall consult all stakeholders in accordance with Article 10 of Regulation (EC) No 713/2009. Following this process, the Agency may make reasoned proposals for amendments to the Commission, explaining how such proposals are consistent with the objectives of the network codes set out in Article 6(2) of this Regulation.

3.  

The Commission may adopt, taking account of the Agency’s proposals, amendments to any network code adopted under Article 6. Those measures, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 28(2).

4.  

Consideration of proposed amendments under the procedure set out in Article 28(2) shall be limited to consideration of the aspects related to the proposed amendment. Those proposed amendments are without prejudice to other amendments which the Commission may propose. Article 8 Tasks of the ENTSO for Gas

1.  

The ENTSO for Gas shall elaborate network codes in the areas referred to in paragraph 6 of this Article upon a request addressed to it by the Commission in accordance with Article 6(6).

2.  

The ENTSO for Gas may elaborate network codes in the areas set out in paragraph 6 with a view to achieving the objectives set out in Article 4 where those network codes do not relate to areas covered by a request addressed to it by the Commission. Those network codes shall be submit1153

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

ted to the Agency for an opinion. That opinion shall be duly taken into account by the ENTSO for Gas. 3.  

The ENTSO for Gas shall adopt: (a)  common network operation tools to ensure coordination of network operation in normal and emergency conditions, including a common incidents classification scale, and research plans; (b)  a non-binding Community-wide ten-year network development plan (Community-wide network development plan), including a European supply adequacy outlook, every two years; (c) 

recommendations relating to the coordination of technical cooperation between Community and third-country transmission system operators;

(d)  an annual work programme; (e) 

an annual report;

(f )  annual summer and winter supply outlooks. 4.  

The European supply adequacy outlook referred to in point (b) of paragraph 3 shall cover the overall adequacy of the gas system to supply current and projected demands for gas for the next five-year period as well as for the period between five and 10 years from the date of that outlook. The European supply adequacy outlook shall build on national supply outlooks prepared by each individual transmission system operator.

5.  

The annual work programme referred to in point (d) of paragraph 3 shall contain a list and description of the network codes to be prepared, a plan on coordination of operation of the network, and research and development activities, to be realised in that year, and an indicative calendar.

6.  

The network codes referred to in paragraphs 1 and 2 shall cover the following areas, taking into account, if appropriate, regional special characteristics:

1154

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(a)  network security and reliability rules; (b)  network connection rules; (c) 

third-party access rules;

(d)  data exchange and settlement rules; (e) 

interoperability rules;

(f )  operational procedures in an emergency; (g)  capacity-allocation and congestion-management rules; (h)  rules for trading related to technical and operational provision of network access services and system balancing; (i) 

transparency rules;

(j) 

balancing rules including network-related rules on nominations procedure, rules for imbalance charges and rules for operational balancing between transmission system operators’ systems;

(k)  rules regarding harmonised transmission tariff structures; and (l) 

energy efficiency regarding gas networks.

7.  

The network codes shall be developed for cross-border network issues and market integration issues and shall be without prejudice to the Member States’ right to establish national network codes which do not affect cross-border trade.

8.  

The ENTSO for Gas shall monitor and analyse the implementation of the network codes and the Guidelines adopted by the Commission in accordance with Article 6(11), and their effect on the harmonisation of applicable rules aimed at facilitating market integration. The ENTSO for Gas shall report its findings to the Agency and shall include the results of the analysis in the annual report referred to in point (e) of paragraph 3 of this Article.

1155

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

9.  

The ENTSO for Gas shall make available all information required by the Agency to fulfil its tasks under Article 9(1).

10.   The ENTSO for Gas shall adopt and publish a Community-wide network development plan referred to in point (b) of paragraph 3 every two years. The Community-wide network development plan shall include the modelling of the integrated network, scenario development, a European supply adequacy outlook and an assessment of the resilience of the system.

The Community-wide network development plan shall, in particular: ▼M3 (a)  build on national investment plans, taking into account regional investment plans as referred to in Article 12(1), and, if appropriate, Union aspects of network planning as set out in Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy infrastructure ( 1 ); it shall be the subject to a cost-benefit analysis using the methodology established as set out in Article 11 of that Regulation; ▼B (b)  regarding cross-border interconnections, also build on the reasonable needs of different network users and integrate long-term commitments from investors referred to in Articles 14 and 22 of Directive 2009/73/EC; and

(c) 

identify investment gaps, notably with respect to cross-border capacities.

In regard to point (c) of the second subparagraph, a review of barriers to the increase of cross-border capacity of the network arising from different approval procedures or practices may be annexed to the Communitywide network development plan.

11.   The Agency shall review national ten-year network development plans to assess their consistency with the Community-wide network development plan. If the Agency identifies inconsistencies between a national ten-year network development plan and the Community-wide network development plan, it shall recommend amending the national ten-year network 1156

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

development plan or the Community-wide network development plan as appropriate. If such national ten-year network development plan is elaborated in accordance with Article 22 of Directive 2009/73/EC, the Agency shall recommend that the competent national regulatory authority amend the national ten-year network development plan in accordance with Article 22(7) of that Directive and inform the Commission thereof. 12.   Upon request of the Commission, the ENTSO for Gas shall give its views to the Commission on the adoption of the Guidelines as laid down in Article 23. Article 9 Monitoring by the Agency 1.  

The Agency shall monitor the execution of the tasks referred to in Article 8(1), (2) and (3) of the ENTSO for Gas and report to the Commission.



The Agency shall monitor the implementation by the ENTSO for Gas of network codes elaborated under Article 8(2) and network codes which have been developed in accordance with Article 6(1) to (10) but which have not been adopted by the Commission under Article 6(11). Where the ENTSO for Gas has failed to implement such network codes, the Agency shall request the ENTSO for Gas to provide a duly reasoned explanation as to why it has failed to do so. The Agency shall inform the Commission of that explanation and provide its opinion thereon.



The Agency shall monitor and analyse the implementation of the network codes and the Guidelines adopted by the Commission as laid down in Article 6(11), and their effect on the harmonisation of applicable rules aimed at facilitating market integration as well as on non-discrimination, effective competition and the efficient functioning of the market, and report to the Commission.

2.  

The ENTSO for Gas shall submit the draft Community-wide network development plan, the draft annual work programme, including the information regarding the consultation process and the other documents referred to in Article 8(3), to the Agency for its opinion.

1157

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks



Within two months from the day of receipt, the Agency shall provide a duly reasoned opinion as well as recommendations to the ENTSO for Gas and to the Commission where it considers that the draft annual work programme or the draft Community-wide network development plan submitted by the ENTSO for Gas do not contribute to non-discrimination, effective competition, the efficient functioning of the market or a sufficient level of cross-border interconnection open to third-party access. Article 10 Consultations

1.  

While preparing the network codes, the draft Community-wide network development plan and the annual work programme referred to in Article 8(1), (2) and (3), the ENTSO for Gas shall conduct an extensive consultation process, at an early stage and in an open and transparent manner, involving all relevant market participants, and, in particular, the organisations representing all stakeholders, in accordance with the rules of procedure referred to in Article 5(1). That consultation shall also involve national regulatory authorities and other national authorities, supply and production undertakings, network users including customers, distribution system operators, including relevant industry associations, technical bodies and stakeholder platforms. It shall aim at identifying the views and proposals of all relevant parties during the decision-making process.

2.  

All documents and minutes of meetings related to the consultations referred to in paragraph 1 shall be made public.

3.  

Before adopting the annual work programme and the network codes referred to in Article 8(1), (2) and (3), the ENTSO for Gas shall indicate how the observations received during the consultation have been taken into consideration. It shall provide reasons where observations have not been taken into account.

1158

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

▼M3

Article 11 Costs

The costs related to the activities of the ENTSO for Gas referred to in Articles 4 to 12 of this Regulation, and in Article 11 of Regulation (EU) No 347/2013 shall be borne by the transmission system operators and shall be taken into account in the calculation of tariffs. Regulatory authorities shall approve those costs only if they are reasonable and appropriate. ▼B Article 12 Regional cooperation of transmission system operators 1.  

Transmission system operators shall establish regional cooperation within the ENTSO for Gas to contribute to the tasks referred to in Article 8(1), (2) and (3). In particular, they shall publish a regional investment plan every two years, and may take investment decisions based on that regional investment plan.

2.  

Transmission system operators shall promote operational arrangements in order to ensure the optimum management of the network and shall promote the development of energy exchanges, the coordinated allocation of cross-border capacity through non-discriminatory market-based solutions, paying due attention to the specific merits of implicit auctions for short-term allocations and the integration of balancing mechanisms.

3.  

For the purposes of achieving the goals set in paragraphs 1 and 2, the geographical area covered by each regional cooperation structure may be defined by the Commission, taking into account existing regional cooperation structures. Each Member State shall be allowed to promote cooperation in more than one geographical area. The measure referred to in the first sentence, designed to amend non-essential elements of this Regulation by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 28(2).



For that purpose, the Commission shall consult the Agency and the ENTSO for Gas. 1159

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Article 13 Tariffs for access to networks 1.  

Tariffs, or the methodologies used to calculate them, applied by the transmission system operators and approved by the regulatory authorities pursuant to Article 41(6) of Directive 2009/73/EC, as well as tariffs published pursuant to Article 32(1) of that Directive, shall be transparent, take into account the need for system integrity and its improvement and reflect the actual costs incurred, insofar as such costs correspond to those of an efficient and structurally comparable network operator and are transparent, whilst including an appropriate return on investments, and, where appropriate, taking account of the benchmarking of tariffs by the regulatory authorities. Tariffs, or the methodologies used to calculate them, shall be applied in a non-discriminatory manner.



Member States may decide that tariffs may also be determined through market-based arrangements, such as auctions, provided that such arrangements and the revenues arising therefrom are approved by the regulatory authority.



Tariffs, or the methodologies used to calculate them, shall facilitate efficient gas trade and competition, while at the same time avoiding crosssubsidies between network users and providing incentives for investment and maintaining or creating interoperability for transmission networks.



Tariffs for network users shall be non-discriminatory and set separately for every entry point into or exit point out of the transmission system. Cost-allocation mechanisms and rate setting methodology regarding entry points and exit points shall be approved by the national regulatory authorities. By 3 September 2011, the Member States shall ensure that, after a transitional period, network charges shall not be calculated on the basis of contract paths.

2.  

Tariffs for network access shall neither restrict market liquidity nor distort trade across borders of different transmission systems. Where differences in tariff structures or balancing mechanisms would hamper trade across transmission systems, and notwithstanding Article 41(6) of Directive 2009/73/EC, transmission system operators shall, in close cooperation with the relevant national authorities, actively pursue convergence of 1160

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

tariff structures and charging principles, including in relation to balancing. Article 14 Third-party access services concerning transmission system operators 1.  

Transmission system operators shall: (a)  ensure that they offer services on a non-discriminatory basis to all network users; (b)  provide both firm and interruptible third-party access services. The price of interruptible capacity shall reflect the probability of interruption; (c) 

offer to network users both long and short-term services.



In regard to point (a) of the first subparagraph, where a transmission system operator offers the same service to different customers, it shall do so under equivalent contractual terms and conditions, either using harmonised transport contracts or a common network code approved by the competent authority in accordance with the procedure laid down in Article 41 of Directive 2009/73/ EC.

2.  

Transport contracts signed with non-standard start dates or with a shorter duration than a standard annual transport contract shall not result in arbitrarily higher or lower tariffs that do not reflect the market value of the service, in accordance with the principles laid down in Article 13(1).

3.  

Where appropriate, third-party access services may be granted subject to appropriate guarantees from network users with respect to the creditworthiness of such users. Such guarantees shall not constitute undue market-entry barriers and shall be non-discriminatory, transparent and proportionate.

1161

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Article 15 Third-party access services concerning storage and LNG facilities 1.  

LNG and storage system operators shall: (a)  offer services on a non-discriminatory basis to all network users that accommodate market demand; in particular, where an LNG or storage system operator offers the same service to different customers, it shall do so under equivalent contractual terms and conditions; (b)  offer services that are compatible with the use of the interconnected gas transport systems and facilitate access through cooperation with the transmission system operator; and (c) 

2.  

make relevant information public, in particular data on the use and availability of services, in a time-frame compatible with the LNG or storage facility users’ reasonable commercial needs, subject to the monitoring of such publication by the national regulatory authority.

Each storage system operator shall: (a)  provide both firm and interruptible third-party access services; the price of interruptible capacity shall reflect the probability of interruption; (b)  offer to storage facility users both long and short-term services; and (c) 

3.  

offer to storage facility users both bundled and unbundled services of storage space, injectability and deliverability.

LNG and storage facility contracts shall not result in arbitrarily higher tariffs in cases in which they are signed: (a)  outside a natural gas year with non-standard start dates; or

1162

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(b)  with a shorter duration than a standard LNG and storage facility contract on an annual basis. 4.  

Where appropriate, third-party access services may be granted subject to appropriate guarantees from network users with respect to the creditworthiness of such users. Such guarantees shall not constitute undue market-entry barriers and shall be non-discriminatory, transparent and proportionate.

5.  

Contractual limits on the required minimum size of LNG facility capacity and storage capacity shall be justified on the basis of technical constrains and shall permit smaller storage users to gain access to storage services. Article 16

Principles of capacity-allocation mechanisms and congestion-management procedures concerning transmission system operators 1.  

The maximum capacity at all relevant points referred to in Article 18(3) shall be made available to market participants, taking into account system integrity and efficient network operation.

2.  

The transmission system operator shall implement and publish nondiscriminatory and transparent capacity-allocation mechanisms, which shall: (a)  provide appropriate economic signals for the efficient and maximum use of technical capacity, facilitate investment in new infrastructure and facilitate cross-border exchanges in natural gas; (b)  be compatible with the market mechanisms including spot markets and trading hubs, while being flexible and capable of adapting to evolving market circumstances; and (c) 

be compatible with the network access systems of the Member States.

1163

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

3.  

The transmission system operator shall implement and publish non-discriminatory and transparent congestion-management procedures which facilitate cross-border exchanges in natural gas on a non-discriminatory basis and which shall be based on the following principles: (a)  in the event of contractual congestion, the transmission system operator shall offer unused capacity on the primary market at least on a day-ahead and interruptible basis; and (b)  network users who wish to re-sell or sublet their unused contracted capacity on the secondary market shall be entitled to do so.



In regard to point (b) of the first subparagraph, a Member State may require notification or information of the transmission system operator by network users.

4.  

In the event that physical congestion exists, non-discriminatory, transparent capacity-allocation mechanisms shall be applied by the transmission system operator or, as appropriate, by the regulatory authorities.

5.  

Transmission system operators shall regularly assess market demand for new investment. When planning new investments, transmission system operators shall assess market demand and take into account security of supply. Article 17

Principles of capacity-allocation mechanisms and congestion-management procedures concerning storage and LNG facilities 1.  

The maximum storage and LNG facility capacity shall be made available to market participants, taking into account system integrity and operation.

2.  

LNG and storage system operators shall implement and publish nondiscriminatory and transparent capacity-allocation mechanisms which shall:

1164

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(a)  provide appropriate economic signals for the efficient and maximum use of capacity and facilitate investment in new infrastructure; (b)  be compatible with the market mechanism including spot markets and trading hubs, while being flexible and capable of adapting to evolving market circumstances; and (c)  3.  

be compatible with the connected network access systems.

LNG and storage facility contracts shall include measures to prevent capacity-hoarding, by taking into account the following principles, which shall apply in cases of contractual congestion: (a)  the system operator must offer unused LNG facility and storage capacity on the primary market without delay; for storage facilities this must be at least on a day-ahead and interruptible basis; (b)  LNG and storage facility users who wish to re-sell their contracted capacity on the secondary market must be entitled to do so. Article 18

Transparency requirements concerning transmission system operators 1.  

The transmission system operator shall make public detailed information regarding the services it offers and the relevant conditions applied, together with the technical information necessary for network users to gain effective network access.

2.  

In order to ensure transparent, objective and non-discriminatory tariffs and facilitate efficient utilisation of the gas network, transmission system operators or relevant national authorities shall publish reasonably and sufficiently detailed information on tariff derivation, methodology and structure.

1165

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

3.  

For the services provided, each transmission system operator shall make public information on technical, contracted and available capacities on a numerical basis for all relevant points including entry and exit points on a regular and rolling basis and in a user-friendly and standardised manner.

4.  

The relevant points of a transmission system on which the information is to be made public shall be approved by the competent authorities after consultation with network users.

5.  

The transmission system operator shall always disclose the information required by this Regulation in a meaningful, quantifiably clear and easily accessible manner and on a non-discriminatory basis.

6.  

The transmission system operator shall make public ex-ante and ex-post supply and demand information, based on nominations, forecasts and realised flows in and out of the system. The national regulatory authority shall ensure that all such information is made public. The level of detail of the information that is made public shall reflect the information available to the transmission system operator.



The transmission system operator shall make public measures taken as well as costs incurred and revenue generated to balance the system.



The market participants concerned shall provide the transmission system operator with the data referred to in this Article. Article 19

Transparency requirements concerning storage facilities and LNG facilities 1.  

LNG and storage system operators shall make public detailed information regarding the services it offers and the relevant conditions applied, together with the technical information necessary for LNG and storage facility users to gain effective access to the LNG and storage facilities.

2.  

For the services provided, LNG and storage system operators shall make public information on contracted and available storage and LNG facility capacities on a numerical basis on a regular and rolling basis and in a userfriendly standardised manner. 1166

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

3.  

LNG and storage system operators shall always disclose the information required by this Regulation in a meaningful, quantifiably clear and easily accessible way and on a non-discriminatory basis.

4.  

LNG and storage system operators shall make public the amount of gas in each storage or LNG facility, or group of storage facilities if that corresponds to the way in which the access is offered to system users, inflows and outflows, and the available storage and LNG facility capacities, including for those facilities exempted from third-party access. That information shall also be communicated to the transmission system operator, which shall make it public on an aggregated level per system or subsystem defined by the relevant points. The information shall be updated at least daily.



In cases in which a storage system user is the only user of a storage facility, the storage system user may submit to the national regulatory authority a reasoned request for confidential treatment of the data referred to in the first subparagraph. Where the national regulatory authority comes to the conclusion that such a request is justified, taking into account, in particular, the need to balance the interest of legitimate protection of business secrets, the disclosure of which would negatively affect the overall commercial strategy of the storage user, with the objective of creating a competitive internal gas market, it may allow the storage system operator not to make public the data referred to in the first subparagraph, for a duration of up to one year.



The second subparagraph shall apply without prejudice to the obligations of communication to and publication by the transmission system operator referred to in the first subparagraph, unless the aggregated data are identical to the individual storage system data for which the national regulatory authority has approved non-publication.

5.  

In order to ensure transparent, objective and non-discriminatory tariffs and facilitate efficient utilisation of the infrastructures, the LNG and storage facility operators or relevant regulatory authorities shall make public sufficiently detailed information on tariff derivation, the methodologies and the structure of tariffs for infrastructure under regulated third-party access.

1167

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Article 20 Record keeping by system operators Transmission system operators, storage system operators and LNG system operators shall keep at the disposal of the national authorities, including the national regulatory authority, the national competition authority and the Commission, all information referred to in Articles 18 and 19, and in Part 3 of Annex I for a period of five years. Article 21 Balancing rules and imbalance charges 1.  

Balancing rules shall be designed in a fair, non-discriminatory and transparent manner and shall be based on objective criteria. Balancing rules shall reflect genuine system needs taking into account the resources available to the transmission system operator. Balancing rules shall be marketbased.

2.  

In order to enable network users to take timely corrective action, the transmission system operator shall provide sufficient, well-timed and reliable on-line based information on the balancing status of network users.



The information provided shall reflect the level of information available to the transmission system operator and the settlement period for which imbalance charges are calculated.



No charge shall be made for the provision of information under this paragraph.

3.  

Imbalance charges shall be cost-reflective to the extent possible, whilst providing appropriate incentives on network users to balance their input and off-take of gas. They shall avoid cross-subsidisation between network users and shall not hamper the entry of new market entrants.



Any calculation methodology for imbalance charges as well as the final tariffs shall be made public by the competent authorities or the transmission system operator, as appropriate. 1168

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

4.  

Member States shall ensure that transmission system operators endeavour to harmonise balancing regimes and streamline structures and levels of balancing charges in order to facilitate gas trade. Article 22 Trading of capacity rights

Each transmission, storage and LNG system operator shall take reasonable steps to allow capacity rights to be freely tradable and to facilitate such trade in a transparent and non-discriminatory manner. Every such operator shall develop harmonised transport, LNG facility and storage contracts and procedures on the primary market to facilitate secondary trade of capacity and shall recognise the transfer of primary capacity rights where notified by system users. The harmonised transport, LNG facility and storage contracts and procedures shall be notified to the regulatory authorities. Article 23 Guidelines 1.  

Where appropriate, Guidelines providing the minimum degree of harmonisation required to achieve the aims of this Regulation shall specify: (a)  details of third-party access services, including the character, duration and other requirements of those services, in accordance with Articles 14 and 15; (b)  details of the principles underlying capacity-allocation mechanisms and on the application of congestion-management procedures in the event of contractual congestion, in accordance with Articles 16 and 17; (c) 

details of the provision of information, definition of the technical information necessary for network users to gain effective access to the system and the definition of all relevant points for transparency requirements, including the information to be published at 1169

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

all relevant points and the time schedule for the publication of that information, in accordance with Articles 18 and 19; (d)  details of tariff methodology related to cross-border trade of natural gas, in accordance with Article 13; (e) 

details relating to the areas listed in Article 8(6).



For that purpose, the Commission shall consult the Agency and the ENTSO for Gas.

2.  

Guidelines on the issues listed in points (a), (b) and (c) of paragraph 1 are laid down in Annex I with respect to transmission system operators.



The Commission may adopt Guidelines on the issues listed in paragraph 1 of this Article and amend the Guidelines referred to in points (a), (b) and (c) thereof. Those measures, designed to amend non-essential elements of this Regulation, inter alia by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 28(2).

3.  

The application and amendment of Guidelines adopted pursuant to this Regulation shall reflect differences between national gas systems, and shall, therefore, not require uniform detailed terms and conditions of third-party access at Community level. They may, however, set minimum requirements to be met to achieve non-discriminatory and transparent network access conditions necessary for an internal market in natural gas, which may then be applied in the light of differences between national gas systems. Article 24 Regulatory authorities

When carrying out their responsibilities under this Regulation, the regulatory authorities shall ensure compliance with this Regulation and the Guidelines adopted pursuant to Article 23.

1170

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

Where appropriate, they shall cooperate with each other, with the Commission and the Agency in compliance with Chapter VIII of Directive 2009/73/EC. Article 25 Provision of information Member States and the regulatory authorities shall, on request, provide to the Commission all information necessary for the purposes of Article 23. The Commission shall set a reasonable time limit within which the information is to be provided, taking into account the complexity of the information required and the urgency with which the information is needed. Article 26 Right of Member States to provide for more detailed measures This Regulation shall be without prejudice to the rights of Member States to maintain or introduce measures that contain more detailed provisions than those set out herein or in the Guidelines referred to in Article 23. Article 27 Penalties 1.  

The Member States shall lay down rules on penalties applicable to infringements of the provisions of this Regulation and shall take all measures necessary to ensure that those provisions are implemented. The penalties provided for must be effective, proportionate and dissuasive. The Member States shall notify the Commission by 1 July 2006 of those rules corresponding to the provisions laid down in Regulation (EC) No 1775/2005 and shall notify the Commission without delay of any subsequent amendment affecting them. ►C2 They shall notify the Commission of those rules not corresponding to the provisions laid down in Regulation (EC) No 1775/2005 by 3 March 2011 and shall notify the Commission without delay of any subsequent amendment affecting them. ◄ 1171

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

2.  

Penalties provided for pursuant to paragraph 1 shall not be of a criminal law nature. Article 28 Committee procedure

1.  

The Commission shall be assisted by the committee set up by Article 51 of Directive 2009/73/EC.

2.  

Where reference is made to this paragraph, Article 5a(1) to (4) and Article 7 of Decision 1999/468/EC shall apply, having regard to the provisions of Article 8 thereof.

▼M5 ————— ▼B

Article 30 Derogations and exemptions This Regulation shall not apply to: (a)  natural gas transmission systems situated in Member States for the duration of derogations granted under Article 49 of Directive 2009/73/EC; (b)  major new infrastructure, i.e. interconnectors, LNG and storage facilities, and significant increases of capacity in existing infrastructure and modifications of such infrastructure which enable the development of new sources of gas supply referred to in Article 36(1) and (2) of Directive 2009/73/EC which are exempt from the provisions of Articles 9, 14, 32, 33, 34 or Article 41(6), (8) and (10) of that Directive as long as they are exempt from the provisions referred to in this subparagraph, with the exception of Article 19(4) of this Regulation; or (c) 

natural gas transmission systems which have been granted derogations under Article 48 of Directive 2009/73/EC.

1172

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks



As regards point (a) of the first subparagraph, Member States that have been granted derogations under Article 49 of Directive 2009/73/EC may apply to the Commission for a temporary derogation from the application of this Regulation, for a period of up to two years from the date on which the derogation referred to in that point expires. Article 31 Repeal

Regulation (EC) No 1775/2005 shall be repealed from 3 March 2011. References made to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table in Annex II. Article 32 Entry into force ▼C1 This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union.

It shall apply from 3 March 2011. ▼B This Regulation shall be binding in its entirety and directly applicable in all Member States.

1173

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

ANNEX I GUIDELINES ON 1.    Third-party access services concerning transmission system operators 1.

Transmission system operators shall offer firm and interruptible services down to a minimum period of one day.

2.

Harmonised transport contracts and common network codes shall be designed in a manner that facilitates trading and re-utilisation of capacity contracted by network users without hampering capacity release.

3.

Transmission system operators shall develop network codes and harmonised contracts following proper consultation with network users.

4.

Transmission system operators shall implement standardised nomination and re-nomination procedures. They shall develop information systems and electronic communication means to provide adequate data to network users and to simplify transactions, such as nominations, capacity contracting and transfer of capacity rights between network users.

5.

Transmission system operators shall harmonise formalised request procedures and response times according to best industry practice with the aim of minimising response times. They shall provide for online screen-based capacity booking and confirmation systems and nomination and re-nomination procedures no later than 1 July 2006 after consultation with the relevant network users.

6.

Transmission system operators shall not separately charge network users for information requests and transactions associated with their transport contracts and which are carried out according to standard rules and procedures.

1174

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

7.

Information requests that require extraordinary or excessive expenses such as feasibility studies may be charged separately, provided the charges can be duly substantiated.

8.

Transmission system operators shall cooperate with other transmission system operators in coordinating the maintenance of their respective networks in order to minimise any disruption of transmission services to network users and transmission system operators in other areas and in order to ensure equal benefits with respect to security of supply including in relation to transit.

9.

Transmission system operators shall publish at least annually, by a predetermined deadline, all planned maintenance periods that might affect network users’ rights from transport contracts and corresponding operational information with adequate advance notice. This shall include publishing on a prompt and non-discriminatory basis any changes to planned maintenance periods and notification of unplanned maintenance, as soon as that information becomes available to the transmission system operator. During maintenance periods, transmission system operators shall publish regularly updated information on the details of and expected duration and effect of the maintenance.

10.

Transmission system operators shall maintain and make available to the competent authority upon request a daily log of the actual maintenance and flow disruptions that have occurred. Information shall also be made available on request to those affected by any disruption.

2.    Principles of capacity-allocation mechanisms and congestion-management procedures concerning transmission system operators and their application in the event of contractual congestion 2.1.     Principles of capacity-allocation mechanisms and congestion-management procedures concerning transmission system operators 1.

Capacity-allocation mechanisms and congestion-management procedures shall facilitate the development of competition and liquid trading of capacity and shall be compatible with market mechanisms including spot markets and trading hubs. They shall be flexible and capable of adapting to evolving market circumstances. 1175

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks



2.

Those mechanisms and procedures shall take into account the integrity of the system concerned as well as security of supply.

3.

Those mechanisms and procedures shall neither hamper the entry of new market participants nor create undue barriers to market entry. They shall not prevent market participants, including new market entrants and companies with a small market share, from competing effectively.

4.

Those mechanisms and procedures shall provide appropriate economic signals for efficient and maximum use of technical capacity and facilitate investment in new infrastructure.

5.

Network users shall be advised about the type of circumstance that could affect the availability of contracted capacity. Information on interruption should reflect the level of information available to the transmission system operator.

6.

Should difficulties in meeting contractual delivery obligations arise due to system integrity reasons, transmission system operators should notify network users and seek a non-discriminatory solution without delay.

Transmission system operators shall consult network users regarding procedures prior to their implementation and agree them with the regulatory authority.

▼M2 2.2.    Congestion management procedures in the event of contractual congestion 2.2.1. General Provisions 1. 

The provisions of point 2.2 shall apply to interconnection points between adjacent entry-exit systems, irrespective of whether they are physical or virtual, between two or more Member States or within the same Member State in so far as the points are subject to booking procedures by users. They may also apply to entry points from and exit points to third countries, subject to the decision of the relevant national regulatory authority. Exit points to end-consumers and distribution networks, entry points from LNG termi1176

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

nals and production facilities, and entry-exit points from and to storage facilities are not subject to the provisions of point 2.2.

▼M4 2.  On the basis of the information published by the transmission system operators pursuant to Section 3 of this Annex and, where appropriate, validated by national regulatory authorities, the Agency shall publish by 1 June of every year, commencing with the year 2015, a monitoring report on congestion at interconnection points with respect to firm capacity products sold in the preceding year, taking into consideration to the extent possible capacity trading on the secondary market and the use of interruptible capacity. ▼M2 3.  Any additional capacity made available through the application of one of the congestion-management procedures as provided for in points 2.2.2, 2.2.3, 2.2.4 and 2.2.5 shall be offered by the respective transmission system operator(s) in the regular allocation process.

4. 

The measures provided for in points 2.2.2, 2.2.4 and 2.2.5 shall be implemented as of 1 October 2013. Points 2.2.3(1) to 2.2.3(5) shall apply as of 1 July 2016.

2.2.2. Capacity increase through oversubscription and buy-back scheme 1. 

Transmission system operators shall propose and, after approval by the national regulatory authority, implement an incentive-based oversubscription and buy-back scheme in order to offer additional capacity on a firm basis. Before implementation, the national regulatory authority shall consult with the national regulatory authorities of adjacent Member States and take account of the adjacent national regulatory authorities’ opinions. Additional capacity is defined as the firm capacity offered in addition to the technical capacity of an interconnection point calculated on the basis of Article 16(1) of this Regulation.

2. 

The oversubscription and buy-back scheme shall provide transmission system operators with an incentive to make available additional capacity, taking account of the technical conditions, such as the calorific value, temperature and expected consumption, of the relevant entry-exit system and the capacities in adjacent networks. Transmission system operators shall apply a dynamic approach 1177

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

with regard to the recalculation of the technical or additional capacity of the entry-exit system. 3. 

The oversubscription and buy-back scheme shall be based on an incentive regime reflecting the risks of transmission system operators in offering additional capacity. The scheme shall be structured in such a way that revenues from selling additional capacity and costs arising from the buy-back scheme or measures pursuant to paragraph 6 are shared between the transmission system operators and the network users. National regulatory authorities shall decide on the distribution of revenues and costs between the transmission system operator and the network user.

4. 

For the purpose of determining transmission system operators’ revenues, technical capacity, in particular surrendered capacity as well as, where relevant, capacity arising from the application of firm day-ahead use-it-or-lose-it and long term use-it-or-lose-it mechanisms, shall be considered to be allocated prior to any additional capacity.

5. 

In determining the additional capacity, the transmission system operator shall take into account statistical scenarios for the likely amount of physically unused capacity at any given time at interconnection points. It shall also take into account a risk profile for offering additional capacity which does not lead to excessive buyback obligation. The oversubscription and buy-back scheme shall also estimate the likelihood and the costs of buying back capacity on the market and reflect this in the amount of additional capacity to be made available.

6. 

Where necessary to maintain system integrity, transmission system operators shall apply a market-based buy-back procedure in which network users can offer capacity. Network users shall be informed about the applicable buy-back procedure. The application of a buy-back procedure is without prejudice to the applicable emergency measures.

7. 

Transmission system operators shall, before applying a buy-back procedure, verify whether alternative technical and commercial measures can maintain system integrity in a more cost-efficient manner. 1178

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

8. 

When proposing the oversubscription and buy-back scheme the transmission system operator shall provide all relevant data, estimates, and models to the national regulatory authority in order for the latter to assess the scheme. The transmission system operator shall regularly report to the national regulatory authority on the functioning of the scheme and, upon request of the national regulatory authority, provide all relevant data. The national regulatory authority may request the transmission system operator to revise the scheme.

2.2.3. Firm day-ahead use-it-or-lose-it mechanism 1. 

National regulatory authorities shall require transmission system operators to apply at least the rules laid down in paragraph 3 per network user at interconnection points with respect to altering the initial nomination if, on the basis of the yearly monitoring report of the Agency in accordance with point 2.2.1(2), it is shown that at interconnection points demand exceeded offer, at the reserve price when auctions are used, in the course of capacity allocation procedures in the year covered by the monitoring report for products for use in either that year or in one of the subsequent two years, (a)  for at least three firm capacity products with a duration of one month or (b)  for at least two firm capacity products with a duration of one quarter or (c) 

for at least one firm capacity product with a duration of one year or more or

(d)  where no firm capacity product with a duration of one month or more has been offered. 2. 

If, on the basis of the yearly monitoring report, it is shown that a situation as defined in paragraph 1 is unlikely to reoccur in the following three years, for example as a result of capacity becoming available from physical expansion of the network or termination of long-term contracts, the relevant national regulatory authorities may decide to terminate the firm day-ahead use-it-or-lose-it mechanism. 1179

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

3. 

Firm renomination is permitted up to 90 % and down to 10 % of the contracted capacity by the network user at the interconnection point. However, if the nomination exceeds 80 % of the contracted capacity, half of the non-nominated volume may be renominated upwards. If the nomination does not exceed 20 % of the contracted capacity, half of the nominated volume may be renominated downwards. The application of this paragraph is without prejudice to the applicable emergency measures.

4. 

The original holder of the contracted capacity may renominate the restricted part of its contracted firm capacity on an interruptible basis.

5. 

Paragraph 3 shall not apply to network users — persons or undertakings and the undertakings they control pursuant to Article 3 of Regulation (EC) No 139/2004 — holding less than 10 % of the average technical capacity in the preceding year at the interconnection point.

6. 

On interconnection points where a firm day-ahead use-it-or-lose-it mechanism in accordance with paragraph 3 is applied, an evaluation of the relationship with the oversubscription and buy-back scheme pursuant to point 2.2.2 shall be carried out by the national regulatory authority, which may result in a decision by the national regulatory authority not to apply the provisions of point 2.2.2 at those interconnection points. Such a decision shall be notified, without delay, to the Agency and the Commission. A national regulatory authority may decide to implement a firm day-ahead use-it-or-lose-it mechanism pursuant to paragraph 3 on an interconnection point. Before adopting its decision, the national regulatory authority shall consult with the national regulatory authorities of adjacent Member States. In adopting its decision the national regulatory authority shall take account of the adjacent national regulatory authorities’ opinions.

7. 

2.2.4.    Surrender of contracted capacity

Transmission system operators shall accept any surrender of firm capacity which is contracted by the network user at an interconnection point, with the exception of capacity products with a duration of a day and 1180

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

shorter. The network user shall retain its rights and obligations under the capacity contract until the capacity is reallocated by the transmission system operator and to the extent the capacity is not reallocated by the transmission system operator. Surrendered capacity shall be considered to be reallocated only after all the available capacity has been allocated. The transmission system operator shall notify the network user without delay of any reallocation of its surrendered capacity. Specific terms and conditions for surrendering capacity, in particular for cases where several network users surrender their capacity, shall be approved by the national regulatory authority. 2.2.5. Long-term use-it-or-lose-it mechanism 1. 

National regulatory authorities shall require transmission system operators to partially or fully withdraw systematically underutilised contracted capacity on an interconnection point by a network user where that user has not sold or offered under reasonable conditions its unused capacity and where other network users request firm capacity. Contracted capacity is considered to be systematically underutilised in particular if: (a)  the network user uses less than on average 80 % of its contracted capacity both from 1 April until 30 September and from 1 October until 31 March with an effective contract duration of more than one year for which no proper justification could be provided; or (b)  the network user systematically nominates close to 100 % of its contracted capacity and renominates downwards with a view to circumventing the rules laid down in point 2.2.3(3).

2. 

The application of a firm day-ahead use-it-or-lose-it mechanism shall not be regarded as justification to prevent the application of paragraph 1.

3. 

Withdrawal shall result in the network user losing its contracted capacity partially or completely for a given period or for the remaining effective contractual term. The network user shall retain its rights and obligations under the capacity contract until the capacity is reallocated by the transmission system operator and to the 1181

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

extent the capacity is not reallocated by the transmission system operator. 4. 

Transmission system operators shall regularly provide national regulatory authorities with all the data necessary to monitor the extent to which contracted capacities with effective contract duration of more than one year or recurring quarters covering at least two years are used.

▼M1 3.    Definition of the technical information necessary for network users to gain effective access to the system, the definition of all relevant points for transparency requirements and the information to be published at all relevant points and the time schedule according to which this information shall be published

3.1.    Definition of the technical information necessary for network users to gain effective access to the system 3.1.1.    Form of publication (1)  Transmission system operators (TSOs) shall provide all information referred to under paragraph 3.1.2 and paragraph 3.3(1) to 3.3(5) in the following manner: (a)  on a website accessible to the public, free of charge and without any need to register or otherwise sign on with the transmission system operator; (b)  on a regular/rolling basis; the frequency shall be according to the changes that take place and the duration of the service; (c) 

in a user-friendly manner;

(d)  in a clear, quantifiable, easily accessible way and on a nondiscriminatory basis; ▼M2 (e)  in a downloadable format that has been agreed between transmission system operators and the national regulatory authorities — on the basis of an opinion on a harmonised 1182

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

format that shall be provided by the Agency — and that allows for quantitative analyses;

▼M1 (f )  in consistent units, in particular kWh (with a combustion reference temperature of 298,15 K) shall be the unit for energy content and m3 (at 273,15 K and 1,01325 bar) shall be the unit for volume. The constant conversion factor to energy content shall be provided. In addition to the format above, publication in other units is also possible;

(g)  in the official language(s) of the Member State and in English; ▼M2 (h)  all data shall be made available as of 1 October 2013 on one Union-wide central platform, established by ENTSOG on a cost-efficient basis. ▼M1 (2)  Transmission system operators shall provide details on actual changes to all information referred to under paragraph 3.1.2 and paragraph 3.3(1) to 3.3(5) in a timely manner as soon as available to them. 3.1.2. Content of publication

Transmission system operators shall publish at least the following information about their systems and services: (a)  a detailed and comprehensive description of the different services offered and their charges; (b)  the different types of transportation contracts available for these services; (c) 

the network code and/or the standard conditions outlining the rights and responsibilities of all network users including: 1. 

harmonised transportation contracts and other relevant documents;

2. 

if relevant for access to the system, for all relevant points as defined in paragraph 3.2 of this Annex, a specification of 1183

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

relevant gas quality parameters, including at least the gross calorific value and the Wobbe index, and the liability or costs of conversion for network users in case gas is outside these specifications; 3. 

if relevant for access to the system, for all relevant points information on pressure requirements;

4. 

the procedure in the event of an interruption of interruptible capacity, including, where applicable, the timing, extent, and ranking of individual interruptions (for example prorata or first-come-last-interrupted);

(d)  the harmonised procedures applied when using the transmission system, including the definition of key terms; (e) 

provisions on capacity allocation, congestion management and anti-hoarding and reutilisation procedures;

(f )  the rules applicable for capacity trade on the secondary market visà-vis the transmission system operator; (g)  rules on balancing and methodology for the calculation of imbalance charges; (h)  if applicable, the flexibility and tolerance levels included in transportation and other services without separate charge, as well as any flexibility offered in addition to this and the corresponding charges; (i) 

a detailed description of the gas system of the transmission system operator and its relevant points of interconnection as defined in paragraph 3.2 of this Annex as well as the names of the operators of the interconnected systems or facilities;

(j) 

the rules applicable for connection to the system operated by the transmission system operator;

(k)  information on emergency mechanisms, as far as it is the responsibility of the transmission system operator, such as measures that 1184

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

can lead to the disconnection of customers groups and other general liability rules that apply to the transmission system operator; (l) 

procedures agreed upon by transmission system operators at interconnection points, of relevance for access of network users to the transmission systems concerned, relating to interoperability of the network, agreed procedures on nomination and matching procedures and other agreed procedures that set out provisions in relation to gas flow allocations and balancing, including the methods used;

(m)  transmission system operators shall publish a detailed and comprehensive description of the methodology and process, including information on the parameters employed and the key assumptions, used to calculate the technical capacity. 3.2.    Definition of all relevant points for transparency requirements (1)  Relevant points shall include at least: (a)  all entry and exit points to and from a transmission network operated by a transmission system operator, with the exception of exit points connected to a single final customer, and with the exception of entry points linked directly to a production facility of a single producer that is located within the EU; (b)  all entry and exit points connecting balancing zones of transmission system operators; (c) 

all points connecting the network of a transmission system operator with an LNG terminal, physical gas hubs, storage and production facilities, unless these production facilities are exempted under (a);

(d)  all points connecting the network of a given transmission system operator to infrastructure necessary for providing ancillary services as defined by Article 2(14) of Directive 2009/73/EC.

1185

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(2)  Information for single final customers and for production facilities, that is excluded from the definition of relevant points as described under 3.2(1)(a), shall be published in aggregate format, at least per balancing zone. The aggregation of single final customers and of production facilities, excluded from the definition of relevant points as described under 3.2(1)(a), shall for the application of this Annex be considered as one relevant point. (3)  Where points between two or more transmission operators are managed solely by the transmission operators concerned, with no contractual or operational involvement of system users whatsoever, or where points connect a transmission system to a distribution system and there is no contractual congestion at these points, transmission system operators shall be exempted for these points from the obligation to publish the requirements under paragraph 3.3 of this Annex. The national regulatory authority may require the transmission system operators to publish the requirements under paragraph 3.3 of this Annex for groups or all of the exempted points. In such case, the information, if available to the TSO, shall be published in an aggregated form at a meaningful level, at least per balancing zone. This aggregation of these points shall for the application of this annex be considered as one relevant point. 3.3.    Information to be published at all relevant points and the time schedule according to which this information should be published (1)  At all relevant points, transmission system operators shall publish the information as listed in paragraphs (a) to (g), for all services and ancillary services provided (in particular information on blending, ballasting and conversion). This information shall be published on a numerical basis, in hourly or daily periods, equal to the smallest reference period for capacity booking and (re-)nomination and the smallest settlement period for which imbalance charges are calculated. If the smallest reference period is different from a daily period, information as listed in paragraphs (a) to (g) shall be made available also for the daily period. This information and updates shall be published as soon as available to the system operator (‘near real time’).

1186

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(a)  the technical capacity for flows in both directions; (b)  the total contracted firm and interruptible capacity in both directions; (c) 

the nominations and re-nominations in both directions;

(d)  the available firm and interruptible capacity in both directions; (e) 

actual physical flows;

(f )  planned and actual interruption of interruptible capacity; (g)  planned and unplanned interruptions to firm services as well as the information on restoration of the firm services (in particular, maintenance of the system and the likely duration of any interruption due to maintenance). Planned interruptions shall be published at least 42 days in advance; ▼M2 (h)  occurrence of unsuccessful, legally valid requests for firm capacity products with a duration of one month or longer including the number and volume of the unsuccessful requests; and (i) 

in the case of auctions, where and when firm capacity products with a duration of one month or longer have cleared at prices higher than the reserve price;

(j) 

where and when no firm capacity product with a duration of one month or longer has been offered in the regular allocation process;

(k)  total capacity made available through the application of the congestion-management procedures laid down in points 2.2.2, 2.2.3, 2.2.4 and 2.2.5 per applied congestion-management procedure; (l) 

points (h) to (k) shall apply from 1 October 2013.

1187

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

▼M4 (2)  At all relevant points, the information under paragraph 3.3(1) (a), (b) and (d) shall be published for a period at least 24 months ahead. ▼M1 (3)  At all relevant points, transmission system operators shall publish historical information on the requirements of paragraph 3.3(1)(a) to (g) for the past 5 years on a rolling basis.

(4)  Transmission system operators shall publish measured values of the gross calorific value or the Wobbe index at all relevant points, on a daily basis. Preliminary figures shall be published at the latest 3 days following the respective gas day. Final figures shall be published within 3 months after the end of the respective month. (5)  For all relevant points, transmission system operators shall publish available capacities, booked and technical capacities, on an annual basis over all years where capacity is contracted plus 1 year, and at least for the next 10 years. This information shall be updated at least every month or more frequently, if new information becomes available. The publication shall reflect the period for which capacity is offered to the market. 3.4.    Information to be published regarding the transmission system and the time schedule according to which this information should be published (1)  Transmission system operators shall ensure the publication on a daily basis and updated every day the aggregated amounts of capacities offered, and contracted on the secondary market (i.e. sold from one network user to another network user), where the information is available to the TSO. This information shall include the following specifications: (a)  interconnection point where the capacity is sold; (b)  type of capacity, i.e. entry, exit, firm, interruptible; (c) 

quantity and duration of the capacity usage rights;

(d)  type of sale, e.g. transfer or assignment; 1188

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(e) 

the total number of trades/transfers;

(f )  any other conditions known to the transmission system operator as mentioned in 3.3.

In so far such information is provided by a third party, transmission system operators shall be exempted from this provision.

(2)  Transmission system operators shall publish harmonised conditions under which capacity transactions (e.g. transfers and assignments) will be accepted by them. These conditions must at least include: (a)  a description of standardised products which can be sold on the secondary market; (b)  lead time for the implementation/acceptation/registration of secondary trades. In case of delays the reasons have to be published; (c) 

the notification to the transmission system operator by the seller or the third party as referred to under 3.4(1) about name of seller and buyer and capacity specifications as outlined in 3.4(1).



In so far such information is provided by a third party, transmission system operators shall be exempted from this provision.

(3)  Regarding the balancing service of its system, each transmission system operator shall provide to each network user, for each balancing period, its specific preliminary imbalance volumes and cost data per individual network user, at the latest 1 month after the end of the balancing period. Final data of customers supplied according to standardised load profiles may be provided up to 14 months later. In so far such information is provided by a third party, transmission system operators shall be exempted from this provision. The provision of this information shall respect confidentiality of commercially sensitive information. 1189

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

(4)  Where flexibility services, other than tolerances, are offered for third party access, transmission system operators shall publish daily forecasts on a day-ahead basis of the maximum amount of flexibility, the booked level of flexibility and the availability of flexibility for the market for the next gas day. The transmission system operator shall also publish ex-post information on the aggregate utilisation of every flexibility service at the end of each gas day. If the national regulatory authority is satisfied that such information could give room to potential abuse by network users, it may decide to exempt the transmission system operator from this obligation. (5)  Transmission system operators shall publish, per balancing zone, the amount of gas in the transmission system at the start of each gas day and the forecast of the amount of gas in the transmission system at the end of each gas day. The forecast amount of gas for the end of the gas day shall be updated on an hourly basis throughout the gas day. If imbalance charges are calculated on an hourly basis, the transmission system operator shall publish the amount of gas in the transmission system on an hourly basis. Alternatively, transmission system operators shall publish, per balancing zone, the aggregate imbalance position of all users at the start of each balancing period and the forecast of the aggregated imbalance position of all users at the end of each gas day. If the national regulatory authority is satisfied that such information could give room to potential abuse by network users, it may decide to exempt the transmission system operator from this obligation. (6)  Transmission system operators shall provide user-friendly instruments for calculating tariffs. (7)  Transmission system operators shall keep at the disposal of the relevant national authorities, for at least 5 years, effective records of all capacity contracts and all other relevant information in relation to calculating and providing access to available capacities, in particular individual nominations and interruptions. Transmission system operators must keep documentation of all relevant information under point 3.3(4) and (5) for at least 5 years and make them available to the regulatory authority upon request. Both parties shall respect commercial confidentiality. ▼B 1190

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

ANNEX II CORRELATION TABLE

Regulation (EC) No 1775/2005

This Regulation

Article 1

Article 1

Article 2

Article 2

—

Article 3

—

Article 4

—

Article 5

—

Article 6

—

Article 7

—

Article 8

—

Article 9

—

Article 10

—

Article 11

—

Article 12

Article 3

Article 13

Article 4

Article 14

—

Article 15

Article 5

Article 16

—

Article 17

Article 6

Article 18

—

Article 19

—

Article 20

Article 7

Article 21

Article 8

Article 22

Article 9

Article 23

Article 10

Article 24

Article 11

Article 25

Article 12

Article 26

Article 13

Article 27

Article 14

Article 28

Article 15

Article 29

Article 16

Article 30

1191

Appendix 4 Reg (EC) 715/2009 – Access to the natural gas transmission networks

—

Article 31

Article 17

Article 32

Annex

Annex I

Note ( 1 ) OJ L 115, 25.4.2013, p. 39.

1192

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

APPENDIX 5

REGULATION (EU) 2019/942 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 5 June 2019 establishing a European Union Agency for the Cooperation of Energy Regulators (recast) (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 194(2) thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), Having regard to the opinion of the Committee of the Regions (2), Acting in accordance with the ordinary legislative procedure (3), Whereas:

1193

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(1)

Regulation (EC) No 713/2009 of the European Parliament and of the Council (4), which established the Agency for the Cooperation of Energy Regulators (ACER), has been substantially amended (5). Since further amendments are to be made, that Regulation should be recast in the interest of clarity.

(2)

The creation of ACER has manifestly improved coordination between regulatory authorities on cross-border issues.  Since its creation, ACER has received new important tasks concerning the monitoring of wholesale markets under Regulation (EU) No 1227/2011 of the European Parliament and of the Council (6) and concerning the fields of cross-border energy infrastructure under Regulation (EU) No 347/2013 of the European Parliament and of the Council (7) and security of gas supply under Regulation (EU) 2017/1938 of the European Parliament and of the Council (8).

(3)

It is anticipated that the need for coordination of national regulatory actions will increase further in the coming years. The Union’s energy system is in the middle of its most profound change in decades. More market integration and the change towards more variable electricity production require increased efforts to coordinate national energy policies with neighbours and increased efforts to use the opportunities of cross-border electricity trade.

(4)

Experience with the implementation of the internal market has shown that uncoordinated national action can lead to severe problems for the market, in particular in closely interconnected areas where the decisions of Member States often have a tangible impact on their neighbours. To achieve the positive effects of the internal electricity market for consumer welfare, the security of supply and decarbonisation, Member States, in particular their independent regulatory authorities, are required to cooperate on regulatory measures which have cross-border effects.

(5)

Fragmented national state interventions in energy markets constitute an increasing risk to the proper functioning of cross-border electricity markets. ACER should therefore be given a role in the development of a coordinated European resource adequacy assessment, in close cooperation with the European Network of Transmission System Operators for Electricity (ENTSO for Electricity), in order to avoid the problems of fragmented national assessments which follow different uncoordinated 1194

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

methods and do not sufficiently take into account the situation in neighbouring countries. ACER should also supervise the technical parameters developed by the ENTSO for Electricity for the efficient participation of cross-border capacities and other technical features of capacity mechanisms. (6)

Despite significant progress in integrating and interconnecting the internal electricity market, some Member States or regions remain isolated or not sufficiently interconnected, in particular insular Member States and Member States located on the periphery of the Union. In its work, ACER should take account of the specific situation of those Member States or regions as appropriate.

(7)

The security of the electricity supply requires a coordinated approach to preparing for unexpected supply crises.  ACER should therefore coordinate national actions related to risk preparedness, in accordance with Regulation (EU) 2019/941 of the European Parliament and of the Council (9).

(8)

Because of the close interconnection of the Union electricity grid and the increasing need to cooperate with neighbouring countries to maintain grid stability and integrate large volumes of renewable energy, regional coordination centres will play an important role for the coordination of transmission system operators. ACER should guarantee regulatory oversight of the regional coordination centres where necessary.

(9)

As large parts of new electricity generation capacity will be connected at local level, distribution system operators are to play an important role when it comes to operating the Union electricity system in a flexible and efficient manner.

(10) Member States should cooperate closely, eliminating obstacles to crossborder exchanges of electricity and natural gas with a view to achieving the objectives of the Union energy policy. ACER was established to fill the regulatory gap at Union level and to contribute towards the effective functioning of the internal markets for electricity and natural gas. ACER enables regulatory authorities to enhance their cooperation at Union level and participate, on a mutual basis, in the exercise of Union-related functions.

1195

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(11) ACER should ensure that regulatory functions performed by the regulatory authorities in accordance with Directive (EU) 2019/944 of the European Parliament and of the Council (10) and Directive 2009/73/ EC of the European Parliament and of the Council (11) are properly coordinated and, where necessary, completed at Union level. To that end, it is necessary to guarantee the independence of ACER from electricity and gas producers, transmission system operators and distribution system operators, whether public or private, and consumers and to ensure the conformity of its actions with Union law, its technical and regulatory capacities and its transparency, amenability to democratic control, including accountability to the European Parliament, and efficiency. (12) ACER should monitor regional cooperation between transmission system operators in the electricity and gas sectors as well as the execution of the tasks of the ENTSO for Electricity, and the European Network of Transmission System Operators for Gas (ENTSO for Gas). ACER should also monitor the implementation of the tasks of other entities with regulated functions of Union-wide dimension, such as energy exchanges. ACER’s involvement is essential in order to ensure that the cooperation between transmission system operators and the operation of other entities with Union-wide functions proceed in an efficient and transparent way for the benefit of the internal markets for electricity and natural gas. (13) The regulatory authorities should coordinate among themselves when carrying out their tasks to ensure that the ENTSO for Electricity, the European Entity for Distribution System Operators (the ‘EU DSO entity’), and the regional coordination centres comply with their obligations under the regulatory framework of the internal energy market and with ACER’s decisions. With the expansion of the operational responsibilities of the ENTSO for Electricity, the EU DSO entity and the regional coordination centres, it is necessary to enhance the oversight of such entities operating at regional or Union-wide level. The procedure established in this Regulation ensures that ACER supports the regulatory authorities when performing those functions as referred to in Directive (EU) 2019/944. (14) In order to ensure that ACER has the information it needs to carry out its tasks, ACER should be able to request and to receive that information from the regulatory authorities, the ENTSO for Electricity, the ENTSO for Gas, the regional coordination centres, the EU DSO entity, the trans1196

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

mission system operators and the nominated electricity market operators. (15) ACER should monitor, in cooperation with the Commission, the Member States and relevant national authorities, the internal markets for electricity and natural gas and inform the European Parliament, the Commission and the national authorities of its findings where appropriate. ACER’s monitoring tasks should not duplicate or hamper monitoring by the Commission or by national authorities, in particular national competition authorities. (16) ACER provides an integrated framework which enables the regulatory authorities to participate and cooperate. That framework facilitates the uniform application of the legislation on the internal markets for electricity and natural gas throughout the Union. As regards situations concerning more than one Member State, ACER has been granted the power to adopt individual decisions. That power should, under clearly specified conditions, cover technical and regulatory issues which require regional coordination, in particular those concerning the implementation of network codes and guidelines, cooperation within regional coordination centres, the regulatory decisions necessary to effectively monitor wholesale energy market integrity and transparency, decisions concerning electricity and natural gas infrastructure that connects or that might connect at least two Member States and, as a last resort, exemptions from the internal market rules for new electricity interconnectors and new gas infrastructure located in more than one Member State. (17) Revision of the network codes and guidelines covers amendments which are necessary to take into account the evolution of the market without substantially changing those network codes and guidelines or creating new competences of ACER. (18) ACER has an important role in developing framework guidelines which are non-binding by nature. Network codes should be in line with those framework guidelines. It is also considered to be appropriate for ACER, and consistent with its purpose, to have a role in reviewing and amending draft network codes to ensure that they are in line with the framework guidelines and provide for the necessary degree of harmonisation, before it submits them to the Commission for adoption.

1197

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(19) With the adoption of a set of network codes and guidelines which provide for the stepwise implementation and further refinement of common regional and Union-wide rules, ACER’s role with regard to monitoring and contributing to the implementation of the network codes and guidelines has increased. The effective monitoring of network codes and guidelines is a key function of ACER and is crucial to the implementation of internal market rules. (20) During the implementation of network codes and guidelines, it has emerged that it would be useful to streamline the procedures for the regulatory approval of regional or Union-wide terms and conditions or methodologies that are developed under the network codes and guidelines by submitting them directly to ACER to allow regulatory authorities represented in the Board of Regulators to decide on such terms and conditions or methodologies. (21) Since the stepwise harmonisation of the Union energy markets regularly involves finding regional solutions as an interim step, and many terms and conditions and methodologies need to be approved by a limited number of regulatory authorities for a specific region, it is appropriate to reflect the regional dimension of the internal market in this Regulation and to provide for appropriate governance mechanisms. Decisions on proposals for joint regional terms and conditions or methodologies should therefore be taken by the competent regulatory authorities of the region concerned, unless those decisions have a tangible impact on the internal energy market. (22) Since ACER has an overview of the regulatory authorities, it should have an advisory role with respect to the Commission, other Union institutions and regulatory authorities as regards the issues relating to the purpose for which it was established. It should also be required to inform the Commission where it finds that the cooperation between transmission system operators does not produce the necessary results or that a regulatory authority whose decision infringes the network codes and guidelines has not implemented an opinion, recommendation or decision of ACER appropriately. (23) ACER should also be able to make recommendations to assist regulatory authorities and market participants in sharing good practices.

1198

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(24) The ENTSO for Electricity, the ENTSO for Gas, the EU DSO entity, transmission system operators, the regional coordination centres and the nominated electricity market operators should give the utmost consideration to the opinions and recommendations of ACER that are addressed to them pursuant to this Regulation. (25) ACER should consult interested parties, where appropriate, and provide them with a reasonable opportunity to comment on proposed measures, such as network codes and rules. (26) ACER should contribute to the implementation of the guidelines on trans-European energy networks as laid down in Regulation (EU) No  347/2013, in particular when providing its opinion on the nonbinding Union-wide 10-year network development plans (Union-wide network development plans). (27) ACER should contribute to the efforts of enhancing energy security. (28) ACER’s activities should be consistent with the objectives and targets of the Energy Union which has five closely related and mutually reinforcing dimensions, including decarbonisation, as outlined in Article 1 of Regulation (EU) 2018/1999 of the European Parliament and of the Council (12). (29) In accordance with the principle of subsidiarity, ACER should adopt individual decisions only in clearly defined circumstances, on issues that are strictly related to the purposes for which ACER was established. (30) In order to ensure that ACER’s framework is efficient and coherent with other decentralised agencies, the rules governing ACER should be aligned with the Common Approach agreed between the European Parliament, the Council of the EU and the European Commission on decentralised agencies (13) (Common Approach). However, to the extent necessary, ACER’s structure should be adapted to meet the specific needs of energy regulation. In particular, the specific role of the regulatory authorities needs to be taken fully into account and their independence guaranteed.

1199

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(31) Additional changes to this Regulation may be envisaged in the future in order to bring the Regulation fully in line with the Common Approach. Based on the current needs of energy regulation, deviations from the Common Approach are necessary. The Commission should carry out an evaluation to assess ACER’s performance in relation to ACER’s objectives, mandate and tasks and, following that evaluation, the Commission should be able to propose amendments to this Regulation. (32) The Administrative Board should have the necessary powers to establish the budget, check its implementation, draw up internal rules, adopt financial regulations and appoint a Director. A rotation system should be used for the renewal of the members of the Administrative Board who are appointed by the Council so as to ensure a balanced participation of Member States over time. The Administrative Board should act independently and objectively in the public interest and should not seek or follow political instructions. (33) ACER should have the necessary powers to perform its regulatory functions in an efficient, transparent, reasoned and, above all, independent manner. ACER’s independence from electricity and gas producers and from transmission system operators and distribution system operators as well as other private and corporate interests is not only a key principle of good governance but also a fundamental condition to ensure market confidence. Without prejudice to its members’ acting on behalf of their respective national authorities, the Board of Regulators should therefore act independently from any market interest, should avoid conflicts of interests and should not seek or follow instructions or accept recommendations from a government of a Member State, from Union institutions or another public or private entity or person. The decisions of the Board of Regulators should, at the same time, comply with Union law concerning energy, such as the internal energy market, the environment and competition. The Board of Regulators should report its opinions, recommendations and decisions to the Union institutions. (34) Where ACER has decision-making powers, interested parties should, for reasons of procedural economy, be granted a right of appeal to a Board of Appeal, which should be part of ACER, but independent from its administrative and regulatory structure. In order to guarantee its functioning and full independence, the Board of Appeal should have a separate budget line in the budget of ACER. In the interest of continuity, the 1200

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

appointment or renewal of the members of the Board of Appeal should allow for the partial replacement of the members of the Board of Appeal. The decisions of the Board of Appeal are subject to appeal before the Court of Justice of the European Union (the Court of Justice). (35) ACER should exercise its decision-making powers in line with the principles of fair, transparent and reasonable decision-making. ACER’s procedural rules should be laid down in its rules of procedures. (36) The Director should be responsible for drafting and adopting documents containing opinions, recommendations and decisions. Certain opinions, recommendations and decisions referred to in point (a) of Article 22(5) and Article 24(2) should require the favourable opinion of the Board of Regulators before they are adopted. The Board of Regulators should be able to provide opinions on, and, where appropriate, comments on and amendments to the Director’s text proposals, which the Director should take into account. Where the Director deviates from or rejects the comments and amendments submitted by the Board of Regulators, the Director should provide a duly justified written reasoning to facilitate a constructive dialogue. If the Board of Regulators does not give a favourable opinion on a re-submitted text, the Director should have the possibility of revising the text further in line with the amendments and comments proposed by the Board of Regulators, in order to obtain their favourable opinion. The Director should have the possibility of withdrawing submitted draft opinions, recommendations and decisions where the Director disagrees with the amendments submitted by the Board of Regulators and issuing a new text following certain procedures referred to in point (a) of Article 22(5) and Article 24(2). The Director should have the possibility of seeking the favourable opinion of the Board of Regulators on a new or revised draft text at any stage of the procedure. (37) ACER should be properly resourced to carry out its tasks. ACER should be mainly financed from the general budget of the Union. Fees improve ACER’s funding and should cover its costs with regard to services provided to market participants or entities acting on their behalf enabling them to report data pursuant to Article 8 of Regulation (EU) No 1227/2011 in an efficient, effective and safe manner. The resources currently pooled by regulatory authorities for their cooperation at Union level should continue to be available to ACER. The Union budgetary procedure should remain applicable as far as any subsidies chargeable to the general budget 1201

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

of the Union are concerned. Moreover, the auditing of accounts should be undertaken by an independent external auditor in accordance with Article 107 of Commission Delegated Regulation (EU) No 1271/2013 (14). (38) ACER’s budget should be assessed by the budgetary authority on an ongoing basis, with reference to ACER’s workload, to ACER’s performance and to ACER’s objectives of working towards an internal energy market and contributing to energy security for the benefit of consumers in the Union. The budgetary authority should ensure that the best standards of efficiency are met. (39) The Translation Centre for the Bodies of the European Union (the ‘Translation Centre’) should provide translation for the Union Agencies.  If ACER experiences particular difficulties with the services of the Translation Centre, ACER should have the possibility of invoking the recourse mechanism established in Council Regulation (EC) No 2965/94 (15), which could, ultimately, result in recourse to other service providers under the auspices of the Translation Centre. (40) ACER should have highly professional staff. In particular, it should benefit from the competence and experience of staff seconded by the regulatory authorities, the Commission and the Member States.  The Staff Regulations of Officials of the European Communities (‘the Staff Regulations’) and the Conditions of employment of other servants of the European Communities (‘the Conditions of Employment’), laid down in Council Regulation (EEC,  Euratom, ECSC) No  259/68  (16) and the rules adopted jointly by the Union institutions for the purpose of applying those regulations should apply to ACER’s staff. The Administrative Board, in agreement with the Commission, should adopt appropriate implementing rules. (41) It should be possible for the regulatory work of the Director and the Board of Regulators pursuant to this Regulation to be supported by working groups. (42) ACER should apply the general rules regarding public access to documents held by Union bodies. The Administrative Board should establish the practical measures to protect commercially sensitive data and personal data.

1202

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(43) Through the cooperation of regulatory authorities within ACER, it is evident that majority decisions are a key pre-requisite to achieving progress on matters concerning the internal energy market which have significant economic effects in various Member States. Regulatory authorities should therefore continue to vote on the basis of a two-thirds majority within the Board of Regulators. ACER should be accountable to the European Parliament, to the Council and to the Commission, where appropriate. (44) Countries which are not members of the Union should be able to participate in ACER’s work in accordance with appropriate agreements to be concluded by the Union. (45) Since the objectives of this Regulation, namely the cooperation of regulatory authorities at Union level and their participation in the exercise of Union-related functions, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union (TEU). In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives. (46) ACER’s seat is situated in Ljubljana, as provided by Decision 2009/913/ EU (17). ACER’s seat is the centre of its activities and its statutory functions. (47) ACER’s host Member State should provide the best possible conditions to ensure the smooth and efficient functioning of ACER, including multilingual, European-oriented schooling and appropriate transport connections. The Seat Agreement between the Government of the Republic of Slovenia and ACER covering those requirements together with its implementing arrangements, was concluded on 26 November 2010 and entered into force on 10 January 2011, HAVE ADOPTED THIS REGULATION:

1203

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Chapter I Objectives and tasks Article 1 Establishment and objectives 1.    This Regulation establishes a European Union Agency for the Cooperation of Energy Regulators (ACER). 2.    The purpose of ACER shall be to assist the regulatory authorities referred to in Article  57 of Directive (EU)  2019/944 and Article 39 of Directive 2009/73/EC in exercising, at Union level, the regulatory tasks performed in the Member States and, where necessary, to coordinate their action and to mediate and settle disagreements between them in accordance with Article 6(10) of this Regulation. ACER shall also contribute to the establishment of high-quality common regulatory and supervisory practices, thus contributing to the consistent, efficient and effective application of Union law in order to achieve the Union’s climate and energy goals. 3.    When carrying out its tasks, ACER shall act independently, objectively, and in the interest of the Union. ACER shall take autonomous decisions, independently of private and corporate interests. Article 2 Type of acts of ACER ACER shall: (a)

issue opinions and recommendations addressed to transmission system operators, the ENTSO for Electricity, the ENTSO for Gas, the EU DSO Entity, regional coordination centres and nominated electricity market operators;

(b)

issue opinions and recommendations addressed to regulatory authorities;

1204

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(c)

issue opinions and recommendations addressed to the European Parliament, the Council, or the Commission;

(d)

issue individual decisions on the provision of information in accordance with Article 3(2), point (b) of Article 7(2) and point (c) of Article 8; on approving the methodologies, terms and conditions in accordance with Article 4(4), Article 5(2), (3) and (4); on bidding zones reviews as referred to in Article 5(7); on technical issues as referred to in Article 6(1); on arbitration between regulators in accordance with Article 6(10); related to regional coordination centres as referred to in point (a) of Article 7(2); on approving and amending methodologies and calculations and technical specifications as referred to in Article 9(1); on approving and amending methodologies as referred to in Article 9(3); on exemptions as referred to in Article 10; on infrastructure as referred to in point (d) of Article 11; and on matters related to wholesale market integrity and transparency pursuant to Article 12.

(e)

submit non-binding framework guidelines to the Commission in accordance with Article 59 of Regulation (EU) 2019/943 of the European Parliament and of the Council  (18) and Article 6 of Regulation (EC) No 715/2009 of the European Parliament and of the Council (19). Article 3 General tasks

1.    ACER may, upon a request of the European Parliament, the Council or the Commission, or on its own initiative, provide an opinion or a recommendation to the European Parliament, the Council and the Commission on any of the issues relating to the purpose for which it has been established. 2.    At ACER’s request, the regulatory authorities, the ENTSO for Electricity, the ENTSO for Gas, the regional coordination centres, the EU DSO entity, the transmission system operators and the nominated electricity market operators shall provide to ACER the information necessary for the purpose of carrying out ACER’s tasks under this Regulation, unless ACER has already requested and received such information.

1205

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

For the purpose of information requests as referred to in the first subparagraph, ACER shall have the power to issue decisions.  In its decisions, ACER shall specify the purpose of its request, shall make a reference to the legal basis under which the information is requested, and shall state a time limit within which the information is to be provided. That time limit shall be proportionate to the request. ACER shall use confidential information received pursuant to this Regulation only for the purpose of carrying out the tasks assigned to it in this Regulation. ACER shall ensure the appropriate data protection of the information pursuant to Article 41. Article 4 Tasks of ACER as regards the cooperation of transmission system operators and distribution system operators 1.    ACER shall provide an opinion to the Commission on the draft statutes, list of members and draft rules of procedure of the ENTSO for Electricity in accordance with Article 29(2) of Regulation (EU) 2019/943 and on those of the ENTSO for Gas in accordance with Article 5(2) of Regulation (EC) No 715/2009 and on those of the EU DSO entity in accordance with Article 53(3) of Regulation (EU) 2019/943. 2.    ACER shall monitor the execution of the tasks of the ENTSO for Electricity in accordance with Article 32 of Regulation (EU) 2019/943, of the ENTSO for Gas in accordance with Article  9 of Regulation (EC) No 715/2009 and of the EU DSO entity as set out in Article 55 of Regulation (EU) 2019/943. 3.    ACER may provide an opinion: (a)

to the ENTSO for Electricity in accordance with point (a) of Article 30(1) of Regulation (EU) 2019/943 and to the ENTSO for Gas in accordance with Article 8(2) of Regulation (EC) No 715/2009 on the network codes;

1206

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(b)

to the ENTSO for Electricity in accordance with the first subparagraph of Article 32(2) of Regulation (EU) 2019/943, and to the ENTSO for Gas in accordance with the first subparagraph of Article 9(2) of Regulation (EC) No 715/2009 on the draft annual work programme, on the draft Union-wide network development plan and other relevant documents referred to in Article 30(1) of Regulation (EU) 2019/943 and Article 8(3) of Regulation (EC) No 715/2009, taking into account the objectives of non-discrimination, effective competition and the efficient and secure functioning of the internal markets for electricity and natural gas;

(c)

to the EU DSO entity on the draft annual work programme and other relevant documents referred to in Article 55(2) of Regulation (EU) 2019/943, taking into account the objectives of nondiscrimination, effective competition and the efficient and secure functioning of the internal market for electricity.

4.    ACER, where appropriate, after requesting updates to the drafts submitted by transmission system operators, shall approve the methodology regarding the use of revenues from congestion income pursuant to Article 19(4) of Regulation (EU) 2019/943. 5.    ACER shall, based on matters of fact, provide a duly reasoned opinion as well as recommendations to the ENTSO for Electricity, the ENTSO for Gas, the European Parliament, the Council and the Commission, where it considers that the draft annual work programme or the draft Union-wide network development plan submitted to it in accordance with the second subparagraph of Article 32(2) of Regulation (EU) 2019/943 and the second subparagraph of Article 9(2) of Regulation (EC) No 715/2009 do not contribute to non-discrimination, effective competition and the efficient functioning of the market or a sufficient level of cross-border interconnection open to third-party access, or do not comply with the relevant provisions of Regulation (EU) 2019/943 and Directive (EU) 2019/944 or Regulation (EC) No 715/2009 and Directive 2009/73/EC. 6.   

The relevant regulatory authorities shall coordinate in order to jointly identify whether there is non-compliance of the EU-DSO entity, the ENTSO for Electricity or regional coordination centres with their obligations under Union law, and shall take appropriate action in accordance with point (c) of Article 59(1) and point (f ) of Article 62(1) of Directive (EU) 2019/944. 1207

Appendix 5 Reg (EC) 713/2009 – Establishing ACER



At the request of one or more regulatory authorities or at its own initiative, ACER shall issue a reasoned opinion as well as a recommendation to the ENTSO for Electricity, the EU DSO entity or the regional coordination centres with regard to compliance with their obligations.

7.    Where a reasoned opinion of ACER identifies a case of potential noncompliance of the ENTSO for Electricity, the EU DSO entity or a regional coordination centre with their respective obligations, the regulatory authorities concerned shall unanimously take coordinated decisions establishing whether there is non-compliance with the relevant obligations and, where applicable, determining the measures to be taken by the ENTSO for Electricity, the EU DSO entity or the regional coordination centre to remedy that non-compliance. Where the regulatory authorities fail to take such coordinated decisions unanimously within four months of the date of receipt of ACER’s reasoned opinion, the matter shall be referred to ACER for a decision pursuant to Article 6(10). 8.    Where the non-compliance by the ENTSO for Electricity, the EU DSO entity or a regional coordination centre that was identified pursuant to paragraph 6 or 7 of this Article has not been remedied within three months, or where the regulatory authority in the Member State in which the entity has its seat has not taken action to ensure compliance, ACER shall issue a recommendation to the regulatory authority to take action in accordance with point (c) of Article  59(1) and point (f ) of Article 62(1) of Directive (EU) 2019/944, in order to ensure that the ENTSO for Electricity, the EU DSO entity or the regional coordination centre comply with their obligations, and shall inform the Commission. Article 5 Tasks of ACER as regards the development and implementation of network codes and guidelines 1.    ACER shall participate in the development of network codes in accordance with Article 59 of Regulation (EU) 2019/943 and Article 6 of Regulation (EC) No 715/2009 and of guidelines in accordance with Article 61(6) of Regulation (EU) 2019/943 It shall in particular:

1208

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(a)

submit non-binding framework guidelines to the Commission where it is requested to do so under Article 59(4) of Regulation (EU) 2019/943 or Article 6(2) of Regulation (EC) No 715/2009. ACER shall review the framework guidelines and re-submit them to the Commission where requested to do so under Article 59(7) of Regulation (EU) 2019/943 or Article 6(4) of Regulation (EC) No 715/2009;

(b)

provide a reasoned opinion to the ENTSO for Gas on the network code in accordance with Article 6(7) of Regulation (EC) No 715/2009;

(c)

revise the network code in accordance with Article 59(11) of Regulation (EU) 2019/943 and Article 6(9) of Regulation (EC) No 715/2009. In its revision, ACER shall take account of the views provided by the parties involved during the drafting of that revised network code led by the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity, and shall consult the relevant stakeholders on the version to be submitted to the Commission. For this purpose, ACER may use the committee established under the network codes where appropriate. ACER shall report to the Commission on the outcome of the consultations. Subsequently, ACER shall submit the revised network code to the Commission in accordance with Article 59(11) of Regulation (EU) 2019/943 and Article 6(9) of Regulation (EC) No  715/2009. Where the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity have failed to develop a network code, ACER shall prepare and submit a draft network code to the Commission where it is requested to do so under Article 59(12) of Regulation (EU) 2019/943 or Article 6(10) of Regulation (EC) No 715/2009;

(d)

provide a duly reasoned opinion to the Commission, in accordance with Article 32(1) of Regulation (EU) 2019/943 or Article 9(1) of Regulation (EC) No 715/2009, where the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity has failed to implement a network code elaborated under point (a) of Article 30(1) of Regulation (EU) 2019/943 or Article 8(2) of Regulation (EC) No 715/2009 or a network code which has been established in accordance with Article 59(3) to (12) of Regulation (EU) 2019/943 and Article 6(1) to (10) of Regulation (EC) No  715/2009 but 1209

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

which has not been adopted by the Commission under Article 59(13) of Regulation (EU) 2019/943 and under Article 6(11) of Regulation (EC) No 715/2009. (e)

monitor and analyse the implementation of the network codes adopted by the Commission in accordance with Article 59 of Regulation (EU) 2019/943 and Article  6 of Regulation (EC) No 715/2009 and the guidelines adopted in accordance with Article 61 of Regulation (EU) 2019/943, and their effect on the harmonisation of applicable rules aimed at facilitating market integration as well as on non-discrimination, effective competition and the efficient functioning of the market, and report to the Commission.

2.    Where one of the following legal acts provides for the development of proposals for common terms and conditions or methodologies for the implementation of network codes and guidelines which require the approval of all regulatory authorities, those proposals for common terms and conditions or methodologies shall be submitted to ACER for revision and approval: (a)

a legislative act of the Union adopted under the ordinary legislative procedure;

(b)

network codes and guidelines adopted before 4 July 2019 and subsequent revisions of those network codes and guidelines; or

(c)

network codes and guidelines adopted as implementing acts pursuant to Article 5 of Regulation (EU) No 182/2011 of the European Parliament and of the Council (20).

3.    Where one of the following legal acts provides for the development of proposals for terms and conditions or methodologies for the implementation of network codes and guidelines which require the approval of all the regulatory authorities of the region concerned, those regulatory authorities shall agree unanimously on the common terms and conditions or methodologies to be approved by each of those regulatory authorities:

1210

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(a)

a legislative act of the Union adopted under the ordinary legislative procedure;

(b)

network codes and guidelines that were adopted before 4  July 2019 and subsequent revisions of those network codes and guidelines; or

(c)

network codes and guidelines adopted as implementing acts pursuant to Article 5 of Regulation (EU) No 182/2011.



The proposals referred to in the first subparagraph shall be notified to ACER within one week of their submission to those regulatory authorities. The regulatory authorities may refer the proposals to ACER for approval pursuant to point (b) of the second subparagraph of Article 6(10) and shall do so pursuant to point (a) of the second subparagraph of Article 6(10) where there is no unanimous agreement as referred to in the first subparagraph.



The Director or the Board of Regulators, acting on its own initiative or on a proposal from one or more of its members, may require the regulatory authorities of the region concerned to refer the proposal to ACER for approval. Such a request shall be limited to cases in which the regionally agreed proposal would have a tangible impact on the internal energy market or on security of supply beyond the region.

4.    Without prejudice to paragraphs 2 and 3, ACER shall be competent to take a decision pursuant to Article 6(10) where the competent regulatory authorities fail to agree on terms and conditions or methodologies for the implementation of new network codes and guidelines adopted after 4 July 2019 as delegated acts, where those terms and conditions or methodologies require the approval of all the regulatory authorities or of all the regulatory authorities of the region concerned. 5.    By 31 October 2023, and every three years thereafter, the Commission shall submit a report to the European Parliament and to the Council on ACER’s involvement in the development and adoption of terms and conditions or methodologies for the implementation of network codes and guidelines adopted as delegated acts after 4 July 2019. Where appropriate, the report shall be accompanied by a legislative proposal to transfer or modify the necessary powers to ACER. 1211

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

6.    Before approving the terms and conditions or methodologies referred to in paragraphs 2 and 3, the regulatory authorities, or, where competent, ACER, shall revise them where necessary, after consulting the ENTSO for Electricity, the ENTSO for Gas or the EU DSO entity, in order to ensure that they are in line with the purpose of the network code or guideline and contribute to market integration, non-discrimination, effective competition and the proper functioning of the market. ACER shall take a decision on the approval within the period specified in the relevant network codes and guidelines. That period shall begin on the day following that on which the proposal was referred to ACER. 7.    ACER shall carry out its tasks as regards the bidding zone review pursuant to Article 14(5) of Regulation (EU) 2019/943. 8.    ACER shall monitor the regional cooperation of transmission system operators referred to in Article 34 of Regulation (EU) 2019/943 and Article 12 of Regulation (EC) No 715/2009, and shall take into account the outcome of that cooperation when formulating its opinions, recommendations and decisions. Article 6 Tasks of ACER as regards the regulatory authorities 1.    ACER shall adopt individual decisions on technical issues where those decisions are provided for in Regulation (EU) 2019/943, Regulation (EC) No  715/2009, Directive (EU)  2019/944 or Directive 2009/73/ EC. 2.    ACER may, in accordance with its work programme, at the request of the Commission or on its own initiative, make recommendations to assist regulatory authorities and market participants in sharing good practices. 3.    By 5 July 2022, and every four years thereafter the Commission shall submit a report to the European Parliament and the Council on the independence of regulatory authorities pursuant to Article 57(7) of Directive (EU) 2019/944.

1212

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

4.    ACER shall provide a framework within which the regulatory authorities can cooperate in order to ensure efficient decision-making on issues with cross-border relevance. It shall promote cooperation between the regulatory authorities and between regulatory authorities at regional and Union level and shall take into account the outcome of such cooperation when formulating its opinions, recommendations and decisions. Where ACER considers that binding rules on such cooperation are required, it shall make the appropriate recommendations to the Commission. 5.    ACER shall provide a factual opinion at the request of one or more regulatory authorities or of the Commission, on whether a decision taken by a regulatory authority complies with the network codes and guidelines referred to in Regulation (EU) 2019/943, Regulation (EC) No 715/2009, Directive (EU) 2019/944 or Directive 2009/73/EC or with other relevant provisions of those directives or regulations. 6.    Where a regulatory authority does not comply with the opinion of ACER referred to in paragraph 5 within four months of the date of receipt, ACER shall inform the Commission and the Member State concerned accordingly. 7.    Where, in a specific case, a regulatory authority encounters difficulties with the application of the network codes and guidelines referred to in Regulation (EU) 2019/943, Regulation (EC) No 715/2009, Directive (EU) 2019/944 or Directive 2009/73/EC it may request ACER to provide an opinion. ACER shall deliver its opinion, after consulting the Commission, within three months of the date of receipt of such a request. 8.    Upon the request of a regulatory authority, ACER may provide operational assistance to that regulatory authority regarding investigations pursuant to Regulation (EU) No 1227/2011. 9.    ACER shall submit opinions to the relevant regulatory authority and to the Commission pursuant to Article 16(3) of Regulation (EU) 2019/943. 10.      ACER shall be competent to adopt individual decisions on regulatory issues having effects on cross-border trade or cross-border system security which require a joint decision by at least two regulatory authorities, where such competences have been conferred on the regulatory authorities under one of the following legal acts: 1213

Appendix 5 Reg (EC) 713/2009 – Establishing ACER



(a)

a legislative act of the Union adopted under the ordinary legislative procedure;

(b)

network codes and guidelines adopted before 4 July 2019 and subsequent revisions of those network codes and guidelines; or

(c)

network codes and guidelines adopted as implementing acts pursuant to Article 5 of Regulation (EU) No 182/2011.

ACER shall be competent to adopt individual decisions as specified in the first subparagraph in the following situations: (a)

where the competent regulatory authorities have not been able to reach an agreement within six months of referral of the case to the last of those regulatory authorities, or within four months in cases under Article 4(7) of this Regulation or under point (c) of Article (59)(1) or point (f ) of Article 62(1) of Directive (EU) 2019/944; or

(b)

on the basis of a joint request from the competent regulatory authorities.



The competent regulatory authorities may jointly request that the period referred to in point (a) of the second subparagraph of this paragraph be extended by a period of up to six months, except in cases under Article 4(7) of this Regulation or under point (c) of Article 59(1) or point (f ) of Article 62(1) of Directive (EU) 2019/944.



Where the competences to decide on cross-border issues referred to in the first subparagraph have been conferred on the regulatory authorities in new network codes or guidelines adopted as delegated acts after 4 July 2019, ACER shall only be competent on a voluntary basis pursuant to point (b) of the second subparagraph of this paragraph, upon a request from at least 60 % of the competent regulatory authorities. Where only two regulatory authorities are involved, either one may refer the case to ACER.



By 31 October 2023, and every three years thereafter, the Commission shall submit a report to the European Parliament and to the Council on the possible need to further enhance ACER’s involvement in solving cases of disagreement between regulatory authorities concerning joint 1214

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

decisions on matters for which the competences were conferred on those regulatory authorities by a delegated act after 4 July 2019. Where appropriate, the report shall be accompanied by a legislative proposal to modify such powers or to transfer the necessary powers to ACER. 11.    When preparing its decision pursuant to paragraph 10, ACER shall consult the regulatory authorities and transmission system operators concerned and shall be informed of the proposals and observations of all the transmission system operators concerned. 12.    Where a case has been referred to ACER under paragraph 10, ACER: (a)

shall issue a decision within six months of the date of referral, or within four months thereof in cases pursuant to Article 4(7) of this Regulation or point (c) of Article (59)(1) or point (f ) of Article 62(1) of Directive (EU) 2019/944; and

(b)

may, if necessary, provide an interim decision to ensure that security of supply or operational security is protected.

13.    Where the regulatory issues referred to in paragraph 10 include exemptions within the meaning of Article 63 of Regulation (EU) 2019/943, or Article 36 of Directive 2009/73/EC, the deadlines provided for in this Regulation shall not be cumulative  with the deadlines provided for in those provisions. Article 7 Tasks of ACER as regards regional coordination centres 1.    ACER, in close cooperation with the regulatory authorities and the ENTSO for Electricity, shall monitor and analyse the performance of regional coordination centres, taking into account the reports provided for in Article 46(3) of Regulation (EU) 2019/943. 2.    To carry out the tasks referred to in paragraph 1 in an efficient and expeditious manner, ACER shall in particular:

1215

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(a)

decide on the configuration of system operation regions pursuant to Article 36(3) and  (4) and issue approvals pursuant to Article 37(2) of Regulation (EU) 2019/943;

(b)

request information from regional coordination centres where appropriate pursuant to Article 46 of Regulation (EU) 2019/943;

(c)

issue opinions and recommendations to the European Parliament, the Council and the Commission;

(d)

issue opinions and recommendations to regional coordination centres. Article 8

Tasks of ACER as regards nominated electricity market operators In order to ensure that nominated electricity market operators carry out their functions under the Regulation (EU) 2019/943 and Commission Regulation (EU) 2015/1222 (21), ACER shall: (a)

monitor the nominated electricity market operators’ progress in establishing the functions under Regulation (EU) 2015/1222;

(b)

issue recommendations to the Commission in accordance with Article 7(5) of Regulation (EU) 2015/1222;

(c)

request information from nominated electricity market operators where appropriate.



Article 9 Tasks of ACER as regards generation adequacy and risk preparedness

1.    ACER shall approve and amend where necessary:

1216

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(a) (b)

the proposals for methodologies and calculations related to the European resource adequacy assessment pursuant to Article 23(3), (4), (6) and (7) of Regulation (EU) 2019/943; the proposals for technical specifications for cross-border participation in capacity mechanisms pursuant to Article 26(11) of Regulation (EU) 2019/943.

2.    ACER shall provide an opinion pursuant to Article 24(3) of Regulation (EU) 2019/941 on whether the differences between the national resource adequacy assessment and the European resource adequacy assessment are justified. 3.    ACER shall approve and amend where necessary the methodologies for: (a)

identifying electricity crisis scenarios at a regional level pursuant to Article 5 of Regulation (EU) 2019/941;

(b)

short-term and seasonal adequacy assessments pursuant to Article 8 of Regulation (EU) 2019/941.

4.    With respect to the security of gas supply, ACER shall be represented in the Gas Coordination Group in accordance with Article 4 of Regulation (EU) 2017/1938, and shall carry out its obligations regarding permanent bi-directional capacity of interconnections for gas under Annex III to Regulation (EU) 2017/1938. Article 10 Tasks of ACER as regards exemptions ACER shall decide on exemptions, as provided for in Article 63(5) of Regulation (EU) 2019/943 ACER shall also decide on exemptions as provided for in Article 36(4) of Directive 2009/73/EC where the infrastructure concerned is located in the territory of more than one Member State.

1217

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 11 Tasks of ACER as regards infrastructure With respect to trans-European energy infrastructure, ACER, in close cooperation with the regulatory authorities and the ENTSO for Electricity and the ENTSO for Gas, shall: (a)

monitor progress as regards the implementation of projects to create new interconnector capacity;

(b)

monitor the implementation of the Union-wide network-development plans. If ACER identifies inconsistencies between those plans and their implementation, it shall investigate the reasons for those inconsistencies and make recommendations to the transmission system operators, regulatory authorities or other competent bodies concerned with a view to implementing the investments in accordance with the Union-wide network-development plans;

(c)

carry out the obligations laid out in Articles 5, 11 and 13 of Regulation (EU) No 347/2013;

(d)

take decisions on investment requests pursuant to Article 12(6) of Regulation (EU) No 347/2013. Article 12

Tasks of ACER as regards wholesale market integrity and transparency In order to effectively monitor wholesale market integrity and transparency, ACER, in close cooperation with the regulatory authorities and other national authorities, shall: (a)

monitor wholesale markets, collect and share data and establish a European register of market participants in accordance with Articles 7 to 12 of Regulation (EU) No 1227/2011;

(b)

issue recommendations to the Commission in accordance with Article 7 of Regulation (EU) No 1227/2011; 1218

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(c)

coordinate investigations pursuant to Article 16(4) of Regulation (EU) No 1227/2011. Article 13 Commissioning of new tasks to ACER

ACER may, in circumstances clearly defined by the Commission in network codes adopted pursuant to Article 59 of Regulation (EU) 2019/943 and guidelines adopted pursuant to Article 61 of that Regulation or Article 23 of Regulation (EC) No 715/2009 and on issues related to the purpose for which it has been established, be commissioned with additional tasks which do not involve decision-making powers. Article 14 Consultations, transparency and procedural safeguards 1.    In carrying out its tasks, in particular in the process of developing framework guidelines in accordance with Article 59 of Regulation (EU) 2019/943 or Article 6 of Regulation (EC) No 715/2009, and in the process of proposing amendments of network codes under Article 60 of Regulation (EU) 2019/943 or Article 7 of Regulation (EC) No 715/2009 ACER shall, extensively consult at an early stage market participants, transmission system operators, consumers, end-users and, where relevant, competition authorities, without prejudice to their respective competence, in an open and transparent manner, in particular when its tasks concern transmission system operators. 2.    ACER shall ensure that the public and any interested parties are, where appropriate, given objective, reliable and easily accessible information, in particular with regard to the results of its work.

All documents and minutes of consultation meetings conducted during the development of framework guidelines in accordance with Article 59 of Regulation (EU) 2019/943 or Article 6 of Regulation (EC) No 715/2009, or during the amendment of network codes referred to in paragraph 1 shall be made public. 1219

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

3.    Before adopting framework guidelines, or proposing amendments to network codes as referred to in paragraph 1, ACER shall indicate how the observations received during the consultation have been taken into account and shall provide reasons where those observations have not been followed. 4.    ACER shall make public, on its own website, at least the agenda, the background documents and, where appropriate, the minutes of the meetings of the Administrative Board, of the Board of Regulators and of the Board of Appeal. 5.    ACER shall adopt and publish adequate and proportionate rules of procedure in accordance with the procedure set out in point (t) of Article 19(1). Those rules shall include provisions which ensure a transparent and reasonable decision-making process guaranteeing fundamental procedural rights based on the rule of law, including the right to be heard, rules on access to files and the standards specified in paragraphs 6, 7 and 8. 6.    Before taking any individual decision as provided for in this Regulation, ACER shall inform any party concerned of its intention to adopt that decision, and shall set a time limit within which the party concerned may express its views on the matter, taking full account of the urgency, complexity and potential consequences of the matter. 7.    Individual decisions of ACER shall state the reasons on which they are based for the purpose of allowing an appeal on the merits. 8.    The parties concerned by individual decisions shall be informed of the legal remedies available under this Regulation.

1220

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 15 Monitoring and reporting on the electricity and natural gas sectors 1.    ACER, in close cooperation with the Commission, the Member States and the relevant national authorities, including the regulatory authorities, and without prejudice to the competences of competition authorities, shall monitor the wholesale and retail markets in electricity and natural gas, in particular the retail prices of electricity and natural gas, compliance with the consumer rights laid down in Directive (EU) 2019/944 and Directive  2009/73/EC, the impact of market developments on household customers, access to the networks including access of electricity produced from renewable energy sources, the progress made with regard to interconnectors, potential barriers to cross-border trade, regulatory barriers for new market entrants and smaller actors, including citizen energy communities, state interventions preventing prices from reflecting actual scarcity, such as those set out in Article 10(4) of Regulation (EU) 2019/943, the performance of the Member States in the area of security of supply of electricity based on the results of the European resource adequacy assessment as referred to in Article 23 of that Regulation, taking into account, in particular, the ex-post evaluation referred to in Article 17 of Regulation (EU) 2019/941. 2.    ACER shall publish annually a report on the results of the monitoring referred to in paragraph 1. In that report, it shall identify any barriers to the completion of the internal markets for electricity and natural gas. 3.    When publishing its annual report, ACER may submit to the European Parliament and to the Commission an opinion on the possible measures to remove the barriers referred to in paragraph 2. 4.    ACER shall issue a best practices report on transmission and distribution tariffs methodologies pursuant to Article 18(9) of Regulation (EU) 2019/943.

1221

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Chapter II Organisation of ACER Article 16 Legal status 1.    ACER shall be a Union body with legal personality. 2.    In each Member State, ACER shall enjoy the most extensive legal capacity accorded to legal persons under national law. It shall, in particular, be able to acquire or dispose of movable and immovable property and be a party to legal proceedings. 3.    ACER shall be represented by its Director. 4.    The seat of ACER shall be Ljubljana, Slovenia. Article 17 Administrative and Management Structure ACER shall be composed of: (a)

an Administrative Board, which shall exercise the tasks set out in Article 19;

(b)

a Board of Regulators, which shall exercise the tasks set out in Article 22;

(c)

a Director, who shall exercise the tasks set out in Article 24; and

(d)

a Board of Appeal, which shall exercise the tasks set out in Article 28.

1222

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 18 Composition of the Administrative Board 1.    The Administrative Board shall be composed of nine members.  Each member shall have an alternate. Two members and their alternates shall be appointed by the Commission, two members and their alternates shall be appointed by the European Parliament and five members and their alternates shall be appointed by the Council. No Member of the European Parliament shall be a member of the Administrative Board. A member of the Administrative Board shall not be a member of the Board of Regulators. 2.    The term of office of the members of the Administrative Board and their alternates shall be four years, renewable once. For the first mandate, the term of office of half of the members of the Administrative Board and their alternates shall be six years. 3.    The Administrative Board shall elect its Chair and its Vice-Chair from among its members by a two-thirds majority. The Vice-Chair shall automatically replace the Chair if the latter is not in a position to perform his or her duties. The term of office of the Chair and of the Vice-Chair shall be two years, renewable once. The term of office of the Chair and that of the Vice-Chair shall expire when they cease to be members of the Administrative Board. 4.    The meetings of the Administrative Board shall be convened by its Chair. The Chair of the Board of Regulators or the nominee of the Board of Regulators, and the Director shall participate, without the right to vote, in the deliberations unless the Administrative Board decides otherwise as regards the Director. The Administrative Board shall meet at least twice a year in ordinary session. It shall also meet at the initiative of its Chair, at the request of the Commission or at the request of at least a third of its members. The Administrative Board may invite any person who may have a relevant opinion to attend its meetings in the capacity of an observer. The members of the Administrative Board may, subject to its rules of procedure, be assisted by advisers or experts. The Administrative Board’s secretarial services shall be provided by ACER.

1223

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

5.    Decisions of the Administrative Board shall be adopted on the basis of a two-thirds majority of the members present, unless provided otherwise in this Regulation. Each member of the Administrative Board or alternate shall have one vote. 6.    The rules of procedure shall set out in greater detail: (a)

the arrangements governing voting, in particular the conditions on the basis of which one member may act on behalf of another and also, where appropriate, the rules governing quorums; and

(b)

the arrangements governing the rotation applicable to the renewal of the members of the Administrative Board who are appointed by the Council so as to ensure a balanced participation of Member States over time.

7.    Without prejudice to the role of the members appointed by the Commission, the members of the Administrative Board shall undertake to act independently and objectively in the interest of the Union as a whole, and shall neither seek nor follow instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other public or private body. For that purpose, each member shall make a written declaration of commitments and a written declaration of interests, indicating either the absence of any interest which might be considered to be prejudicial to his or her independence or any direct or indirect interest which might be considered prejudicial to his or her independence. ACER shall make those declarations public on an annual basis. Article 19 Functions of the Administrative Board 1.    The Administrative Board shall: (a)

after consulting the Board of Regulators and obtaining its favourable opinion in accordance with point (c) of Article 22(5), appoint the Director in accordance with Article 23(2) and where relevant extend his or her term of office or remove him or her from office; 1224

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(b)

formally appoint the members of the Board of Regulators nominated in accordance with Article 21(1);

(c)

formally appoint the members of the Board of Appeal in accordance with Article 25(2);

(d)

ensure that ACER carries out its mission and performs the tasks assigned to it in accordance with this Regulation;

(e)

adopt the programming document referred to in Article 20(1) by a two-thirds majority of its members and, if applicable, amend it in accordance with Article 20(3);

(f )

adopt the annual budget of ACER and exercise its other budgetary functions in accordance with Articles 31 to 35;

(g)

decide, after obtaining the agreement of the Commission, whether to accept any legacies, donations or grants from other Union sources or any voluntary contribution from the Member States or from the regulatory authorities. The opinion of the Administrative Board delivered pursuant to Article 35(4) shall address the sources of funding set out in this paragraph;

(h)

after consulting the Board of Regulators, exercise disciplinary authority over the Director. In addition, in accordance with paragraph 2, it shall exercise, with respect to the staff of ACER, the powers conferred by the Staff Regulations on the Appointing Authority and by the Conditions of Employment on the Authority Empowered to conclude a Contract of Employment;

(i)

draw up ACER’s implementing rules for giving effect to the Staff Regulations and the Conditions of Employment in accordance with Article 110 of the Staff Regulations pursuant to Article 39(2);

(j)

adopt practical measures regarding the right of access to ACER’s documents, in accordance with Article 41;

(k)

adopt and publish the annual report on ACER’s activities, on the basis of the draft annual report referred to in point (i) of Article 24(1), and shall submit that report to the European Parliament, 1225

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

the Council, the Commission, and the Court of Auditors by 1 July of each year. The annual report on ACER’s activities shall contain an independent section, approved by the Board of Regulators, concerning ACER’s regulatory activities during that year; (l)

adopt and publish its own rules of procedure;

(m) adopt the financial rules applicable to ACER in accordance with Article 36; (n)

adopt an anti-fraud strategy, proportionate to the risk of fraud, taking into account the costs and benefits of the measures to be implemented;

(o)

adopt rules for the prevention and management of conflicts of interest in respect of its members as well as members of the Board of Appeal;

(p)

adopt and regularly update the communication and dissemination plans referred to in Article 41;

(q)

appoint an Accounting Officer, subject to the Staff Regulations and the Conditions of Employment, who shall be totally independent in the performance of his or her duties;

(r)

ensure appropriate follow-up to findings and recommendations stemming from the internal or external audit reports and evaluations, as well as from investigations of the European Anti-Fraud Office (OLAF);

(s)

authorise the conclusion of working arrangements in accordance with Article 43;

(t)

on the basis of a proposal from the Director in accordance with point (b) of Article 24(1), and after consulting the Board of Regulators and obtaining its favourable opinion in accordance with point (f ) of Article 22(5), adopt and publish the rules of procedure referred to in Article 14(5).

1226

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

2.    The Administrative Board shall adopt, in accordance with Article 110 of the Staff Regulations, a decision based on Article 2(1) of the Staff Regulations and on Article 6 of the Conditions of Employment, delegating relevant appointing authority powers to the Director and defining the conditions under which that delegation of powers can be suspended. The Director shall be authorised to sub-delegate those powers. 3.    Where exceptional circumstances so require, the Administrative Board may by way of a decision temporarily suspend the delegation of the appointing authority powers to the Director and those sub-delegated by the latter and in favour of itself or delegate them to one of its members or to a staff member other than the Director. The exceptional circumstances shall be strictly limited to administrative, budgetary or managerial matters, without prejudice to the Director’s full independence concerning his or her tasks pursuant to point (c) of Article 24(1). Article 20 Annual and multi-annual programming 1.    Each year, the Director shall prepare a draft programming document containing annual and multi-annual programming, and shall submit the draft programming document to the Administrative Board and to the Board of Regulators.

The Administrative Board shall adopt the draft programming document after receipt of a favourable opinion of the Board of Regulators, and shall submit the draft programming document to the European Parliament, to the Council and to the Commission no later than 31 January.



The draft programming document shall be in accordance with the provisional draft estimate established in accordance with Article 33(1), (2) and (3).



The Administrative Board shall adopt the programming document, taking into account the opinion of the Commission, after receipt of a favourable opinion from the Board of Regulators, and after the Director has presented it to the European Parliament. The Administrative Board shall submit the programming document to the European Parliament, the Council and the Commission by 31 December. 1227

Appendix 5 Reg (EC) 713/2009 – Establishing ACER



The programming document shall be adopted without prejudice to the annual budgetary procedure and shall be made public.



The programming document shall become definitive after the final adoption of the general budget and, if necessary, shall be adjusted accordingly.

2.    The annual programming in the programming document shall comprise detailed objectives and expected results, including performance indicators. It shall also contain a description of the actions to be financed and an indication of the financial and human resources allocated to each action, including a reference to ACER’s working groups tasked with contributing to the drafting of the respective documents, in accordance with the principles of activity-based budgeting and management. The annual programming shall be coherent with the multi-annual programming referred to in paragraph 4. It shall clearly indicate the tasks that have been added, changed or deleted in comparison with the previous financial year. 3.    The Administrative Board shall amend the adopted programming document where a new task is assigned to ACER.

Any substantial amendment to the programming document shall be adopted by the same procedure set out for the initial programming document. The Administrative Board may delegate the power to make nonsubstantial amendments to the programming document to the Director.

4.    The multi-annual programming in the programming document shall set out the overall strategic programming, including objectives, expected results and performance indicators. It shall also set out resource programming, including the multi-annual budget and staff.

The resource programming shall be updated annually. The strategic programming shall be updated where appropriate, in particular to address the outcome of the evaluation referred to in Article 45.

1228

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 21 Composition of the Board of Regulators 1.    The Board of Regulators shall be composed of:



(a)

senior representatives of the regulatory authorities, in accordance with Article 57(1) of Directive (EU) 2019/944 and Article 39(1) of Directive 2009/73/EC, and one alternate per Member State from the current senior staff of those authorities, both nominated by the regulatory authority;

(b)

one non-voting representative of the Commission.

Only one representative per Member State from the regulatory authority may be admitted to the Board of Regulators.

2.    The Board of Regulators shall elect a Chair and a Vice-Chair from among its members. The Vice-Chair shall replace the Chair if the latter is not in a position to perform his or her duties. The term of office of the Chair and of the Vice-Chair shall be two-and-a-half years and shall be renewable. In any event, however, the term of office of the Chair and that of the Vice-Chair shall expire when they cease to be members of the Board of Regulators. Article 22 Functions of the Board of Regulators 1.    The Board of Regulators shall act by a two-thirds majority of the members present, with one vote for each member. 2.    The Board of Regulators shall adopt and publish its rules of procedure, which shall set out in greater detail the arrangements governing voting, in particular the conditions on the basis of which one member may act on behalf of another and also, where appropriate, the rules governing quorums. The rules of procedure may provide for specific working methods for the consideration of issues arising in the context of regional cooperation initiatives. 1229

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

3.    When carrying out the tasks conferred upon it by this Regulation and without prejudice to its members acting on behalf of their respective regulatory authority, the Board of Regulators shall act independently and shall not seek or follow instructions from any government of a Member State, from the Commission, or from another public or private entity. 4.    The secretarial services of the Board of Regulators shall be provided by ACER. 5.    The Board of Regulators shall: (a)

provide opinions and, where appropriate, comments on and amendments to the text of the Director’s proposals for draft opinions, recommendations and decisions referred to in Article 3(1), Articles 4 to 8, Article 9(1) and (3), Article 10, point (c) of Article 11, Article 13, Article 15(4), and Articles 30 and 43 which are considered for adoption;

(b)

within its field of competence, provide guidance to the Director in the execution of his or her tasks, with the exception of ACER’s tasks under Regulation (EU)  No  1227/2011 and provide guidance to ACER’s working groups established pursuant to Article 30;

(c)

provide an opinion to the Administrative Board on the candidate to be appointed as Director in accordance with point (a) of Article 19(1) and Article 23(2);

(d)

approve the programming document in accordance with Article 20(1);

(e)

approve the independent section on regulatory activities of the annual report, in accordance with point (k) of Article 19(1) and point (i) of Article 24(1);

(f )

provide an opinion to the Administrative Board on the rules of procedure under Article 14(5) and Article 30(3);

(g)

provide an opinion to the Administrative Board on the communication and dissemination plans referred to in Article 41; 1230

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(h)

provide an opinion to the Administrative Board on the rules of procedure for relations with third countries or international organisations referred to in Article 43.

6.    The European Parliament shall be informed of the draft agenda of upcoming meetings of the Board of Regulators at least two weeks in advance. Within two weeks of those meetings, the draft minutes shall be sent to the European Parliament. The European Parliament may invite, while fully respecting his or her independence, the Chair of the Board of Regulators or the Vice-Chair to make a statement before its competent committee and answer questions put by the members of that committee. Article 23 Director 1.    ACER shall be managed by its Director, who shall act in accordance with the guidance referred to in point (b) of Article 22(5) and, where provided for in this Regulation, the opinions of the Board of Regulators. Without prejudice to the respective roles of the Administrative Board and the Board of Regulators in relation to the tasks of the Director, the Director shall neither seek nor follow any instruction from any government, from the Union institutions, or from any other public or private entity or person. The Director shall be accountable to the Administrative Board with respect to administrative, budgetary and managerial matters, but remain fully independent concerning his or her tasks under point (c) of Article 24(1). The Director may attend the meetings of the Board of Regulators as an observer. 2.    The Director shall be appointed by the Administrative Board following a favourable opinion of the Board of Regulators, on the basis of merit as well as skills and experience relevant to the energy sector, from a list of at least three candidates proposed by the Commission, following an open and transparent selection procedure. Before appointment, the candidate selected by the Administrative Board shall make a statement before the competent committee of the European Parliament and answer questions put by its members. For the purpose of concluding the contract with the Director, ACER shall be represented by the Chair of the Administrative Board. 1231

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

3.    The Director’s term of office shall be five years. In the course of the nine months preceding the end of that period, the Commission shall undertake an assessment. In the assessment, the Commission shall examine in particular: (a)

the performance of the Director;

(b)

ACER’s duties and requirements in the following years.

4.    The Administrative Board, acting on a proposal from the Commission, after consulting the Board of Regulators and giving the utmost consideration to the assessment and opinion of the Board of Regulators, and only where justified on the basis of the duties and requirements of ACER, may extend the term of office of the Director once by no more than five years. A Director whose term of office has been extended shall not participate in another selection procedure for the same post at the end of the extended period. 5.  

The Administrative Board shall inform the European Parliament of its intention to extend the Director’s term of office. Within one month before the extension of his or her term of office, the Director may be invited to make a statement before the competent committee of the European Parliament and to answer questions put by the members of that committee.

6.    If his or her term of office is not extended, the Director shall remain in office until the appointment of his or her successor. 7.    The Director may be removed from office only upon a decision of the Administrative Board, after having obtained a favourable opinion of the Board of Regulators. The Administrative Board shall reach that decision on the basis of a two-thirds majority of its members. 8.    The European Parliament and the Council may call upon the Director to submit a report on the performance of his or her duties. The European Parliament may also invite the Director to make a statement before its competent committee and answer questions put by the members of that committee.

1232

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 24 Tasks of the Director 1.    The Director shall: (a)

be the legal representative of ACER and shall be in charge of its day-to-day management;

(b)

prepare the work of the Administrative Board, participate, without having the right to vote, in the work of the Administrative Board and have responsibility for implementing the decisions adopted by the Administrative Board;

(c)

draft, consult upon, adopt and publish opinions, recommendations and decisions;

(d)

be responsible for implementing ACER’s annual work programme under the guidance of the Board of Regulators and under the administrative control of the Administrative Board;

(e)

take the necessary measures, in particular as regards adopting internal administrative instructions and publishing notices, to ensure the functioning of ACER in accordance with this Regulation;

(f )

each year, prepare ACER’s draft work programme for the following year, and shall, after the adoption of the draft by the Administrative Board submit it to the Board of Regulators, to the European Parliament and to the Commission by 31 January every year;

(g)

be responsible for implementing the programming document and reporting to the Administrative Board on its implementation;

(h)

draw up a provisional draft estimate of ACER pursuant to Article 33(1) and implement ACER’s budget in accordance with Articles 34 and 35;

(i)

each year, prepare and submit to the Administrative Board a draft annual report including an independent section on ACER’s regulatory activities and a section on financial and administrative matters; 1233

Appendix 5 Reg (EC) 713/2009 – Establishing ACER



(j)

prepare an action plan following up on the conclusions of internal or external audit reports and evaluations, as well as on investigations by OLAF, and report on progress twice a year to the Commission and report regularly on progress to the Administrative Board;

(k)

be responsible for deciding whether, for the purpose of carrying out ACER’s tasks in an efficient and effective manner, it is necessary to locate one or more members of staff in one or more Member States.

For the purpose of point (k) of the first subparagraph, before deciding to establish a local office the Director shall seek the opinion of the Member States concerned, including the Member State in which ACER’s seat is located, and shall obtain the prior consent of the Commission and the Administrative Board. The decision shall be based on an appropriate cost-benefit analysis and shall specify the scope of the activities to be carried out at that local office in a manner that avoids unnecessary costs and duplication of ACER’s administrative functions.

2.    For the purposes of point (c) of paragraph 1 of this Article, opinions, recommendations and decisions referred to in Article 3(1), Articles 4 to 8, Article 9(1) and (3), Article 10, point (c) of Article 11, Article 13, Article 15(4), and Articles 30 and 43 shall be adopted only after having obtained the favourable opinion of the Board of Regulators.

Before submitting draft opinions, recommendations or decisions to a vote by the Board of Regulators, the Director shall submit proposals for the draft opinions, recommendations or decisions to the relevant working group for consultation sufficiently in advance.

The Director:

(a)

shall take the comments and amendments of the Board of Regulators into account and shall resubmit the revised draft opinion, recommendation or decision to the Board of Regulators for a favourable opinion;

1234

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(b)

may withdraw submitted draft opinions, recommendations or decisions provided that the Director submits a duly justified written explanation where the Director disagrees with the amendments submitted by the Board of Regulators; In the case of a withdrawal of a draft opinion, recommendation or decision, the Director may issue a new draft opinion, recommendation or decision following the procedure set out in point (a) of Article 22(5) and in the second subparagraph of this paragraph. For the purposes of point (a) of the third subparagraph of this paragraph, where the Director deviates from or rejects the comments and amendments received from the Board of Regulators, the Director shall also provide a duly justified written explanation.



If the Board of Regulators does not give a favourable opinion on the resubmitted text of the draft opinion, recommendation or decision because its comments and amendments were not adequately reflected in the resubmitted text, the Director may revise the text of the draft opinion, recommendation or decision further in accordance with the amendments and comments proposed by the Board of Regulators in order to obtain its favourable opinion, without having to consult the relevant working group again or having to provide additional written reasons. Article 25 Creation and composition of the Board of Appeal

1.    ACER shall establish a Board of Appeal. 2.    The Board of Appeal shall be composed of six members and six alternates selected from among current or former senior staff of the regulatory authorities, competition authorities or other Union or national institutions with relevant experience in the energy sector. The Board of Appeal shall designate its Chair.

The members of the Board of Appeal shall be formally appointed by the Administrative Board, on a proposal from the Commission, following a public call for expression of interest, and after consulting the Board of Regulators. 1235

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

3.    The Board of Appeal shall adopt and publish its rules of procedure. Those rules shall set out in detail the arrangements governing the organisation and functioning of the Board of Appeal and the rules applicable to appeals before the Board, pursuant to Article 28. The Board of Appeal shall notify the Commission of its draft rules of procedure as well as any significant change to those rules. The Commission may provide an opinion on those rules within three months of the date of receipt of the notification.

ACER’s budget shall comprise a separate budget line for the financing of the registry of the Board of Appeal.

4.    The decisions of the Board of Appeal shall be adopted on the basis of a majority of at least four of its six members. The Board of Appeal shall be convened when necessary. Article 26 Members of the Board of Appeal 1.  

The term of office of the members of the Board of Appeal shall be five years. That term shall be renewable once.

2.    The members of the Board of Appeal shall be independent in making their decisions. They shall not be bound by any instructions. They shall not perform any other duties in ACER, in its Administrative Board, in its Board of Regulators or in any of its working groups. A member of the Board of Appeal shall not be removed during his or her term of office, unless he or she has been found guilty of serious misconduct, and the Administrative Board, after consulting the Board of Regulators, takes a decision to that effect.

1236

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 27 Exclusion and objection in the Board of Appeal 1.    Members of the Board of Appeal shall not take part in any appeal proceedings if they have any personal interest therein, if they have previously been involved as representatives of one of the parties to the proceedings, or if they participated in the decision under appeal. 2.    A member of the Board of Appeal shall inform the Board in the event that, for one of the reasons referred to in paragraph 1 or for any other reason, he or she considers that a fellow member should not take part in any appeal proceedings. Any party to the appeal proceedings may object to the participation of a member of the Board of Appeal on any of the grounds referred to in paragraph 1, or in the case of suspected bias. Such an objection shall be inadmissible if it is based on the nationality of a member or if, while being aware of a reason for objecting, the objecting party to the appeal proceedings has taken a procedural step in the appeal proceedings other than objecting to the composition of the Board of Appeal. 3.    The Board of Appeal shall decide on the action to be taken in the cases specified in paragraphs 1 and 2 without the participation of the member concerned. For the purpose of taking that decision, the member concerned shall be replaced on the Board of Appeal by his or her alternate. If the alternate finds him or herself in a similar situation to that of the member, the Chair shall designate a replacement from among the available alternates. 4.    The members of the Board of Appeal shall undertake to act independently and in the public interest. For that purpose, they shall make a written declaration of commitments and a written declaration of interests indicating either the absence of any interest which might be considered prejudicial to their independence or indicating any direct or indirect interest which might be considered prejudicial to their independence. Those declarations shall be made public annually.

1237

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 28 Decisions subject to appeal 1.    Any natural or legal person, including the regulatory authorities, may appeal against a decision referred to in point  (d) of Article 2 which is addressed to that person, or against a decision which, although in the form of a decision addressed to another person, is of direct and individual concern to that person. 2.    The appeal shall include a statement of the grounds for appeal and shall be filed in writing at ACER within two months of the notification of the decision to the person concerned, or, in the absence thereof, within two months of the date on which ACER published its decision. The Board of Appeal shall decide upon the appeal within four months of the lodging of the appeal. 3.    An appeal lodged pursuant to paragraph 1 shall not have suspensory effect. The Board of Appeal may, however, if it considers that circumstances so require, suspend the application of the contested decision. 4.    If the appeal is admissible, the Board of Appeal shall examine whether it is well-founded. It shall invite the parties to the appeal proceedings as often as necessary to file observations on notifications issued by itself or on communications from the other parties to the appeal proceedings, within specified time limits. Parties to the appeal proceedings shall be entitled to make an oral presentation. 5.    The Board of Appeal may confirm the decision, or it may remit the case to the competent body of ACER. The latter shall be bound by the decision of the Board of Appeal. 6.    ACER shall publish the decisions taken by the Board of Appeal.

1238

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 29 Actions before the Court of Justice Actions for the annulment of a decision issued by ACER pursuant to this Regulation and actions for failure to act within the applicable time limits may be brought before the Court of Justice only after the exhaustion of the appeal procedure referred to in Article 28. ACER shall take the necessary measures to comply with the judgments of the Court of Justice. Article 30 Working groups 1.    Where justified, and in particular to support the work of the Director and of the Board of Regulators on regulatory issues and for the purpose of preparing the opinions, recommendations and decisions referred to in Article 3(1), Articles 4 to 8, Article 9(1) and (3), Article 10, point (c) of Article 11, Article 13, Article 15(4), and Articles 30 and 43, the Administrative Board shall establish or remove working groups on the basis of a joint proposal from the Director and the Board of Regulators.

The establishment and the removal of a working group shall require a favourable opinion of the Board of Regulators.

2.    The working groups shall be composed of experts from among ACER’s and the regulatory authorities’ staff. Experts from the Commission may participate in working groups.  ACER shall not be responsible for the costs of the participation of experts from the staff of regulatory authorities in ACER’s working groups. Working groups shall take into consideration the views of experts from other relevant national authorities where those authorities are competent. 3.    The Administrative Board shall adopt and publish internal rules of procedure for the functioning of the working groups on the basis of a proposal from the Director, after consulting the Board of Regulators and obtaining its favourable opinion.

1239

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

4.    ACER’s working groups shall carry out the activities assigned to them in the programming document adopted pursuant to Article 20 and any activities under this Regulation assigned to them by the Board of Regulators and the Director. Chapter III Establishment and structure of the budget Article 31 Structure of the budget 1.    Without prejudice to other resources the revenues of ACER shall be made up of: (a)

a contribution from the Union;

(b)

fees paid to ACER pursuant to Article 32;

(c)

any voluntary contributions from the Member States or from the regulatory authorities, under point (g) of Article 19(1);

(d)

legacies, donations or grants under point (g) of Article 19(1).

2.

ACER’s expenditure shall include staff, administrative, infrastructure, and operational expenses.

3.

ACER’s revenue and expenditure shall be in balance.

4.    All ACER’s revenue and expenditure shall be the subject of forecasts for each financial year, coinciding with the calendar year, and shall be entered in its budget. 5.    The revenue received by ACER shall not compromise its neutrality, independence or objectivity.

1240

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 32 Fees 1.    Fees shall be due to ACER for the following: (a)

requesting an exemption decision pursuant to Article 10 of this Regulation and for decisions on cross-border cost allocation provided by ACER pursuant to Article  12 of Regulation (EU) No 347/2013;

(b)

collecting, handling, processing and analysing of information reported by market participants or by entities reporting on their behalf pursuant to Article 8 of Regulation (EU) No 1227/2011.

2.    The fees referred to in paragraph 1, and the way in which they are to be paid, shall be set by the Commission after carrying out a public consultation and after consulting the Administrative Board and the Board of Regulators. The fees shall be proportionate to the costs of the relevant services as provided in a cost-effective way and shall be sufficient to cover those costs. Those fees shall be set at such a level as to ensure that they are non-discriminatory and that they avoid placing an undue financial or administrative burden on market participants or entities acting on their behalf.

The Commission shall regularly examine the level of those fees on the basis of an evaluation and, if necessary, shall adapt the level of those fees and the way in which they are to be paid. Article 33 Establishment of the budget

1.    Each year, the Director shall draw up a provisional draft estimate covering the operational expenditure and the programme of work anticipated for the following financial year, and shall submit that provisional draft estimate to the Administrative Board, together with a list of provisional posts.

1241

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

2.    The provisional draft estimate shall be based on the objectives and expected results of the programming document referred to in Article 20(1), and shall take into account the financial resources that are necessary to achieve those objectives and expected results. 3.    Each year, the Administrative Board shall, on the basis of the provisional draft estimate prepared by the Director, adopt a provisional draft estimate of revenue and expenditure of ACER for the following financial year. 4.    The provisional draft estimate, including a draft establishment plan, shall be transmitted by the Administrative Board to the Commission by 31 January each year. Prior to adoption of the estimate, the draft prepared by the Director shall be transmitted to the Board of Regulators, which may deliver a reasoned opinion on the draft. 5.    The estimate referred to in paragraph 3 shall be transmitted by the Commission to the European Parliament and to the Council, together with the draft general budget of the Union. 6.    On the basis of the draft estimate, the Commission shall enter into the draft general budget of the Union the estimates it considers necessary in respect of the establishment plan and the amount of the grant to be charged to the general budget of the Union in accordance with Articles 313 to 316 of the Treaty on the Functioning of the European Union (TFEU). 7.    The Council in its role as budgetary authority shall adopt the establishment plan for ACER. 8.    ACER’s budget shall be adopted by the Administrative Board. It shall become final after the final adoption of the general budget of the Union. Where necessary, it shall be adjusted accordingly. 9.    Any modification to the budget, including the establishment plan, shall follow the same procedure. 10.    By 5 July 2020, the Commission shall assess whether the financial and human resources available to ACER allow it to fulfil its role under this Regulation of working towards an internal energy market and of contributing to energy security to the benefit of consumers in the Union. 1242

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

11.   The Administrative Board shall, without delay, notify the budgetary authority of its intention to implement any project which may have significant financial implications for the funding of ACER’s budget, in particular any project relating to property. The Administrative Board shall also inform the Commission of its intention. If either branch of the budgetary authority intends to issue an opinion, it shall, within two weeks of receipt of the information on the project, notify ACER of its intention thereof. In the absence of a reply, ACER may proceed with the planned project. Article 34 Implementation and control of the budget 1.    The Director shall act as authorising officer and shall implement ACER’s budget. 2.    By 1 March following the completion of each financial year, ACER’s accounting officer shall submit the provisional accounts, accompanied by the report on budgetary and financial management over the financial year to the Commission’s accounting officer and to the Court of Auditors. ACER’s accounting officer shall also submit the report on budgetary and financial management to the European Parliament and the Council by 31 March of the following year. The Commission’s accounting officer shall then consolidate the provisional accounts of the institutions and decentralised bodies in accordance with Article 245 of Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council (22) (‘the Financial Regulation’). Article 35 Presentation of accounts and discharge 1.    ACER’s accounting officer shall submit the provisional accounts for the financial year (year N) to the Commission’s Accounting Officer and to the Court of Auditors by 1 March of the following financial year (year N + 1).

1243

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

2.    ACER shall submit a report on the budgetary and financial management for year N to the European Parliament, the Council, the Commission and the Court of Auditors by 31 March of year N + 1.

By 31 March of year N + 1, the Commission’s accounting officer shall submit the provisional accounts of ACER to the Court of Auditors. The Commission shall also submit the report on budgetary and financial management over the financial year to the European Parliament and to the Council.

3.    After receipt of the observations of the Court of Auditors on ACER’s provisional accounts for year N in accordance with the provisions of Article 246 of the Financial Regulation, the accounting officer, acting on his or her own responsibility, shall draw up ACER’s final accounts for that year. The Director shall submit them to the Administrative Board for an opinion. 4.    The Administrative Board shall deliver an opinion on ACER’s final accounts for year N. 5.    ACER’s accounting officer shall submit the final accounts for year N, accompanied by the opinion of the Administrative Board, by 1 July of year N + 1, to the European Parliament, the Council, the Commission and the Court of Auditors. 6.    The final accounts shall be published in the Official Journal of the European Union by 15 November of year N + 1. 7.    The Director shall submit a reply to the Court of Auditors’ observations by 30 September of year N + 1. The Director shall also submit a copy of that reply to the Administrative Board and the Commission. 8.  

The Director shall submit to the European Parliament, at the latter’s request, any information necessary for the smooth application of the discharge procedure for year N in accordance with Article 109(3) of Delegated Regulation (EU) No 1271/2013.

1244

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

9.    The European Parliament, following a recommendation by the Council, acting by qualified majority, shall, before 15 May of the year N + 2, grant a discharge to the Director for the implementation of the budget for the financial year N. Article 36 Financial rules The financial rules applicable to ACER shall be adopted by the Administrative Board after consulting the Commission. Those rules may deviate from Delegated Regulation (EU) No 1271/2013 if the specific operational needs for the functioning of ACER so require and only with the prior agreement of the Commission. Article 37 Combating fraud 1.  

In order to facilitate the combating of fraud, corruption and other unlawful activities under Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council (23), ACER shall accede to the Interinstitutional Agreement of 25 May 1999 concerning internal investigations by OLAF (24) and shall adopt appropriate provisions applicable to the employees of ACER, using the template set out in the Annex to that Agreement.

2.    The Court of Auditors shall have the power to carry out on-the-spot audits, as well as auditing on the basis of documents, with respect to the grant beneficiaries, contractors and subcontractors that have received Union funds from ACER. 3.    OLAF may carry out investigations, including on-the-spot checks and inspections, with a view to establishing whether there has been fraud, corruption or any other illegal activity affecting the financial interests of the Union in connection with a grant or a contract funded by ACER, in accordance with the provisions and procedures laid down in Regulation (EU, Euratom) No  883/2013 and Council Regulation (Euratom, EC) No 2185/96 (25). 1245

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

4.    Without prejudice to paragraphs 1, 2 and 3, cooperation agreements with third countries and international organisations, contracts, grant agreements and grant decisions of ACER shall contain provisions expressly empowering the Court of Auditors and OLAF to conduct the audits and investigations referred to in this Article, in accordance with their respective competences. Chapter IV General and final provisions Article 38 Privileges and immunities and Headquarters Agreement 1.    Protocol No 7 on Privileges and Immunities of the European Union annexed to the TEU and to the TFEU shall apply to ACER and to its staff. 2.    The necessary arrangements concerning the accommodation to be provided for ACER in the host Member State and the facilities to be made available by that Member State, together with the specific rules applicable in the host Member State to the Director, members of the Administrative Board, ACER’s staff and members of their families, shall be laid down in a Headquarters Agreement between ACER and the Member State where the seat is located. That agreement shall be concluded after obtaining the approval of the Administrative Board. Article 39 Staff 1.    The Staff Regulations and the Conditions of Employment and the rules adopted jointly by the Union institutions for the purpose of applying the Staff Regulations and the Conditions of Employment shall apply to ACER’s staff, including its Director.

1246

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

2.    The Administrative Board, in agreement with the Commission, shall adopt appropriate implementing rules, in accordance with Article 110 of the Staff Regulations. 3.    In respect of its staff, ACER shall exercise the powers conferred on the appointing authority by the Staff Regulations and on the authority entitled to conclude contracts by the Conditions of Employment. 4.    The Administrative Board may adopt provisions to allow national experts from Member States to be employed on secondment at ACER. Article 40 Liability of ACER 1.    The contractual liability of ACER shall be governed by the law applicable to the contract in question.

Any arbitration clause contained in a contract concluded by ACER shall be subject to the jurisdiction of the Court of Justice.

2.    In the case of non-contractual liability, ACER shall, in accordance with the general principles common to the laws of the Member States, make good any damage caused by it or by its staff in the performance of their duties. 3.    The Court of Justice shall have jurisdiction in disputes over compensation for damages referred to in paragraph 2. 4.    The personal financial liability and disciplinary liability of ACER’s staff towards it shall be governed by the relevant provisions applying to ACER’s staff.

1247

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 41 Transparency and communication 1.

Regulation (EC) No 1049/2001 of the European Parliament and of the Council (26) shall apply to documents held by ACER.

2.    The Administrative Board shall adopt practical measures for applying Regulation (EC) No 1049/2001. 3.    Decisions taken by ACER pursuant to Article 8 of Regulation (EC) No 1049/2001 may be the subject of a complaint to the Ombudsman or of proceedings before the Court of Justice, in accordance with the conditions laid down in Articles 228 and 263 TFEU. 4.   

The processing of personal data by ACER shall be subject to the Regulation (EU) 2018/1725 of the European Parliament and of the Council (27). The Administrative Board shall establish measures for the application of Regulation (EU) 2018/1725 by ACER, including measures concerning the appointment of ACER’s Data Protection Officer. Those measures shall be established after consulting the European Data Protection Supervisor.

5.    ACER may engage in communication activities on its own initiative within its field of competence. The allocation of resources to communication activities shall not be detrimental to the effective exercise of the tasks referred to in Article 3 to 13. Communication activities shall be carried out in accordance with relevant communication and dissemination plans adopted by the Administrative Board. Article 42 Protection of classified and sensitive non-classified information 1.    ACER shall adopt its own security rules, which shall be equivalent to the Commission’s security rules for protecting European Union Classified Information (EUCI) and sensitive non-classified information, including provisions for the exchange, processing and storage of such information, as set out in the Commission Decisions (EU, Euratom) 2015/443 (28) and (EU, Euratom) 2015/444 (29). 1248

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

2.    ACER may also decide to apply the Commission’s Decisions referred to in paragraph 1, mutatis mutandis. ACER’s security rules shall cover, inter alia, provisions for the exchange, processing and storage of EUCI and sensitive non-classified information. Article 43 Cooperation agreements 1.    ACER shall be open to the participation of third countries which have concluded agreements with the Union and which have adopted and are applying the relevant rules of Union law in the field of energy including, in particular, the rules on independent regulatory authorities, third-party access to infrastructure and unbundling, energy trading and system operation and consumer participation and protection, as well as the relevant rules in the fields of environment and competition. 2.    Subject to the conclusion of an agreement to that effect between the Union and third countries as referred to in paragraph 1, ACER may also exercise its tasks under Articles 3 to 13 with regard to third countries, provided that those third countries have adopted and apply the relevant rules in accordance with paragraph 1 and have mandated ACER to coordinate the activities of their regulatory authorities with those of the regulatory authorities of Member States. Only in such cases the references to issues of cross-border character shall relate to borders between the Union and third countries, and not to borders between two Member States. 3.    The agreements referred to in paragraph 1 shall provide for arrangements specifying, in particular, the nature, scope and procedural aspects of the involvement of those countries in ACER’s work, including provisions relating to financial contributions and to staff. 4.    The Administrative Board shall adopt rules of procedures for relations with third countries referred to in paragraph 1 after receipt of a positive opinion by the Board of Regulators. The Commission shall ensure that ACER operates within its mandate and the existing institutional framework by concluding an appropriate working arrangement with ACER’s Director.

1249

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 44 Language arrangements 1.    The provisions of Council Regulation No 1 (30) shall apply to ACER. 2.    The Administrative Board shall decide on ACER’s internal language arrangements. 3.    The translation services required for ACER’s functioning shall be provided by the Translation Centre for the Bodies of the European Union. Article 45 Evaluation 1.   

By 5 July 2024, and every five years thereafter, the Commission, with the assistance of an independent external expert, shall carry out an evaluation to assess ACER’s performance in relation to its objectives, mandate and tasks. The evaluation shall in particular address the possible need to modify ACER’s mandate, and the financial implications of any such modification.

2.    Where the Commission considers that the continued existence of ACER is no longer justified with regard to its assigned objectives, mandate and tasks, it may propose that this Regulation be amended accordingly or repealed after carrying out an appropriate consultation of stakeholders and of the Board of Regulators. 3.    The Commission shall submit the evaluation findings referred to in paragraph 1 together with its conclusions to the European Parliament, to the Council and to ACER’s Board of Regulators. The findings of the evaluation should be made public. 4.    By 31 October 2025, and at least every five years thereafter, the Commission shall submit to the European Parliament and the Council a report evaluating this Regulation and, in particular, ACER’s tasks involving individual decisions. That reports shall, as appropriate, take into account the results of the assessment pursuant to Article 69(1) of Regulation (EU) 2019/943. 1250

Appendix 5 Reg (EC) 713/2009 – Establishing ACER



The Commission, where appropriate, shall submit a legislative proposal together with its report. Article 46 Repeal

Regulation (EC) No 713/2009 is repealed. References to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table in Annex II. Article 47 Entry into force This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Brussels, 5 June 2019. For the European Parliament The President A. TAJANI For the Council The President G. CIAMBA

1251

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Notes (1)   OJ C 288, 31.8.2017, p. 91. (2)   OJ C 342, 12.10.2017, p. 79. (3)   Position of the European Parliament of 26  March 2019 (not yet published in the Official Journal) and decision of the Council of 22  May 2019. (4)   Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1). (5)   See Annex I. (6)   Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (OJ L 326, 8.12.2011, p. 1). (7)   Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy infrastructure and repealing Decision No 1364/2006/EC and amending Regulations (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009 (OJ L 115, 25.4.2013, p. 39). (8)   Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (OJ L 280, 28.10.2017, p. 1). (9)   Regulation (EU) 2019/941 of the European Parliament and of the Council of 5 June 2019 on risk-preparedness in the electricity sector and repealing Directive 2005/89/EC (see page 1 of this Official Journal). (10)   Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU (see page 125 of this Official Journal). (11)   Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211, 14.8.2009, p. 94). (12)  Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11  December  2018 on the Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC, 2009/31/EC, 2009/73/EC, 2010/31/ EU, 2012/27/EU and 2013/30/EU of the European Parliament and of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No  525/2013 of the European Parliament 1252

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

and of the Council (OJ L 328, 21.12.2018, p. 1). (13)   Joint Statement of the European Parliament, the Council of the EU and the European Commission on decentralised agencies of 19.7.2012. (14)   Commission Delegated Regulation (EU) No 1271/2013 of 30 September 2013 on the framework financial regulation for the bodies referred to in Article 208 of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council (OJ L 328, 7.12.2013, p. 42). (15)   Council Regulation (EC) No  2965/94 of 28  November 1994 setting up a Translation Centre for bodies of the European Union (OJ L 314, 7.12.1994, p. 1). (16)   Regulation (EEC, Euratom, ECSC) No 259/68 of the Council of 29 February 1968 laying down the Staff Regulations of Officials and the Conditions of Employment of Other Servants of the European Communities and instituting special measures temporarily applicable to officials of the Commission (OJ L 56, 4.3.1968, p. 1). (17)   Decision taken by common agreement between the Representatives of the Governments of Member States of 7  December 2009 on the location of the seat of the Agency for the Cooperation of Energy Regulators (OJ L 322, 9.12.2009, p. 39). (18)   Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (see page 54 of this Official Journal). (19)   Regulation (EC) No  715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No  1775/2005 (OJ L 211, 14.8.2009, p. 36). (20)   Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13). (21)   Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (OJ L 197, 25.7.2015, p. 24). (22) Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No  1301/2013, (EU) No  1303/2013, (EU)  No  1304/2013, (EU) No  1309/2013, (EU) No  1316/2013, (EU) No  223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012 (OJ L 193, 30.7.2018, p. 1). 1253

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

(23)   Regulation (EU, Euratom) No  883/2013 of the European Parliament and of the Council of 11  September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF) and repealing Regulation (EC) No 1073/1999 of the European Parliament and of the Council and Council Regulation (Euratom) No 1074/1999 (OJ L 248, 18.9.2013, p. 1). (24)   OJ L 136, 31.5.1999, p. 15. (25)   Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-spot checks and inspections carried out by the Commission in order to protect the European Communities’ financial interests against fraud and other irregularities (OJ L 292, 15.11.1996, p. 2). (26)   Regulation (EC) No 1049/2001 of the European Parliament and of the Council of 30 May 2001 regarding public access to European Parliament, Council and Commission documents (OJ L 145, 31.5.2001, p. 43). (27)    Regulation (EU) 2018/1725 of the European Parliament and of the Council of 23 October 2018 on the protection of natural persons with regard to the processing of personal data by the Union institutions, bodies, offices and agencies and on the free movement of such data, and repealing Regulation (EC) No 45/2001 and Decision No 1247/2002/EC (OJ L 295, 21.11.2018, p. 39). (28)  Commission Decision (EU, Euratom) 2015/443 of 13 March 2015 on Security in the Commission (OJ L 72, 17.3.2015, p. 41). (29)   Commission Decision (EU, Euratom) 2015/444 of 13 March 2015 on the security rules for protecting EU classified information (OJ  L  72, 17.3.2015, p. 53). (30)   Council Regulation No 1 determining the languages to be used by the European Economic Community (OJ 17, 6.10.1958, p. 385).

1254

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

ANNEX I

Repealed Regulation with the amendment thereto

Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1) Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy infrastructure and repealing Decision No 1364/2006/EC and amending Regulations (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009 Only the reference made by Article 20 of Regulation (EU) No 347/2013 to Article 22(1) of Regulation (EC) No 713/2009.

1255

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

ANNEX II Correlation table

Regulation (EC) No 713/2009

This Regulation

Article 1

Article 1

Article 4

Article 2

Article 5

Article 3

Article 6 (1) to (3) and (4) first subparagraph

Article 4

Article 6 (4) second to fifth sub-paragraph and paragraphs (5), (6) and (9)

Article 5

Article 7 and 8

Article 6

—

Article 7

—

Article 8

—

Article 9

Article 9 (1) to (2) first sub– paragraph

Article 10

Article 6 (7) and (8)

Article 11

—

Article 12

Article 9 (2) second sub– paragraph

Article 13

Article 10

Article 14

Article 11

Article 15

Article 2

Article 16

Article 3

Article 17

Article 12

Article 18

Article 13

Article 19

—

Article 20

Article 14 (1) and (2)

Article 21

Article 14 (3) to (6)

Article 22 (1) to (4)

rticle 15

Article 22 (5) and (6)

Article 16

Article 23

Article 17

Article 24

Article 18 (1) and (2)

Article 25 (1), (2) and (4)

Article 19 (6)

Article 25 (3)

1256

Appendix 5 Reg (EC) 713/2009 – Establishing ACER

Article 18 (3)

Article 26

Article 18 (4) to (7)

Article 27

Article 19 (1) to (5) and (7)

Article 28

—

—

—

Article 29

—

Article 30

Article 21

Article 31

Article 22

Article 32

Article 23

Article 33

Article 24 (1) and (2)

Article 34

Article 24 (3 and following)

Article 35

Article 25

Article 36

—

Article 37

Article 27

Article 38

Article 28

Article 39

Article 29

Article 40

Article 30

Article 41(1) to (3)

—

Article 42

Article 31

Article 43

Article 33

Article 44

Article 34

Article 45

—

Article 46

Article 35

Article 47

1257

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Appendix 6 Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on Functioning of European Union, and in particular Article 194(2) thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee1, After consulting the Committee of the Regions of the European Union, Acting in accordance with the ordinary legislative procedure2,

1259

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Whereas: (1)

It is important to ensure that consumers and other market participants can have confidence in the integrity of electricity and gas markets, that prices set on wholesale energy markets reflect a fair and competitive interplay between supply and demand, and that no profits can be drawn from market abuse.

(2)

The goal of increased integrity and transparency of wholesale energy markets should be to foster open and fair competition in wholesale energy markets for the benefit of final consumers of energy.

(3)

The advice of the Committee of European Securities Regulators and the European Regulators Group for Electricity and Gas confirmed that the scope of existing legislation might not properly address market integrity issues on the electricity and gas markets and recommended the consideration of an appropriate legislative framework tailored to the energy sector which prevents market abuse and takes sector-specific conditions into account which are not covered by other directives and regulations.

(4)

Wholesale energy markets are increasingly interlinked across the Union. Market abuse in one Member State often affects not only wholesale prices for electricity and natural gas across national borders, but also retail prices to consumers and micro-enterprises. Therefore the concern to ensure the integrity of markets cannot be a matter only for individual Member States. Strong cross-border market monitoring is essential for the completion of a fully functioning, interconnected and integrated internal energy market.

(5)

Wholesale energy markets encompass both commodity markets and derivative markets, which are of vital importance to the energy and financial markets, and price formation in both sectors is interlinked. They include, inter alia, regulated markets, multilateral trading facilities and over-thecounter (OTC) transactions and bilateral contracts, direct or through brokers.

(6)

To date, energy market monitoring practices have been Member State and sector-specific. Depending on the overall market framework and regulatory situation, this can result in trading activities being subject to multiple jurisdictions with monitoring carried out by several different 1260

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

authorities, possibly located in different Member States. This can result in a lack of clarity as to where responsibility rests and even to a situation where no such monitoring exists. (7)

Behaviour which undermines the integrity of the energy market is currently not clearly prohibited on some of the most important energy markets. In order to protect final consumers and guarantee affordable energy prices for European citizens, it is essential to prohibit such behaviour.

(8)

Derivative trading, which may be either physically or financially settled, and commodity trading are used together on wholesale energy markets. It is therefore important that the definitions of insider trading and market manipulation, which constitute market abuse, be compatible between derivatives and commodity markets. This Regulation should in principle apply to all transactions concluded but at the same time should take into account the specific characteristics of the wholesale energy markets.

(9)

Retail contracts which cover the supply of electricity or natural gas to final customers are not susceptible to market manipulation in the same way as wholesale contracts which are easily bought and sold. None the less, the consumption decisions of the largest energy users can also affect prices on wholesale energy markets, with effects across national borders. Therefore it is appropriate to consider the supply contracts of such large users in the context of ensuring the integrity of wholesale energy markets.

(10) Taking account of the results of the examination set out in the Commission Communication of 21 December 2010 entitled ‘Towards an enhanced market oversight framework for the EU Emissions Trading Scheme’, the Commission should consider bringing forward a legislative proposal to tackle the identified shortcomings in the transparency, integrity and supervision of the European carbon market in an appropriate time-frame. (11) Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for crossborder exchanges in electricity3  and Regulation (EC) No  715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks4 recognise that equal access to information on the physical status and efficiency of the system is necessary to enable all market participants to assess the overall 1261

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

demand and supply situation and identify the reasons for fluctuations in the wholesale price. (12) The use or attempted use of inside information to trade either on one’s own account or on the account of a third party should be clearly prohibited. Use of inside information can also consist in trading in wholesale energy products by persons who know, or ought to know, that the information they possess is inside information. Information regarding the market participant’s own plans and strategies for trading should not be considered as inside information. Information which is required to be made public in accordance with Regulation (EC) No 714/2009 or (EC) No 715/2009, including guidelines and network codes adopted pursuant to those Regulations, may serve, if it is price-sensitive information, as the basis of market participants’ decisions to enter into transactions in wholesale energy products and therefore could constitute inside information until it has been made public. (13) Manipulation on wholesale energy markets involves actions undertaken by persons that artificially cause prices to be at a level not justified by market forces of supply and demand, including actual availability of production, storage or transportation capacity, and demand. Forms of market manipulation include placing and withdrawal of false orders; spreading of false or misleading information or rumours through the media, including the internet, or by any other means; deliberately providing false information to undertakings which provide price assessments or market reports with the effect of misleading market participants acting on the basis of those price assessments or market reports; and deliberately making it appear that the availability of electricity generation capacity or natural gas availability, or the availability of transmission capacity is other than the capacity which is actually technically available where such information affects or is likely to affect the price of wholesale energy products. Manipulation and its effects may occur across borders, between electricity and gas markets and across financial and commodity markets, including the emission allowances markets. (14) Examples of market manipulation and attempts to manipulate the market include conduct by a person, or persons acting in collaboration, to secure a decisive position over the supply of, or demand for, a wholesale energy product which has, or could have, the effect of fixing, directly or indirectly, prices or creating other unfair trading conditions; and the of1262

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

fering, buying or selling of wholesale energy products with the purpose, intention or effect of misleading market participants acting on the basis of reference prices. However, accepted market practices such as those applying in the financial services area, which are currently defined by Article 1(5) of Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse)5 and which may be adapted if that Directive is amended, could be a legitimate way for market participants to secure a favourable price for a wholesale energy product. (15) The disclosure of inside information in relation to a wholesale energy product by journalists acting in their professional capacity should be assessed taking into account the rules governing their profession and the rules governing the freedom of the press, unless those persons derive, directly or indirectly, an advantage or profits from the dissemination of the information in question or when disclosure is made with the intention of misleading the market as to the supply of, demand for, or price of wholesale energy products. (16) As financial markets develop, the concepts of market abuse applying to those markets will be adapted. In order to ensure the necessary flexibility to respond quickly to these developments therefore, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of technical updating of the definitions of inside information and market manipulation for the purpose of ensuring coherence with other relevant Union legislation in the fields of financial services and energy. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level. The Commission should, when preparing and drawing up delegated acts, ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and the Council. (17) Efficient market monitoring at Union level is vital for detecting and deterring market abuse on wholesale energy markets. The Agency for the Cooperation of Energy Regulators established by Regulation (EC) No  713/2009 of the European Parliament and of the Council6  (‘the Agency’) is best placed to carry out such monitoring as it has both a Union-wide view of electricity and gas markets, and the necessary expertise in the operation of electricity and gas markets and systems in the 1263

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Union. National regulatory authorities, which have a comprehensive understanding of developments on energy markets in their Member State, should have an important role in ensuring efficient market monitoring at national level. Close cooperation and coordination between the Agency and national authorities is therefore necessary to ensure proper monitoring and transparency of energy markets. The collection of data by the Agency is without prejudice to the right of national authorities to collect additional data for national purposes. (18) Efficient market monitoring requires regular and timely access to records of transactions as well as access to structural data on capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas. For this reason market participants, including transmission system operators, suppliers, traders, producers, brokers and large users, who trade wholesale energy products should be required to provide that information to the Agency. The Agency may for its part establish strong links with major organised market places. (19) In order to ensure uniform conditions for the implementation of the provisions on data collection, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No  182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by the Member States of the Commission’s exercise of implementing powers7. Reporting obligations should be kept to a minimum and not create unnecessary costs or administrative burdens for market participants. The uniform rules on the reporting of information should therefore undergo an ex-ante costbenefit analysis, should avoid double reporting, and should take account of reporting frameworks developed under other relevant legislation. Furthermore, the required information or parts thereof should be collected from other persons and existing sources where possible. Where a market participant or a third party acting on its behalf, a trade reporting system, an organised market, a trade-matching system, or other person professionally arranging transactions has fulfilled its reporting obligations to a competent authority in accordance with Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments8  or applicable Union legislation on derivative transactions, central counterparties and trade repositories, its reporting obligation should be considered fulfilled also under this Regulation, but 1264

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

only to the extent that all the information required under this Regulation has been reported. (20) It is important that the Commission and the Agency work closely together in implementing this Regulation and consult appropriately with the European Networks of Transmission System Operators for Electricity and for Gas and the European Securities and Markets Authority established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council9 (ESMA), with national regulatory authorities, competent financial authorities and other Member State authorities such as national competition authorities, and with stakeholders such as organised market places (e.g. energy exchanges) and market participants. (21) A European register of market participants, based on national registers, should be established to enhance the overall transparency and integrity of wholesale energy markets. One year after the establishment of that register, the Commission should assess in cooperation with the Agency, in line with the reports submitted by the Agency to the Commission, and with the national regulatory authorities, the functioning and the usefulness of the European register of market participants. If deemed appropriate based on that assessment, the Commission should consider presenting further instruments to enhance the overall transparency and integrity of wholesale energy markets and to ensure a Union-wide level playing field for market participants. (22) In order to facilitate efficient monitoring of all aspects of trading in wholesale energy products, the Agency should establish mechanisms to give access to the information which it receives on transactions on wholesale energy markets to other relevant authorities, in particular to ESMA, national regulatory authorities, competent financial authorities of the Member States, national competition authorities, and other relevant authorities. (23) The Agency should ensure the operational security and protection of the data which it receives, prevent unauthorised access to the information kept by the Agency, and establish procedures to ensure that the data it collects are not misused by persons with an authorised access to them. The Agency should also ascertain whether those authorities which have access to the data held by the Agency are able to maintain an equally high level of security and are bound by appropriate confidentiality arrange1265

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

ments. The operational security of the IT systems used for processing and transmitting the data therefore also needs to be ensured. For setting up an IT system that ensures the highest possible level of data confidentiality, the Agency should be encouraged to work closely with the European Network and Information Security Agency (ENISA). These rules should also apply to other authorities that are entitled to access to the data for the purpose of this Regulation. (24) This Regulation respects fundamental rights and observes the principles recognised in particular by the Charter of Fundamental Rights of the European Union as referred to in Article 6 of the Treaty on European Union and the constitutional traditions in the Member States and should be applied in accordance with the right to freedom of expression and information recognised in Article 11 of the Charter. (25) Where information is not, or no longer, sensitive from a commercial or security viewpoint, the Agency should be able to make that information available to market participants and the wider public with a view to contributing to enhanced market knowledge. Such transparency will help build confidence in the market and foster the development of knowledge about the functioning of wholesale energy markets. The Agency should establish and make publicly available rules on how it will make that information available in a fair and transparent manner. (26) National regulatory authorities should be responsible for ensuring that this Regulation is enforced in the Member States. To this end they should have the necessary investigatory powers to allow them to carry out that task efficiently. These powers should be exercised in conformity with national law and may be subject to appropriate oversight. (27) The Agency should ensure that this Regulation is applied in a coordinated way across the Union, coherent with the application of Directive 2003/6/EC. To that effect, the Agency should publish non-binding guidance on the application of the definitions set out in this Regulation, as appropriate. That guidance should address, inter alia, the issue of accepted market practices. Furthermore, since market abuse on wholesale energy markets often affects more than one Member State, the Agency should have an important role in ensuring that investigations are carried out in an efficient and coherent way. To achieve this, the Agency should be able to request cooperation and to coordinate the operation of investigatory 1266

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

groups comprised of representatives of the concerned national regulatory authorities and, where appropriate, other authorities including national competition authorities. (28) The Agency should be provided with the appropriate financial and human resources, in order to adequately fulfil the additional tasks assigned to it under this Regulation. For this purpose, the procedure for the establishment, implementation and control of its budget as set out in Articles 23 and 24 of Regulation (EC) No 713/2009 should take due account of these tasks. The budgetary authority should ensure that the best standards of efficiency are met. (29) National regulatory authorities, competent financial authorities of the Member States and, where appropriate, national competition authorities should cooperate to ensure a coordinated approach to tackling market abuse on wholesale energy markets which encompasses both commodity markets and derivatives markets. That cooperation should include the mutual exchange of information regarding suspicions that acts which are likely to constitute a breach of this Regulation, Directive 2003/6/EC, or competition law are being or have been carried out on wholesale energy markets. Furthermore, that cooperation should contribute to a coherent and consistent approach to investigations and judicial proceedings. (30) It is important that the obligation of professional secrecy applies to those who receive confidential information in accordance with this Regulation. The Agency, national regulatory authorities, competent financial authorities of the Member States and national competition authorities should ensure the confidentiality, integrity and protection of the information which they receive. (31) It is important that the penalties for breaches of this Regulation are proportionate, effective and dissuasive, and reflect the gravity of the infringements, the damage caused to consumers and the potential gains from trading on the basis of inside information and market manipulation. The application of these penalties should be carried out in accordance with national law. Recognising the interactions between trading in electricity and natural gas derivative products and trading in actual electricity and natural gas, the penalties for breaches of this Regulation should be in line with the penalties adopted by the Member States in implementing Directive 2003/6/EC. Taking account of the consultation on the Commission 1267

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Communication of 12 December 2010 entitled ‘Reinforcing sanctioning regimes in the financial services sector’, the Commission should consider presenting proposals to harmonise minimum standards for the penalties systems of Member States in an appropriate time-frame. This Regulation affects neither national rules on the standard of proof nor obligations of national regulatory authorities and courts of the Member States to ascertain the relevant facts of a case, provided that such rules and obligations are compatible with general principles of Union law. (32) Since the objective of this Regulation, namely the provision of a harmonised framework to ensure wholesale energy market transparency and integrity, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve that objective, HAVE ADOPTED THIS REGULATION: Article 1 Subject matter, scope and relationship with other Union legislation 1.    This Regulation establishes rules prohibiting abusive practices affecting wholesale energy markets which are coherent with the rules applicable in financial markets and with the proper functioning of those wholesale energy markets whilst taking into account their specific characteristics. It provides for the monitoring of wholesale energy markets by the Agency for the Cooperation of Energy Regulators (‘the Agency’) in close collaboration with national regulatory authorities and taking into account the interactions between the Emissions Trading Scheme and wholesale energy markets. 2.    This Regulation applies to trading in wholesale energy products. Articles 3 and 5 of this Regulation shall not apply to wholesale energy products which are financial instruments and to which Article 9 of Directive 2003/6/EC applies. This Regulation is without prejudice to Directives 1268

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

2003/6/EC and 2004/39/EC as well as to the application of European competition law to the practices covered by this Regulation. 3.    The Agency, national regulatory authorities, ESMA, competent financial authorities of the Member States and, where appropriate, national competition authorities shall cooperate to ensure that a coordinated approach is taken to the enforcement of the relevant rules where actions relate to one or more financial instruments to which Article 9 of Directive 2003/6/EC applies and also to one or more wholesale energy products to which Articles 3, 4 and 5 of this Regulation apply. 4.    The Agency’s Administrative Board shall ensure that the Agency carries out the tasks assigned to it under this Regulation in accordance with this Regulation and Regulation (EC) No 713/2009. 5.    The Director of the Agency shall consult the Agency’s Board of Regulators on all aspects of implementation of this Regulation and give due consideration to its advice and opinions. Article 2 Definitions For the purposes of this Regulation the following definitions shall apply: (1)

‘inside information’ means information of a precise nature which has not been made public, which relates, directly or indirectly, to one or more wholesale energy products and which, if it were made public, would be likely to significantly affect the prices of those wholesale energy products.



For the purposes of this definition, ‘information’ means: (a)

information which is required to be made public in accordance with Regulations (EC) No 714/2009 and (EC) No 715/2009, including guidelines and network codes adopted pursuant to those Regulations;

(b)

information relating to the capacity and use of facilities for production, storage, consumption or transmission of electricity or natural 1269

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

gas or related to the capacity and use of LNG facilities, including planned or unplanned unavailability of these facilities; (c)

information which is required to be disclosed in accordance with legal or regulatory provisions at Union or national level, market rules, and contracts or customs on the relevant wholesale energy market, in so far as this information is likely to have a significant effect on the prices of wholesale energy products; and

(d)

other information that a reasonable market participant would be likely to use as part of the basis of its decision to enter into a transaction relating to, or to issue an order to trade in, a wholesale energy product.



Information shall be deemed to be of a precise nature if it indicates a set of circumstances which exists or may reasonably be expected to come into existence, or an event which has occurred or may reasonably be expected to do so, and if it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of wholesale energy products;

(2)

‘market manipulation’ means: (a)

entering into any transaction or issuing any order to trade in wholesale energy products which: (i)

gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products;

(ii)

secures or attempts to secure, by a person, or persons acting in collaboration, the price of one or several wholesale energy products at an artificial level, unless the person who entered into the transaction or issued the order to trade establishes that his reasons for doing so are legitimate and that that transaction or order to trade conforms to accepted market practices on the wholesale energy market concerned; or

(iii) employs or attempts to employ a fictitious device or any other form of deception or contrivance which gives, or is likely 1270

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

or

(3)

to give, false or misleading signals regarding the supply of, demand for, or price of wholesale energy products;

(b)

disseminating information through the media, including the internet, or by any other means, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of wholesale energy products, including the dissemination of rumours and false or misleading news, where the disseminating person knew, or ought to have known, that the information was false or misleading.



When information is disseminated for the purposes of journalism or artistic expression, such dissemination of information shall be assessed taking into account the rules governing the freedom of the press and freedom of expression in other media, unless: (i)

those persons derive, directly or indirectly, an advantage or profits from the dissemination of the information in question; or

(ii)

the disclosure or dissemination is made with the intention of misleading the market as to the supply of, demand for, or price of wholesale energy products;

‘attempt to manipulate the market’ means: (a)

entering into any transaction, issuing any order to trade or taking any other action relating to a wholesale energy product with the intention of: (i)

giving false or misleading signals as to the supply of, demand for, or price of wholesale energy products;

(ii)

securing the price of one or several wholesale energy products at an artificial level, unless the person who entered into the transaction or issued the order to trade establishes that his reasons for doing so are legitimate and that that transaction or order to trade conforms to accepted market practices on the wholesale energy market concerned; or 1271

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

or (b)

(4)

(iii) employing a fictitious device or any other form of deception or contrivance which gives, or is likely to give, false or misleading signals regarding the supply of, demand for, or price of wholesale energy products; disseminating information through the media, including the internet, or by any other means with the intention of giving false or misleading signals as to the supply of, demand for, or price of wholesale energy products;

‘wholesale energy products’ means the following contracts and derivatives, irrespective of where and how they are traded: (a)

contracts for the supply of electricity or natural gas where delivery is in the Union;

(b)

derivatives relating to electricity or natural gas produced, traded or delivered in the Union;

(c)

contracts relating to the transportation of electricity or natural gas in the Union;

(d)

derivatives relating to the transportation of electricity or natural gas in the Union.



Contracts for the supply and distribution of electricity or natural gas for the use of final customers are not wholesale energy products. However, contracts for the supply and distribution of electricity or natural gas to final customers with a consumption capacity greater than the threshold set out in the second paragraph of point (5) shall be treated as wholesale energy products;

(5)

‘consumption capacity’ means the consumption of a final customer of either electricity or natural gas at full use of that customer’s production capacity. It comprises all consumption by that customer as a single economic entity, in so far as consumption takes place on markets with interrelated wholesale prices.



For the purposes of this definition, consumption at individual plants un1272

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

der the control of a single economic entity that have a consumption capacity of less than 600 GWh per year shall not be taken into account in so far as those plants do not exert a joint influence on wholesale energy market prices due to their being located in different relevant geographical markets; (6)

‘wholesale energy market’ means any market within the Union on which wholesale energy products are traded;

(7)

‘market participant’ means any person, including transmission system operators, who enters into transactions, including the placing of orders to trade, in one or more wholesale energy markets;

(8)

‘person’ means any natural or legal person;

(9)

‘competent financial authority’ means a competent authority designated in accordance with the procedure laid down in Article 11 of Directive 2003/6/EC;

(10) ‘national regulatory authority’ means a national regulatory authority designated in accordance with Article 35(1) of Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity10 or Article 39(1) of Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas11; (11) ‘transmission system operator’ has the meaning set out in point 4 of Article 2 of Directive 2009/72/EC and in point 4 of Article 2 of Directive 2009/73/EC; (12) ‘parent undertaking’ means a parent undertaking within the meaning of Articles 1 and 2 of the Seventh Council Directive 83/349/EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts13; (13) ‘related undertaking’ means either a subsidiary or other undertaking in which a participation is held, or an undertaking linked with another undertaking by a relationship within the meaning of Article 12(1) of Directive 83/349/EEC; 1273

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

(14) ‘distribution of natural gas’ has the meaning set out in point (5) of Article 2 of Directive 2009/73/EC; (15) ‘distribution of electricity’ has the meaning set out in point (5) of Article 2 of Directive 2009/72/EC. Article 3 Prohibition of insider trading 1.    Persons who possess inside information in relation to a wholesale energy product shall be prohibited from: (a)

using that information by acquiring or disposing of, or by trying to acquire or dispose of, for their own account or for the account of a third party, either directly or indirectly, wholesale energy products to which that information relates;

(b)

disclosing that information to any other person unless such disclosure is made in the normal course of the exercise of their employment, profession or duties;

(c)

recommending or inducing another person, on the basis of inside information, to acquire or dispose of wholesale energy products to which that information relates.

2.    The prohibition set out in paragraph 1 applies to the following persons who possess inside information in relation to a wholesale energy product: (a)

members of the administrative, management or supervisory bodies of an undertaking;

(b)

persons with holdings in the capital of an undertaking;

(c)

persons with access to the information through the exercise of their employment, profession or duties;

(d)

persons who have acquired such information through criminal activity; 1274

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

(e)

persons who know, or ought to know, that it is inside information.

3.    Points (a) and (c) of paragraph 1 of this Article shall not apply to transmission system operators when purchasing electricity or natural gas in order to ensure the safe and secure operation of the system in accordance with their obligations under points (d) and (e) of Article 12 of Directive 2009/72/EC or points (a) and (c) of Article 13(1) of Directive 2009/73/ EC. 4.    This Article shall not apply to: (a)

transactions conducted in the discharge of an obligation that has become due to acquire or dispose of wholesale energy products where that obligation results from an agreement concluded, or an order to trade placed, before the person concerned came into possession of inside information;

(b)

transactions entered into by electricity and natural gas producers, operators of natural gas storage facilities or operators of LNG import facilities the sole purpose of which is to cover the immediate physical loss resulting from unplanned outages, where not to do so would result in the market participant not being able to meet existing contractual obligations or where such action is undertaken in agreement with the transmission system operator(s) concerned in order to ensure safe and secure operation of the system. In such a situation, the relevant information relating to the transactions shall be reported to the Agency and the national regulatory authority. This reporting obligation is without prejudice to the obligation set out in Article 4(1);

(c)

market participants acting under national emergency rules, where national authorities have intervened in order to secure the supply of electricity or natural gas and market mechanisms have been suspended in a Member State or parts thereof. In this case the authority competent for emergency planning shall ensure publication in accordance with Article 4.

5.    Where the person who possesses inside information in relation to a wholesale energy product is a legal person, the prohibitions laid down in paragraph 1 shall also apply to the natural persons who take part in the 1275

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

decision to carry out the transaction for the account of the legal person concerned. 6.    When information is disseminated for the purposes of journalism or artistic expression such dissemination of information shall be assessed taking into account the rules governing the freedom of the press and freedom of expression in other media, unless: (a)

those persons derive, directly or indirectly, an advantage or profits from the dissemination of the information in question; or

(b)

the disclosure or dissemination is made with the intention of misleading the market as to the supply of, demand for, or price of wholesale energy products. Article 4 Obligation to publish inside information

1.    Market participants shall publicly disclose in an effective and timely manner inside information which they possess in respect of business or facilities which the market participant concerned, or its parent undertaking or related undertaking, owns or controls or for whose operational matters that market participant or undertaking is responsible, either in whole or in part. Such disclosure shall include information relevant to the capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas or related to the capacity and use of LNG facilities, including planned or unplanned unavailability of these facilities. 2.    A market participant may under its own responsibility exceptionally delay the public disclosure of inside information so as not to prejudice its legitimate interests provided that such omission is not likely to mislead the public and provided that the market participant is able to ensure the confidentiality of that information and does not make decisions relating to trading in wholesale energy products based upon that information. In such a situation the market participant shall without delay provide that information, together with a justification for the delay of the public disclosure, to the Agency and the relevant national regulatory authority having regard to Article 8(5). 1276

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

3.    Whenever a market participant or a person employed by, or acting on behalf of, a market participant discloses inside information in relation to a wholesale energy product in the normal exercise of his employment, profession or duties as referred to in point (b) of Article 3(1), that market participant or person shall ensure simultaneous, complete and effective public disclosure of that information. In the event of a non-intentional disclosure the market participant shall ensure complete and effective public disclosure of the information as soon as possible following the non-intentional disclosure. This paragraph shall not apply if the person receiving the information has a duty of confidentiality, regardless of whether such duty derives from law, regulation, articles of association or a contract. 4.    The publication of inside information, including in aggregated form, in accordance with Regulation (EC) No 714/2009 or (EC) No 715/2009, or guidelines and network codes adopted pursuant to those Regulations constitutes simultaneous, complete and effective public disclosure. 5.    Where an exemption from the obligation to publish certain data has been granted to a transmission system operator, in accordance with Regulation (EC) No 714/2009 or (EC) No 715/2009, that operator is thereby also exempted from the obligation set out in paragraph 1 of this Article in respect of that data. 6.    Paragraphs 1 and 2 are without prejudice to the obligations of market participants under Directives 2009/72/EC and 2009/73/EC, and Regulations (EC) No 714/2009 and (EC) No 715/2009, including guidelines and network codes adopted pursuant to those Directives and Regulations, in particular regarding the timing and method of publication of information. 7.    Paragraphs 1 and 2 are without prejudice to the right of market participants to delay the disclosure of sensitive information relating to the protection of critical infrastructure as provided for in point (d) of Article 2 of Council Directive 2008/114/EC of 8 December 2008 on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection13, if it is classified in their country.

1277

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Article 5 Prohibition of market manipulation Any engagement in, or attempt to engage in, market manipulation on wholesale energy markets shall be prohibited. Article 6 Technical updating of definitions of inside information and market manipulation 1.    The Commission shall be empowered to adopt delegated acts in accordance with Article 20 in order to: (a)

align the definitions set out in points (1), (2), (3) and (5) of Article 2 for the purpose of ensuring coherence with other relevant Union legislation in the fields of financial services and energy; and

(b)

update those definitions for the sole purpose of taking into account future developments on wholesale energy markets.

2.    The delegated acts referred to in paragraph 1 shall take into account at least: (a)

the specific functioning of wholesale energy markets, including the specificities of electricity and gas markets, and the interaction between commodity markets and derivative markets;

(b)

the potential for manipulation across borders, between electricity and gas markets and across commodity markets and derivative markets;

(c)

the potential impact on wholesale energy market prices of actual or planned production, consumption, use of transmission, or use of storage capacity; and

(d)

network codes and framework guidelines adopted in accordance with Regulations (EC) No 714/2009 and (EC) No 715/2009. 1278

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Article 7 Market monitoring 1.    The Agency shall monitor trading activity in wholesale energy products to detect and prevent trading based on inside information and market manipulation. It shall collect the data for assessing and monitoring wholesale energy markets as provided for in Article 8. 2.    National regulatory authorities shall cooperate at regional level and with the Agency in carrying out the monitoring of wholesale energy markets referred to in paragraph 1. For this purpose national regulatory authorities shall have access to relevant information held by the Agency which it has collected in accordance with paragraph 1 of this Article, subject to Article 10(2). National regulatory authorities may also monitor trading activity in wholesale energy products at national level.

Member States may provide for their national competition authority or a market monitoring body established within that authority to carry out market monitoring with the national regulatory authority. In carrying out such market monitoring, the national competition authority or the market monitoring body shall have the same rights and obligations as the national regulatory authority pursuant to the first subparagraph of this paragraph, the second sentence of the second subparagraph of paragraph 3 of this Article, the second sentence of Article 4(2), the first sentence of Article 8(5), and Article 16.

3.    The Agency shall at least on an annual basis submit a report to the Commission on its activities under this Regulation and make this report publicly available. In such reports the Agency shall assess the operation and transparency of different categories of market places and ways of trading and may make recommendations to the Commission as regards market rules, standards, and procedures which could improve market integrity and the functioning of the internal market. It may also evaluate whether any minimum requirements for organised markets could contribute to enhanced market transparency. Reports may be combined with the report referred to in Article 11(2) of Regulation (EC) No 713/2009.

The Agency may make recommendations to the Commission as to the records of transactions, including orders to trade, which it considers are 1279

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

necessary to effectively and efficiently monitor wholesale energy markets. Before making such recommendations, the Agency shall consult with interested parties, in particular with national regulatory authorities, competent financial authorities in the Member States, national competition authorities and ESMA.

All recommendations should be made available to the European Parliament, the Council and the Commission and to the public. Article 8 Data collection

1.    Market participants, or a person or authority listed in points (b) to (f ) of paragraph 4 on their behalf, shall provide the Agency with a record of wholesale energy market transactions, including orders to trade. The information reported shall include the precise identification of the wholesale energy products bought and sold, the price and quantity agreed, the dates and times of execution, the parties to the transaction and the beneficiaries of the transaction and any other relevant information. While overall responsibility lies with market participants, once the required information is received from a person or authority listed in points (b) to (f ) of paragraph 4, the reporting obligation on the market participant in question shall be considered to be fulfilled. 2.    The Commission shall, by means of implementing acts: (a)

draw up a list of the contracts and derivatives, including orders to trade, which are to be reported in accordance with paragraph 1 and appropriate de minimis thresholds for the reporting of transactions where appropriate;

(b)

adopt uniform rules on the reporting of information which is to be provided in accordance with paragraph 1;

(c)

lay down the timing and form in which that information is to be reported.

1280

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy



Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 21(2). They shall take account of existing reporting systems.

3.    Persons referred to in points (a) to (d) of paragraph 4 who have reported transactions in accordance with Directive 2004/39/EC or applicable Union legislation on derivative transactions, central counterparties and trade repositories shall not be subject to double reporting obligations relating to those transactions.

Without prejudice to the first subparagraph of this paragraph, the implementing acts referred to in paragraph 2 may allow organised markets and trade matching or trade reporting systems to provide the Agency with records of wholesale energy transactions.

4.    For the purposes of paragraph 1, information shall be provided by: (a)

the market participant;

(b)

a third party acting on behalf of the market participant;

(c)

a trade reporting system;

(d)

an organised market, a trade-matching system or other person professionally arranging transactions;

(e)

a trade repository registered or recognised under applicable Union legislation on derivative transactions, central counterparties and trade repositories; or

(f )

a competent authority which has received that information in accordance with Article 25(3) of Directive 2004/39/EC or ESMA when it has received that information in accordance with applicable Union legislation on derivative transactions, central counterparties and trade repositories.

5.    Market participants shall provide the Agency and national regulatory authorities with information related to the capacity and use of facilities for production, storage, consumption or transmission of electricity or natural gas or related to the capacity and use of LNG facilities, including 1281

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

planned or unplanned unavailability of these facilities, for the purpose of monitoring trading in wholesale energy markets. The reporting obligations on market participants shall be minimised by collecting the required information or parts thereof from existing sources where possible. 6.    The Commission shall, by means of implementing acts:



(a)

adopt uniform rules on the reporting of information to be provided in accordance with paragraph 5 and on appropriate thresholds for such reporting where appropriate;

(b)

lay down the timing and form in which that information is to be reported.

Those implementing acts shall be adopted in accordance with the examination procedure referred to in Article 21(2). They shall take account of existing reporting obligations under Regulations (EC) No 714/2009 and (EC) No 715/2009. Article 9 Registration of market participants

1.    Market participants entering into transactions which are required to be reported to the Agency in accordance with Article 8(1) shall register with the national regulatory authority in the Member State in which they are established or resident or, if they are not established or resident in the Union, in a Member State in which they are active.

A market participant shall register only with one national regulatory authority. Member States shall not require a market participant already registered in another Member State to register again.



The registration of market participants is without prejudice to obligations to comply with applicable trading and balancing rules.

2.    Not later than 3 months after the date on which the Commission adopts the implementing acts set out in Article 8(2), national regulatory authorities shall establish national registers of market participants which they 1282

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

shall keep up to date. The register shall give each market participant a unique identifier and shall contain sufficient information to identify the market participant, including relevant details relating to its value added tax number, its place of establishment, the persons responsible for its operational and trading decisions, and the ultimate controller or beneficiary of the market participant’s trading activities. 3.    National regulatory authorities shall transmit the information in their national registers to the Agency in a format determined by the Agency. The Agency shall, in cooperation with those authorities, determine that format and shall publish it by 29 June 2012. Based on the information provided by national regulatory authorities, the Agency shall establish a European register of market participants. National regulatory authorities and other relevant authorities shall have access to the European register. Subject to Article 17, the Agency may decide to make the European register, or extracts thereof, publicly available provided that commercially sensitive information on individual market participants is not disclosed. 4.    Market participants referred to in paragraph 1 of this Article shall submit the registration form to the national regulatory authority prior to entering into a transaction which is required to be reported to the Agency in accordance with Article 8(1). 5.    Market participants referred to in paragraph 1 shall communicate promptly to the national regulatory authority any change which has taken place as regards the information provided in the registration form. Article 10 Sharing of information between the Agency and other authorities 1.    The Agency shall establish mechanisms to share information it receives in accordance with Article 7(1) and Article 8 with national regulatory authorities, competent financial authorities of the Member States, national competition authorities, ESMA and other relevant authorities. Before establishing such mechanisms, the Agency shall consult with those authorities.

1283

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

2.    The Agency shall give access to the mechanisms referred to in paragraph 1 only to authorities which have set up systems enabling the Agency to meet the requirements of Article 12(1). 3.    Trade repositories registered or recognised under applicable Union legislation on derivative transactions, central counterparties and trade repositories shall make relevant information regarding wholesale energy products and derivatives of emissions allowances collected by them available to the Agency.

ESMA shall transmit to the Agency reports of transactions in wholesale energy products received pursuant to Article 25(3) of Directive 2004/39/ EC and under applicable Union legislation on derivative transactions, central counterparties and trade repositories. Competent authorities receiving reports of transactions in wholesale energy products received pursuant to Article 25(3) of Directive 2004/39/EC shall transmit those reports to the Agency.



The Agency and authorities responsible for overseeing trading in emissions allowances or derivatives relating to emissions allowances shall cooperate with each other and establish appropriate mechanisms to provide the Agency with access to records of transactions in such allowances and derivatives where those authorities collect information on such transactions. Article 11 Data protection

This Regulation shall be without prejudice to the obligations of Member States relating to their processing of personal data under Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (14) or the obligations of the Agency, when fulfilling its responsibilities, relating to its processing of personal data under Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data15. 1284

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Article 12 Operational reliability 1.    The Agency shall ensure the confidentiality, integrity and protection of the information received pursuant to Article 4(2) and Articles 8 and 10. The Agency shall take all necessary measures to prevent any misuse of, and unauthorised access to, the information maintained in its systems.

National regulatory authorities, competent financial authorities of the Member States, national competition authorities, ESMA and other relevant authorities shall ensure the confidentiality, integrity and protection of the information which they receive pursuant to Articles 4(2), 7(2) or 8(5) or Article 10 and shall take steps to prevent any misuse of such information.



The Agency shall identify sources of operational risk and minimise them through the development of appropriate systems, controls and procedures.

2.    Subject to Article 17, the Agency may decide to make publicly available parts of the information which it possesses, provided that commercially sensitive information on individual market participants or individual transactions or individual market places are not disclosed and cannot be inferred.

The Agency shall make its commercially non-sensitive trade database available for scientific purposes, subject to confidentiality requirements.



Information shall be published or made available in the interest of improving transparency of wholesale energy markets and provided it is not likely to create any distortion in competition on those energy markets.



The Agency shall disseminate information in a fair manner according to transparent rules which it shall draw up and make publicly available.

1285

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Article 13 Implementation of prohibitions against market abuse 1.    National regulatory authorities shall ensure that the prohibitions set out in Articles 3 and 5 and the obligation set out in Article 4 are applied.

Each Member State shall ensure that its national regulatory authorities have the investigatory and enforcement powers necessary for the exercise of that function by 29 June 2013. Those powers shall be exercised in a proportionate manner.



Those powers may be exercised:



(a)

directly;

(b)

in collaboration with other authorities; or

(c)

by application to the competent judicial authorities.

Where appropriate, the national regulatory authorities may exercise their investigatory powers in collaboration with organised markets, tradematching systems or other persons professionally arranging transactions as referred to in point (d) of Article 8(4).

2.    The investigatory and enforcement powers referred to in paragraph 1 shall be limited to the aim of the investigation. They shall be exercised in conformity with national law and include the right to: (a)

have access to any relevant document in any form, and to receive a copy of it;

(b)

demand information from any relevant person, including those who are successively involved in the transmission of orders or conduct of the operations concerned, as well as their principals, and, if necessary, the right to summon and hear any such person or principal;

(c)

carry out on-site inspections;

(d)

require existing telephone and existing data traffic records; 1286

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

(e)

require the cessation of any practice that is contrary to this Regulation or delegated acts or implementing acts adopted on the basis thereof;

(f )

request a court to freeze or sequester assets;

(g)

request a court or any competent authority to impose a temporary prohibition of professional activity. Article 14 Right of appeal

Member States shall ensure that suitable mechanisms exist at national level under which a party affected by a decision of the regulatory authority has a right of appeal to a body independent of the parties involved and of any government. Article 15 Obligations of persons professionally arranging transactions Any person professionally arranging transactions in wholesale energy products who reasonably suspects that a transaction might breach Article 3 or 5 shall notify the national regulatory authority without further delay. Persons professionally arranging transactions in wholesale energy products shall establish and maintain effective arrangements and procedures to identify breaches of Article 3 or 5. Article 16 Cooperation at Union and national level 1.    The Agency shall aim to ensure that national regulatory authorities carry out their tasks under this Regulation in a coordinated and consistent way.

1287

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy



The Agency shall publish non-binding guidance on the application of the definitions set out in Article 2, as appropriate.



National regulatory authorities shall cooperate with the Agency and with each other, including at regional level, for the purpose of carrying out their duties in accordance with this Regulation.



National regulatory authorities, competent financial authorities and the national competition authority in a Member State may establish appropriate forms of cooperation in order to ensure effective and efficient investigation and enforcement and to contribute to a coherent and consistent approach to investigation, judicial proceedings and to the enforcement of this Regulation and relevant financial and competition law.

2.    National regulatory authorities shall without delay inform the Agency in as specific a manner as possible where they have reasonable grounds to suspect that acts in breach of this Regulation are being, or have been, carried out either in that Member State or in another Member State.

Where a national regulatory authority suspects that acts which affect wholesale energy markets or the price of wholesale energy products in that Member State are being carried out in another Member State, it may request the Agency to take action in accordance with paragraph 4 of this Article and, if the acts affect financial instruments subject to Article 9 of Directive 2003/6/EC, in accordance with paragraph 3 of this Article.

3.  

In order to ensure a coordinated and consistent approach to market abuse on wholesale energy markets: (a)

national regulatory authorities shall inform the competent financial authority of their Member State and the Agency where they have reasonable grounds to suspect that acts are being, or have been, carried out on wholesale energy markets which constitute market abuse within the meaning of Directive 2003/6/EC and which affect financial instruments subject to Article 9 of that Directive; for these purposes, national regulatory authorities may establish appropriate forms of cooperation with the competent financial authority in their Member State;

1288

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

(b)

the Agency shall inform ESMA and the competent financial authority where it has reasonable grounds to suspect that acts are being, or have been, carried out on wholesale energy markets which constitute market abuse within the meaning of Directive 2003/6/ EC and which affect financial instruments subject to Article 9 of that Directive;

(c)

the competent financial authority of a Member State shall inform ESMA and the Agency where it has reasonable grounds to suspect that acts in breach of Articles 3 and 5 are being, or have been, carried out on wholesale energy markets in another Member State;

(d)

national regulatory authorities shall inform the national competition authority of their Member State, the Commission and the Agency where they have reasonable grounds to suspect that acts are being, or have been, carried out on wholesale energy market which are likely to constitute a breach of competition law.

4.    In order to carry out its functions under paragraph 1, where, inter alia, on the basis of initial assessments or analysis, the Agency suspects that there has been a breach of this Regulation, it shall have the power: (a)

to request one or more national regulatory authorities to supply any information related to the suspected breach;

(b)

to request one or more national regulatory authorities to commence an investigation of the suspected breach, and to take appropriate action to remedy any breach found. Any decision as regards the appropriate action to be taken to remedy any breach found shall be the responsibility of the national regulatory authority concerned;

(c)

where it considers that the possible breach has, or has had, a crossborder impact, to establish and coordinate an investigatory group consisting of representatives of concerned national regulatory authorities to investigate whether this Regulation has been breached and in which Member State the breach took place. Where appropriate, the Agency may also request the participation of representatives of the competent financial authority or other relevant authority of one or more Member States in the investigatory group. 1289

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

5.    A national regulatory authority receiving a request for information under point (a) of paragraph 4, or receiving a request to commence an investigation of a suspected breach under point (b) of paragraph 4, shall immediately take the necessary measures in order to comply with that request. If that national regulatory authority is not able to supply the required information immediately, it shall without further delay notify the Agency of the reasons.

By way of derogation from the first subparagraph, a national regulatory authority may refuse to act on a request where: (a)

compliance might adversely affect the sovereignty or security of the Member State addressed;

(b)

judicial proceedings have already been initiated in respect of the same actions and against the same persons before the authorities of the Member State addressed; or

(c)

a final judgment has already been delivered in relation to such persons for the same actions in the Member State addressed.



In any such case, the national regulatory authority shall notify the Agency accordingly, providing as detailed information as possible on those proceedings or the judgment.



National regulatory authorities shall participate in an investigatory group convened in accordance with point (c) of paragraph 4, rendering all necessary assistance. The investigatory group shall be subject to coordination by the Agency.

6.    The last sentence of Article 15(1) of Regulation (EC) No 713/2009 shall not apply to the Agency when carrying out its tasks under this Regulation.

1290

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Article 17 Professional secrecy 1.    Any confidential information received, exchanged or transmitted pursuant to this Regulation shall be subject to the conditions of professional secrecy laid down in paragraphs 2, 3 and 4. 2.    The obligation of professional secrecy shall apply to: (a)

persons who work or who have worked for the Agency;

(b)

auditors and experts instructed by the Agency;

(c)

persons who work or who have worked for the national regulatory authorities or for other relevant authorities;

(d)

auditors and experts instructed by national regulatory authorities or by other relevant authorities who receive confidential information in accordance with this Regulation.

3.    Confidential information received by the persons referred to in paragraph 2 in the course of their duties may not be divulged to any other person or authority, except in summary or aggregate form such that an individual market participant or market place cannot be identified, without prejudice to cases covered by criminal law, the other provisions of this Regulation or other relevant Union legislation. 4.    Without prejudice to cases covered by criminal law, the Agency, national regulatory authorities, competent financial authorities of the Member States, ESMA, bodies or persons which receive confidential information pursuant to this Regulation may use it only in the performance of their duties and for the exercise of their functions. Other authorities, bodies or persons may use that information for the purpose for which it was provided to them or in the context of administrative or judicial proceedings specifically related to the exercise of those functions. The authority receiving the information may use it for other purposes, provided that the Agency, national regulatory authorities, competent financial authorities of the Member States, ESMA, bodies or persons communicating information consent thereto. 1291

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

5.    This Article shall not prevent an authority in a Member State from exchanging or transmitting, in accordance with national law, confidential information provided that it has not been received from an authority of another Member State or from the Agency under this Regulation. Article 18 Penalties The Member States shall lay down the rules on penalties applicable to infringements of this Regulation and shall take all measures necessary to ensure that they are implemented. The penalties provided for must be effective, dissuasive and proportionate, reflecting the nature, duration and seriousness of the infringement, the damage caused to consumers and the potential gains from trading on the basis of inside information and market manipulation. The Member States shall notify those provisions to the Commission by 29 June 2013 at the latest and shall notify it without delay of any subsequent amendment affecting them. Member States shall provide that the national regulatory authority may disclose to the public measures or penalties imposed for infringement of this Regulation unless such disclosure would cause disproportionate damage to the parties involved. Article 19 International relations In so far as is necessary to achieve the objectives set out in this Regulation and without prejudice to the respective competences of the Member States and the Union institutions, including the European External Action Service, the Agency may develop contacts and enter into administrative arrangements with supervisory authorities, international organisations and the administrations of third countries in particular with those impacting the Union energy wholesale market in order to promote the harmonisation of the regulatory framework. Those arrangements shall not create legal obligations in respect of the Union and its Member States nor shall they prevent Member States and their com1292

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

petent authorities from concluding bilateral or multilateral arrangements with those supervisory authorities, international organisations and the administrations of third countries. Article 20 Exercise of the delegation 1.    The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2.    The power to adopt delegated acts referred to in Article 6 shall be conferred on the Commission for a period of 5 years from 28 December 2011. The Commission shall draw up a report in respect of the delegation of power not later than 9 months before the end of the 5-year period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than 3 months before the end of each period. 3.    The delegation of power referred to in Article 6 may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the  Official Journal of the European Union  or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4.    As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 5.    A delegated act adopted pursuant to Article 6 shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of 2 months of notification of that act to the European Parliament and to the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by 2 months at the initiative of the European Parliament or the Council.

1293

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Article 21 Committee procedure 1.    The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2.    Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply. Article 22 Entry into force This Regulation shall enter into force on the 20th day following its publication in the Official Journal of the European Union. Paragraph 1, the first subparagraph of paragraph 3, and paragraphs 4 and 5 of Article 8 shall apply with effect from 6 months after the date on which the Commission adopts the relevant implementing acts referred to in paragraphs 2 and 6 of that Article. This Regulation shall be binding in its entirety and directly applicable in all Member States. Done at Strasbourg, 25 October 2011. For the European Parliament The President J. BUZEK For the Council The President M. DOWGIELEWICZ

1294

Appendix 6 Reg (EU) 1227/2011 – Wholesale energy market integrity and transperancy

Notes 1

OJ C 132, 3.5.2011, p. 108.

2

Position of the European Parliament of 14 September 2011 (not yet published in the Official Journal) and

3

OJ L 211, 14.8.2009, p. 15.

4

OJ L 211, 14.8.2009, p. 36.

5

OJ L 96, 12.4.2003, p. 16.

6

OJ L 211, 14.8.2009, p. 1.

7

OJ L 55, 28.2.2011, p. 13.

8

OJ L 145, 30.4.2004, p. 1.

9

OJ L 331, 15.12.2010, p. 84.

10

OJ L 211, 14.8.2009, p. 55.

11

OJ L 211, 14.8.2009, p. 94.

12

OJ L 193, 18.7.1983, p. 1.

13

OJ L 345, 23.12.2008, p. 75.

14

OJ L 281, 23.11.1995, p. 31.

15

OJ L 8, 12.1.2001, p. 1.

Decision of the Council of 10 October 2011.

COMMISSION STATEMENT The Commission considers that the thresholds for reporting transactions within the meaning of Article 8(2)(a) and information within the meaning of Article 8(6)(a) cannot be set through implementing acts. Where appropriate the Commission will come forward with a legislative proposal to set such thresholds.

COUNCIL STATEMENT The EU legislator has conferred on the Commission implementing powers in accordance with Article 291 TFEU in relation to measures foreseen in Article 8. That is legally binding for the Commission despite the declaration it made in respect to Article 8(2)(a) and Article 8(6)(a).

1295

Appendix 7 SWD (2013) 177 – Ownership unbundling

Appendix 7 Commission staff working document Ownership unbundling The commission’s practice in assessing the presence of a conflict of interest including in case of financial investors

1. INTRODUCTION The Electricity Directive and the Gas Directive of the Third energy package1 have introduced a structural separation between transmission system operator activities on the one hand, and generation, production and supply activities on the other hand. The aim of these provisions on “unbundling” of networks is to avoid conflicts of interest and to make sure that transmission system operators (“TSOs”) take their decisions independently, ensuring transparency and non­discrimination towards all network users. This is not only relevant for the day-to-day operational decisions of TSOs, but also for their strategic investment decisions. The present document highlights the Commission’s practice in dealing with certain aspects of the rules on unbundling of TSOs, as laid down in the Electricity and Gas Directives. The focus is on the application of the rules on ownership unbundling. In particular, the issue is addressed how the rules on ownership unbundling as set out in Article 9 of the Directives are to be appliedin situations where a shareholder in a TSO also has participations in generation, production and/or supply activities, while it can be demonstrated that in the specific circumstances of the case there is no incentive for this shareholder to influence 1297

Appendix 7 SWD (2013) 177 – Ownership unbundling

the decision making in the TSO with the intention to favour his generation, production and/or supply activities to the detriment of other network users2. According to the Commission’s experience in the application of the ownership unbundling rules this issue may arise, for instance, in case a holding company of a TSO at the same time has participations in certain generation, production and/or supply activities. Also different types of investors could be confronted with this question, for example financial investors such as pension funds, insurance companies and infrastructure funds with participations in the energy sector. Such financial investors often have diversified portfolios including participations in energy transmission, generation, production and/or supply activities, located in different places3. The aim of the present paper is hence to illustrate how the rules on ownership unbundling of the Electricity and Gas Directives have been interpreted and applied by the Commission in the context of the certification procedure of TSOs. However, it is noted that the present document is not legally binding. Giving binding interpretation of European Union law is ultimately the role of the European Court of Justice.

2. OVERVIEW OF THE RULES ON OWNERSHIP UNBUNDLING In order to provide the relevant background, a brief overview of the the rules on ownership unbundling is set out hereunder4. The rules on ownership unbundling are laid down in Article 9 Electricity and Gas Directives. Article 9(1)(b)(i) Electricity and Gas Directives requires that the same person cannot ‘control’ generation, production and/or supply activities, and at the same time ‘control’ or exercise ‘any right’ over a TSO or a transmission system. Furthermore, according to Article 9(1)(b)(ii) Electricity and Gas Directives, the same person cannot ‘control’ a TSO or a transmission system, and at the same time ‘control’ or exercise ‘any right’ over generation, production and/or supply activities. The concept of ‘control’ is taken from Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (‘the EC Merger Regulation’)5 and should be interpreted accordingly (recital 13 Electricity Directive and recital 10 Gas Directive). Under Article 3(2) EC 1298

Appendix 7 SWD (2013) 177 – Ownership unbundling

Merger Regulation, control is constituted by ‘rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking’. Article 9(2) Electricity and Gas Directives clarify that the exercise of ‘any right’ includes in particular 1) the exercise of voting rights, 2) the power to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, or 3) the holding of a majority share. However, Article 9(2) does not exclude the holding of purely passive financial rights related to a minority shareholding, i.e. the right to receive dividends, without any voting rights or appointment rights attached to them. In order to avoid undue influence arising from vertical relations between gas and electricity markets, Article 9(3) Electricity and Gas Directives determine furthermore that ownership unbundling provisions apply across the gas and electricity markets, prohibiting influence over both an electricity generator or supplier and a gas TSO or a gas producer or supplier and an electricity TSO. Article 9(1)(c) and (d) Electricity and Gas Directives provide for two additional requirements: under subparagraph (c), the same person is not entitled to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking of a TSO or a transmission system, and directly or indirectly to exercise control or any right over generation, production and/or supply activities. Subparagraph (d) addresses the issue of a conflict of interest for board members by prohibiting the same person from being a member of the board of both a TSO and a generator, producer or supplier.

3.

AVOIDING ANY POTENTIAL CONFLICT OF INTEREST

As stated above, the objective which the unbundling rules of the Electricity and Gas Directives pursue is the removal of any conflict of interest between generators/producers, suppliers and transmission system operators. It would not be in line with this objective if certification of a TSO were to be refused in cases where it can be clearly demonstrated that there is no incentive for a shareholder in a TSO to influence the TSO’s decision making in order to favour his generation, production and/or supply interest to the detriment of other network users.6

1299

Appendix 7 SWD (2013) 177 – Ownership unbundling

The Commission found in the context of the certification procedure for TSOs that in certain situations referred to in Article 9(1)(b), (c) and/or (d) of the Directives, it was evident from the facts of the concrete case that the simultaneous participation in transmission activitities on the one hand, and in generation, production and/or supply activities on the other hand, did not give rise to any potential conflict of interest or incentive to exploit it, and as a consequence did not in any way risk to impact negatively on the independent management of the TSO. This was for instance the case where a shareholder had a participation in a transmission network in the EU, as well as a particpation in generation activities in the United States or in Australia, with no connection or interface between the energy systems concerned7. To refuse certification in such situations would have been clearly disproportionate in view of the objective of the unbundling rules concerned, namely to avoid potential conflicts of interest. Such situations have also occurred where participations were held by financial investors8. For financial investors, ownership unbundled TSOs form an important class of potential investment opportunities, taking into account that investments in transmission infrastructure with regulated network tariffs offer stable, low risk returns that fit well with their investment profile9. Cooperation with financial investors may enable ownership unbundled TSOs to raise the necessary funds for the capital expenditure that is needed to realise the investments in the EU energy network infrastructure10. In situations as referred to above, where it can be clearly demonstrated that even though one or more of the circumstances referred to in Article 9(1)(b), (c) and/ or (d) appear to be present, there is clearly no incentive for a shareholder in a TSO to influence the decision making in this TSO with the intention to favour its generation, production and/or supply interests to the detriment of other network users, the Commission has taken the view that a refusal to certify such a TSO given the fact that such participation in generation, production and/or supply activities does not lead to a situation which the unbundling rules seek to prevent. Any different interpretation of the unbundling rules of Article 9(1) (b) to (d) Electricity and Gas Directives could lead consequences which would not be justified by the objective the unbundling rules seek to pursue, notably, avoiding discrimination in the operation of the network and in the investment decisions concerning the network.

1300

Appendix 7 SWD (2013) 177 – Ownership unbundling

4. THE COMMISSION’S PRACTICE IN THE CERTIFICATION PROCEDURE FOR TSOS The first case where the above approach was followed is the Commission’s opinion on the certification of the three National Grid TSOs in the United Kingdom11. In this opinion, the Commission considered that the fact that the ultimate holding company of the three National Grid TSOs in the United Kingdom also controlled generation interests in the United States was no obstacle to certification under the ownership unbundling model, notably in view of the absence of any interface between the electricity systems of the United States and the United Kingdom. The Commission stated in its opinion: “As set out in Ofgem’s draft decision, National Grid plc, the ultimate controller of the Applicants, employs a number of activities in subsidiaries and associated companies. Some of these subsidiaries, under the umbrella of National Grid USA, a wholly owned subsidiary of National Grid plc, are involved in the generation of electricity in the United States. Ofgem concludes that these interests are not to be considered relevant interests as the national legislation transposing the Electricity Directive in Great Britain considers generators and suppliers operating outside the European Economic Area (EEA) as not relevant for certification purposes. Whilst the Commission points out that Article 9(1)(b)(ii) of the Electricity and Gas Directives is not restricted to generators, producers and suppliers operating in the EEA, it considers that, notably in view of the absence of any interface between the US and the UK electricity systems, the activities of National Grid in the United States are not of such nature as to prevent certification of the Applicants.” Even though the application of Article 9 Electricity and Gas Directives is not limited to generation, production and/or supply activities within the EEA, it is clear that the closer to each other the relevant activities are, the greater the risk of a conflict of interest is. This is a fortiori the case if the activities concerned take place in the same Member State. Also in the opinion on the certification of the Swedish gas TSO Swedegas the Commission analysed whether a conflict of interest could be identified12. In this case the Commission agreed with the Swedish regulatory authority EI that the fact that the ultimate controller of Swedegas also controlled a waste disposal company generating electricity in the neighbouring Member State Denmark could not form an obstacle to certification of Swedegas as an ownership unbundled TSO, given that in the specific case only limited quantities of electricity were being generated, as a mere by-product, and given that the electricity gen1301

Appendix 7 SWD (2013) 177 – Ownership unbundling

erated was subsequently sold for pre-established prices. Since in these circumstances it appeared impossible to use the gas transmission activities of Swedegas in a manner so as to favour the electricity generating interests of waste disposal company in Denmark, no risk of discrimination of network users could be identified, and therefore no obstacle to certification. The Commission stated: “Swedegas is owned by the EQT Infrastructure Fund, an infrastructure investment fund. The ultimate ownership of the EQT Infrastructure Fund lies, via a number of intermediary legal persons, with SEP Capital B.V., registered in The Netherlands. In its draft decision, EI has assessed whether other companies owned and controlled by the EQT Infrastructure Fund perform any of the activities of generation, production or supply. EI has found that three companies perform such activities. The first of these undertakings is Kommunekemi A/S, a waste treatment company operating in the neighbouring Member State Denmark, which uses heat from the processing of waste primarily for district heating purposes. During the summer months the heat is also used for the generation of limited quantities of electricity, which Kommunekemi A/S sells for guaranteed and pre-established prices. The Commission agrees with EI that, given that only limited quantities of electricity are being generated, as a mere byproduct, and given that the electricity generated is subsequently sold for pre-established prices, these generation activities cannot form an obstacle to certification of Swedegas as an ownership unbundled TSO. Since in the present case it appears impossible to use the transmission activities of Swedegas in a manner so as to favour the electricity generating interests of Kommunekemi A/S, there is no risk of discrimination of network users.” It is not excluded that a simultaneous participation in a gas TSO and in electricity generation and/or supply activities, or in an electricity TSO and in gas production and/or supply activities can also give rise to a conflict of interest. Nevertheless in situations where a shareholder has a participation in a gas TSO and simultaneously a share in electricity generation activities, the possibility to favour its electricity generation activities by influencing the gas transmission may under certain specific conditions be somewhat more limited than in situations where the transmission and generation activities both relate to electricity. In the opinions on the certification of the Spanish electricity TSO Red Electrica de Espana13 and the gas TSO Enagas14, the Commission applied a similar approach. The Commission concluded after an analysis that it could not be expected that the shareholder in Red Electrica de Espana and in ENAGAS which also controlled certain small size coal-fired generation activities, which were performed under a regulated framework and benefitted from priority dis1302

Appendix 7 SWD (2013) 177 – Ownership unbundling

patching, was able to influence the transmission activities of Red Electrica de Espana or of ENAGAS in a discriminatory manner so as to favour its participation in these generation activities. The Commission stated in its opinion on Red Eléctrica de Espana: “From the preliminary decision of CNE it appears that the main shareholder of Red Eléctrica Corporación, SEPI, owns a company, Hunosa, S.A., of which the main activity is mining and extraction of coal, and which also controls a thermal power plant in La Pereda (Asturias) of 50 MW. The question comes up how this participation of SEPI in Hunosa S.A. relates to the provisions of Article 9(1)(b) (i) and (ii). From the preliminary decision of CNE it follows that the generation activities concerned, which are considered important from a social and regional perspective but are not performed under normal commercial terms, are performed under a regulated scheme, the so called “regimen especial”, set out by the Spanish legal framework under Royal Decree 661/2007. Their size is small, with production representing approximately 0.1375% of the Spanish total electricity generation. The Commission agrees with CNE that as long as these generation activities are performed under a regulated framework, can benefit by law from priority dispatching and remain small in size, it cannot be expected that SEPI will be able to influence the transmission activities of Red Eléctrica de España in a discriminatory manner so as to favour its participation in the generation activities of Hunosa S.A. In such circumstances the Commission agrees with CNE that an obstacle to certification cannot be identified.” Where generation activities have a guaranteed income such as specific feed-in tariffs that do not vary with market prices15, they will no longer be sensitive to wholesale price fluctuations, and as a consequence will less easily give rise to a conflict of interest and an incentive to discriminate through transmission activities. A similar reasoning is included in the Commission’s opinion on the certification of ENAGAS. A further case which is relevant is the Commission’s opinion on the certification of the German electricity TSO 50 Hertz Transmission16. In this case a financial investor, IFM Global Infrastructure Fund, with a controlling participation in the TSO, also had several participations in generation and supply activities. One of these participations was a non­controlling participation in the Polish company Dalkia Polska. This company, through various local district heating plants and networks, was a supplier of heat on the regulated district heating market in Poland. As a by-product to the production of heat, Dalkia Polska also generated electricity, albeit limited in relative terms. In its draft decision the 1303

Appendix 7 SWD (2013) 177 – Ownership unbundling

German regulatory authority analysed in detail whether any incentive could be identified for IFM Global Infrastructure Fund to influence the decision making in 50 Hertz as a TSO in Germany in order to favour the generation interests it had in Dalkia Polska or to discriminate against actual or potential competitors. As no such incentive could be identified, the participation of IFM Global Infrastructure Fund in Dalkia Polska was not considered to constitute an obstacle to the certification of 50 Hertz as an ownership unbundled TSO. The Commission stated in its opinion: “Bundesnetzagentur also examined the participation IFM Global Infrastructure Fund has in generation and supply activities in the EU. In particular, IFM Global Infrastructure Fund has a non-controlling participation of […] in the Polish company Dalkia Polska. It appears from the draft decision that this company, through various local district heating plants and networks, is a supplier of heat on the regulated district heating market in Poland. However, as a by-product to the production of heat, Dalkia Polska also generates electricity, albeit limited in relative terms. Decisions concerning the operation of the different plants of Dalkia Polska are taken on the basis of the heating needs of the consumers connected to the district heating network and not on the basis of needs of electricity generation. In practice, Dalkia Polska is a price taker on the Polish electricity market and does not have any influence on the electricity price. In its draft decision Bundesnetzagentur analysed in detail whether in the circumstances of the present case any incentive could be identified for IFM Global Infrastructure Fund to influence the decision making in 50 Hertz as a TSO in Germany in order to favour the generation interests it has in Dalkia Polska or to discriminate against actual or potential competitors. Bundesnetzagentur came to the conclusion that in the present case no such incentive could be identified, and that as a consequence the participation of IFM Global Infrastructure Fund in Dalkia Polska does not form an obstacle to the certification of 50 Hertz as an ownership unbundled TSO. Based on the information in the draft decision, the Commission has no reason to question the assessment of Bundesnetzagentur in the present case and agrees to its conclusion. The Commission invites Bundesnetzagentur, however, to continue monitoring the case also after the adoption of the certification decision in order to satisfy itself that no new facts and circumstances emerge which would justify a change of its assessment and to include a condition in its final certification decision which requires 50 Hertz to regularly report to Bundesnetzagentur on the relevant circumstances.”

1304

Appendix 7 SWD (2013) 177 – Ownership unbundling

In situations where no conflict of interest is found it may still be important to continue to monitor the case, as new facts or circumstances might emerge in the future that could change the initial assessment made. Such monitoring is primarily a responsibility for the national regulatory authorities. Finally, reference is made to the Commission’s opinion concerning the certification of the Italian gas TSO Società Gasdotti Italia (“SGI”)17. In this case a financial investor, Eiser Global Infrastructure Fund (“Eiser”), the ultimate owner of the TSO, also had participations in companies active in electricity generation. Concerning Eiser’s participations in two solar energy companies located in Spain, the Commission agreed with the assessment of the Italian regulatory authority that, considering the fact that the interface between the Spanish electricity market and the Italian gas market was limited, and as long as the generation activities concerned would be performed under the Spanish regulated framework, could benefit by law from priority dispatching and remained small in size, it could not be expected that Eiser would be able to influence the transmission activities of SGI in a discriminatory manner so as to favour its participations in the generation activities of Aries Solar Termoelectrica S.L. and Dioxipe Solar S.L. The Commission stated in its opinion: “First, the participations of Eiser in Aries Solar Termoelectrica S.L. (36.95%) and Dioxipe Solar S.L. (33.83%) concern companies located in Spain which are active in production of electricity from solar energy. The two power units concerned, currently still under construction, will have a generation capacity of 50MW each. According to the Spanish regulatory framework applicable to renewable energy, the electricity will be sold to the local distribution company at a regulated price. The Commission agrees with the assessment of AEEG that the interface that exists between the Spanish electricity market and the Italian gas market is very limited and that as long as the generation activities concerned are performed under the Spanish regulated framework, can benefit by law from priority dispatching and remain small in size, it cannot be expected that Eiser will be able to influence the transmission activities of SGI in a discriminatory manner so as to favour its participations in the generation activities of Aries Solar Termoelectrica S.L. and Dioxipe Solar S.L. In such circumstances the Commission agrees with AEEG that an obstacle to certification cannot be identified.” Concerning Eiser’s participation in a waste management company in the United Kingdom which generated electricity from waste and biogas through two production units of relatively small size (resp. 66MW and 50MW), the Commission agreed with the assessment of the Italian regulatory authority that the 1305

Appendix 7 SWD (2013) 177 – Ownership unbundling

geographical distance between the place where the electricity was generated and where the gas transmission network of SGI was located excluded the possibility for Eiser to discriminate between network users of its gas transmission network in order to favour its participation in the generation activities of the waste management company in the United Kingdom. Also here an obstacle to certification could not be identified. The Commission stated in its opinion: “Second, the participation of Eiser in the Cory Environmental Holding (33.3%) concerns a waste management company, generating electricity from waste and biogas through two production units of relatively small size (resp. 66MW and 50MW) located in the United Kingdom. In this case the electricity is sold on the wholesale market through bilateral contracts. The Commission agrees with the assessment of AEEG that the geographical distance between the place where the electricity is generated and where the gas transmission network of SGI is located excludes the possibility for Eiser to discriminate between network users of its gas transmission network in order to favour its participation in the generation activities of the Cory Environmental Holding. Also here no obstacle to certification can be identified.” Eiser finally had a participation in the company Herambiente, an Italian waste management company, which, as a by-product, produced renewable electricity from waste. In particular in view of the small size of the different production units concerned, the fact that part of the electricity was sold at a regulated price and the fact that the production units were not located in the area where the gas network of SGI is situated, the Commission in its opinion agreed with the Italian regulatory authority that the participation of Eiser in Herambiente did not create a conflict of interest with the gas transmission activities of SGI. The Commission stated in its opinion: “Finally, the participation of Eiser in Herambiente S.p.A concerns an indirect 12.5% stake in an Italian waste management company, which, as a by-product, produces renewable electricity from waste. The electricity is produced in seven different production units with a capacity of less than 20 MW on average, operating independently from each other. The production units do not make use of any gas for the production of electricity. Part of the electricity is sold at a regulated price, the remainder benefits from priority dispatching and is sold on the wholesale market through bilateral contracts. Moreover, the production units are not located in the same area as where the gas network of SGI is situated, but in the Northern part of Italy. On the basis of these circumstances, and in particular in view of the small size of the different production units concerned, the fact that part of the electricity is sold at a regulated price and the fact that the production units are not located in 1306

Appendix 7 SWD (2013) 177 – Ownership unbundling

the area where the gas network of SGI is situated, AEEG has concluded that the participation of Eiser in Herambiente does not create a conflict of interest with the gas transmission activities of SGI and that there is, as a consequence, no risk of discrimination in the handling of the activities of the gas TSO. Based on the information in the draft decision, the Commission has no reason to question the assessment of AEEG in the present case and agrees to its conclusion. The Commission invites AEEG, however, to continue monitoring the situation also after the adoption of the certification decision in order to satisfy itself that no new facts and circumstances emerge, such as for example the opening of more generation units in the vicinity of the SGI network that would interfere with the transmission business, which would justify a change of its assessment.” Also in this case the Commission invited the national regulatory authority to continue monitoring the case after the adoption of the certification decision, in order to satisfy itself that no new facts and circumstances would emerge which could justify a change of the assessment. It is underlined that further cases are still to be submitted to the Commission in the context of the certification procedure of TSOs, and that more opinions will therefore be published on the website of DG Energy.

5. FINAL REMARKS In some cases it may not be straightforward to establish whether or not a conflict of interest exists in case a shareholder with a participation in generation, production and/or supply activities has invested in a TSO. Notably in those situations an in-depth analysis on a case-by­case basis will be required by the national regulatory authority and by the Commission in the context of the certification procedure, as certification can only be granted if any conflict of interest is clearly excluded. A complete file will have to be provided by the TSO, containing all the relevant facts and circumstances, together with a clear argumentation on whether participations of the shareholder in generation, production and/or supply interests give rise to a potential conflict of interest and an incentive to exploit it. It is for the TSO to be certified to bring to the attention of the regulatory authority, where appropriate, that even though one or more of the circumstances set out to in Article 9(1)(b), (c) and/or (d) of the Directive may arguably be present, no conflict of interest exists in the particular case. The burden of proof 1307

Appendix 7 SWD (2013) 177 – Ownership unbundling

as to the absence of a conflict of interest or an incentive to exploit it lies with the TSO to be certified and its shareholders, and includes an obligation to submit all the relevant information. The regulatory authority is to take the presented information into account and include it in its assessment whether the unbundling rules of Article 9 Electricity and Gas Directives are complied with. Several elements could be of relevance for this case-by-case assessment, such as for instance the geographic location of the transmission activities and the generation, production and/or supply activities concerned; the value and the nature of the participations in these activities, as well as the size and market share of the generation, production and/or supply activities. Also the question whether wholesale price evolution of the commodity would have consequences for the emergence of a conflict of interest could be relevant. This list is indicative and not exhaustive, and none of these elements is necessarily decisive on its own. An overall assessment will always be required, taking various elements into account, where relevant, in order to show that by way of exception clearly no conflict of interest may arise. This is illustrated by the cases referred to in Chapter 4 of this Note, which the Commission has assessed in the context of the certification procedure for TSOs. An additional point of attention concerns the access to confidential information. In the in­depth analysis specific attention should be given to arrangements preventing access to business sensitive information relevant for the generation, production and/or supply business. Even if an incentive to influence the decision making in the TSO is absent, the access the investor has to confidential information may still give this investor an advantage over its competitors on the generation, production and/or supply market. It is underlined that if it were to follow from the assessment that a shareholder with a participation in generation, production and/or supply interests may have an incentive to discriminate, it would still be allowed for this shareholder to maintain a passive minority shareholding in the TSO, without being entitled to directly or indirectly exercising voting rights related to this shareholding, or to appoint board members in the TSO. Its financial rights in relation to its shareholding, in particular the right to receive dividends, would remain unaffected in such case. Any material changes in the production, generation and/or supply activities of the shareholder concerned may trigger the need for a reassessment of the TSO’s compliance with the unbundling rules and should be notified to the national 1308

Appendix 7 SWD (2013) 177 – Ownership unbundling

regulatory authority in accordance with the Electricity and Gas Directives. The national regulatory authority can open a new certification procedure on its own initiative, in case it has acquired knowledge of a material change in rights or influence over a TSO that may lead to a violation of Article 9 Electricity and Gas Directives, or of plans to that extent. Also the Commission may issue a reasoned request to the national regulatory authority to open a certification procedure18. Regulatory authorities and TSOs concerned should be encouraged to find pragmatic and proportionate ways for the TSOs to notify such changes to the national regulatory authorities in order to allow these authorities to carry out their monitoring duties.

Notes 1

Directive 2009/72/EC of the European Parliament and the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55) and Directive 2009/73/EC of the European Parliament and the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211, 14.8.2009, p. 94).

2

The other unbundling models provided for by the Electricity and Gas Directives, in particular the Independent System Operator (ISO) and the Independent Transmission Operator (ITO), are not further discussed in this paper. However, the rules on ownership unbundling, in particular Article 9(1)(b), (c) and (d) Electricity and Gas Directives, are also relevant for the application of the ISO model in order to determine the independence of the system operator. See Article 13(2) Electricity Directive and Article 14(2) Gas Directive.

3

Although financial investors form a relatively diverse group, they may nevertheless present certain common features: their investment strategy frequently involves investments in both renewable energy generation assets and transmission infrastructure, with a view to benefitting from regulated income, e.g. feed-in tariffs or network tariffs; their investments are typically made with a long-term perspective; their individual share in energy production may remain minor compared to the overall available production capacities; their assets are generally operated on a stand-alone basis; the operational management of their generation and transmission assets is handled by separate teams and is not coordinated; their participation in a TSO is often made together with other financial and/or strategic investors.

1309

Appendix 7 SWD (2013) 177 – Ownership unbundling

4

A more detailed overview of the legal framework of the ownership unbundling model is provided by the Commission staff working paper of 22 January 2010: “Interpretative note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas - The unbundling regime”, published on the DG Energy website.

5

OJ L 24, 29.1.2004, p. 1.

6

See Recital 12 Electricity Directive and Recital 9 Gas Directive.

7

See for instance Commission opinion of 19 April 2012 on the certification of National Grid Electricity Transmission plc (009 - 2012 - UK), National Grid Gas plc (010 - 2012 - UK), and National Grid Interconnector ltd (011 - 2012 - UK), published on the DG Energy website. See also Commission opinion of 6 September 2012 on the certification of 50 Hertz Transmission GmbH (027 -2012 - DE), published on the DG Energy website.

8

See Commission opinion of 30 April 2012 on the certification of Swedegas AB (018 -2012 - SE), published on the DG Energy website, Commission opinion of 6 September 2012 on the certification of 50 Hertz Transmission GmbH (027 - 2012 - DE), published on the DG Energy website and Commission opinion of 23 January 2013 on the certification of Società Gasdotti Italia S.p.A. (047 - 2012 - IT)

9

However, financial investors could also play an important role in investing in (renewable) generation in the EU.

10

Ownership unbundled TSOs generally have to keep their ownership unbundled status unaffected when cooperating with financial investors on new developments or acquisitions, considering that once a TSO is ownership unbundled it cannot “go back” to another model.

11

See footnote 7.

12

See Commission opinion of 30 April 2012 on the certification of Swedegas AB (018 -2012 - SE), published

13

Commission opinion of 24 May 2012 on the certification of Red Electrica de Espana S.A.U. (021 ­2012 - ES),

on the DG Energy website. published on the DG Energy website 14

Commission opinion of 15 June 2012 on the certification of ENAGAS S.A. (024 - 2012 -ES), published on

15

However, in case of renewable energy generation, this form of feed-in tariff is expected to be phased out as

the DG Energy website. renewable technologies mature and are increasingly being integrated in the market. 16

Commission opinion of 6 September 2012 on the certification of 50 Hertz Transmission GmbH (027 ­2012

17

Commission opinion of 23 January 2013 on the certification of Società Gasdotti Italia S.p.A. (047 - 2012 -

- DE), published on the DG Energy website. IT) 18

See Article 10(3) and (4) Electricity and Gas Directives

1310

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

Appendix 8 Council Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply (Text with EEA relevance) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Article 100 thereof, Having regard to the proposal from the Commission1, Having regard to the opinion of the European Economic and Social Committee2, After consulting the Committee of the Regions, Having regard to the opinion of the European Parliament3, Whereas: (1) Natural gas (gas) is becoming an increasingly important component in Community energy supply, and, as indicated in the Green Paper “Towards a European strategy for the security of energy supply”, the Europe1311

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

an Union is expected in the longer term to become increasingly dependent on gas imported from non-EU sources of supply. (2) Following Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common rules for the internal market in natural gas4 and Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC5, the Community gas market is being liberalised. Consequently, regarding security of supply, any difficulty having the effect of reducing gas supply could cause serious disturbances in the economic activity of the Community; for this reason, there is a growing need to ensure security of gas supply. (3) The completion of the internal gas market necessitates a minimum common approach to security of supply, in particular through transparent and non-discriminatory security of supply policies compatible with the requirements of such a market, in order to avoid market distortions. Definition of clear roles and responsibilities of all market players is therefore crucial in safeguarding security of gas supply and the well-functioning of the internal market. (4) Security of supply obligations imposed on companies should not impede the well functioning of the internal market and should not impose unreasonable and disproportionate burden on gas market players, including new market entrants and small market players. (5) In view of the growing gas market in the Community, it is important that the security of gas supply is maintained, in particular as regards household customers. (6) A large choice of instruments are available for the industry and, if appropriate, for Member States, to comply with the security of supply obligations. Bilateral agreements between Member States could be one of the means to contribute to the achievement of the minimum security of supply standards, having due regard to the Treaty and secondary legislation, in particular Article 3(2) of Directive 2003/55/EC. (7) Indicative minimum targets for gas storage could be set either at national level or by the industry. It is understood that this should not create any additional investment obligations. 1312

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

(8) Considering the importance of securing gas supply, i.e. on the basis of long-term contracts, the Commission should monitor the developments on the gas market on the basis of reports from Member States. (9) In order to meet growing demand for gas and diversify gas supplies as a condition for a competitive internal gas market, the Community will need to mobilise significant additional volumes of gas over the coming decades much of which will have to come from distant sources and transported over long distances. (10) The Community has a strong common interest with gas supplying and transit countries in ensuring continued investments in gas supply infrastructure. (11) Long-term contracts have played a very important role in securing gas supplies for Europe and will continue to do so. The current level of long term contracts is adequate on the Community level, and it is believed that such contracts will continue to make a significant contribution to overall gas supplies as companies continue to include such contracts in their overall supply portfolio. (12) Considerable progress has been made in developing liquid trading platforms and through gas release programmes at national level. This trend is expected to continue. (13) The establishment of genuine solidarity between Member States in major emergency supply situations is essential, even more so as Member States become increasingly interdependent regarding security of supply. (14) The sovereign rights of Member States over their own natural resources are not affected by this Directive. (15) A Gas Coordination Group should be established, which should facilitate coordination of security of supply measures at Community level in the event of a major supply disruption, and may also assist member States in coordinating measures taken at a national level. In addition, it should exchange information on security of gas supply on a regular basis, and should consider aspects relevant in the context of a major supply disruption.

1313

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

(16) Member States should adopt and publish national emergency provisions. (17) This Directive should provide rules applicable in the event of a major supply disruption; the foreseeable length of such a supply disruption should cover a significant period of time of at least eight weeks. (18) Regarding the handling of a major supply disruption, this Directive should provide for a mechanism based on a three step approach. The first step would involve the reactions of the industry to the supply disruption; if this were not sufficient, Member States should take measures to solve the supply disruption. Only if the measures taken at stage one and two have failed should appropriate measures be taken at Community level. (19) Since the objective of this Directive, namely ensuring an adequate level for the security of gas supply, in particular in the event of a major supply disruption, whilst contributing to the proper functioning of the internal gas market, cannot, in all circumstances, be sufficiently achieved by the Member States, particularly in light of the increasing interdependency of the Member States regarding security of gas supply, and can therefore, by reason of the scale and effects of the action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective,

HAS ADOPTED THIS DIRECTIVE:

Article 1 Objective This Directive establishes measures to safeguard an adequate level for the security of gas supply. These measures also contribute to the proper functioning of the internal gas market. It establishes a common framework within which Member States shall define general, transparent and non-discriminatory security of 1314

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

supply policies compatible with the requirements of a competitive internal gas market; clarify the general roles and responsibilities of the different market players and implement specific non-discriminatory procedures to safeguard security of gas supply. Article 2 Definitions For the purpose of this Directive: 1.

“long-term gas supply contract” means a gas supply contract with a duration of more than 10 years;

2.

“major supply disruption” shall mean a situation where the Community would risk to lose more than 20 % of its gas supply from third countries and the situation at Community level is not likely to be adequately managed with national measures. Article 3 Policies for securing gas supply

1.

In establishing their general policies with respect to ensuring adequate levels of security of gas supply, Member States shall define the roles and responsibilities of the different gas market players in achieving these policies, and specify adequate minimum security of supply standards that must be complied with by the players on the gas market of the Member State in question. The standards shall be implemented in a non-discriminatory and transparent way and shall be published.

2.

Member States shall take the appropriate steps to ensure that the measures referred to in this Directive do not place an unreasonable and disproportionate burden on gas market players and are compatible with the requirements of a competitive internal gas market.

3.

A non-exhaustive list of instruments for the security of gas supply is given in the Annex. 1315

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

Article 4 Security of supply for specific customers 1.

Member States shall ensure that supplies for household customers inside their territory are protected to an appropriate extent at least in the event of: (a) a partial disruption of national gas supplies during a period to be determined by Member States taking into account national circumstances; (b) extremely cold temperatures during a nationally determined peak period; (c)

periods of exceptionally high gas demand during the coldest weather periods statistically occurring every 20 years,



These criteria are referred to in this Directive as “security of supply standards”.

2.

Member States may extend the scope of paragraph 1 in particular to small and medium-sized enterprises and other customers that cannot switch their gas consumption to other energy sources, including measures for the security of their national electricity system if it depends on gas supplies.

3.

A non-exhaustive list in the Annex sets out examples of instruments which may be used in order to achieve the security of supply standards.

4.

Member States, having due regard to the geological conditions of their territory and the economic and technical feasibility, may also take the necessary measures to ensure that gas storage facilities located within their territory contribute to an appropriate degree to achieving the security of supply standards.

5.

If an adequate level of interconnection is available, Member States may take the appropriate measures in cooperation with another Member State, including bilateral agreements, to achieve the security of supply standards using gas storage facilities located within that other Member 1316

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

State. These measures, in particular bilateral agreements, shall not impede the proper functioning of the internal gas market. 6.

Member States may set or require the industry to set indicative minimum targets for a possible future contribution of storage, either located within or outside the Member State, to security of supply. These targets shall be published. Article 5 Reporting

1.

In the report published by Member States pursuant to Article 5 of Directive 2003/55/EC, Member States shall also cover the following: (a) the competitive impact of the measures taken pursuant to Articles 3 and 4 on all gas market players; (b) the levels of storage capacity; (c)

the extent of long-term gas supply contracts concluded by companies established and registered on their territory, and in particular their remaining duration, based on information provided by the companies concerned, but excluding commercially sensitive information, and the degree of liquidity of the gas market;

(d) the regulatory frameworks to provide adequate incentives for new investment in exploration and production, storage, LNG and transport of gas, taking into account Article 22 of Directive 2003/55/EC as far as implemented by the Member State. 2.

This information shall be considered by the Commission in the reports that it issues pursuant to Article 31 of Directive 2003/55/EC in the light of the consequences of that Directive for the Community as a whole and the overall efficient and secure operation of the internal gas market.

1317

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

Article 6 Monitoring 1.

The Commission shall monitor, on the basis of the reports referred to in Article 5(1): (a) the degree of new long-term gas supply import contracts from third countries; (b) the existence of adequate liquidity of gas supplies; (c)

the level of working gas and of the withdrawal capacity of gas storage;

(d) the level of interconnection of the national gas systems of Member States; (e)

the foreseeable gas supply situation in function of demand, supply autonomy and available supply sources at Community level concerning specific geographic areas in the Community.

2.

Where the Commission concludes that gas supplies in the Community will be insufficient to meet foreseeable gas demand in the long term, it may submit proposals in accordance with the Treaty.

3.

By 19 May 2008 the Commission shall submit a review report to the European Parliament and the Council on the experience gained from the application of this Article. Article 7 Gas Coordination Group

1.

A Gas Coordination Group is hereby established in order to facilitate the coordination of security of supply measure (the Group).

1318

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

2.

The Group shall be composed of the representatives of Member States and representative bodies of the industry concerned and of relevant consumers, under the chairmanship of the Commission.

3.

The Group shall adopt its Rules of Procedure. Article 8 National emergency measures

1.

Member States shall prepare in advance and, if appropriate, update national emergency measures and shall communicate these to the Commission. Member States shall publish their national emergency measures.

2.

Member States’ emergency measures shall ensure, where appropriate, that market players are given sufficient opportunity to provide an initial response to the emergency situation.

3.

Subject to Article 4(1), Member States may indicate to the Chair of the Group events which they consider, because of their magnitude and exceptional character, cannot be adequately managed with national measures. Article 9 Community mechanism

1.

If an event occurs that is likely to develop into a major supply disruption for a significant period of time, or in the case of an event indicated by a Member State according to Article 8(3), the Commission shall convene the Group as soon as possible, at the request of a Member State or on its own initiative.

2.

The Group shall examine, and, where appropriate, assist the Member States in coordinating the measures taken at national level to deal with the major supply disruption.

3.

In carrying out its work, the Group shall take full account of:

1319

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

(a) the measures taken by the gas industry as a first response to the major supply disruption; (b) the measures taken by Member States, such as those taken pursuant to Article 4, including relevant bilateral agreements. 4.

Where the measures taken at national level referred to in paragraph 3 are inadequate to deal with the effects of an event referred to in paragraph 1, the Commission may, in consultation with the Group, provide guidance to Member States regarding further measures to assist those Member States particularly affected by the major supply disruption.

5.

Where the measures taken at national level pursuant to paragraph 4 are inadequate to deal with the effects of an event referred to in paragraph 1, the Commission may submit a proposal to the Council regarding further necessary measures.

6.

Any measures at Community level referred to in this Article shall contain provisions aimed at ensuring fair and equitable compensation of the undertakings concerned by the measures to be taken. Article 10 Monitoring of implementation

1.

By 19 May 2008, the Commission shall, in the light of the manner in which Member States have implemented this Directive, report on the effectiveness of the instruments used with regard to Article 3 and 4 and their effect on the internal gas market and on the evolution of competition on the internal gas market.

2.

In the light of the results of this monitoring, where appropriate, the Commission may issue recommendations or present proposals regarding further measures to enhance security of supply.

1320

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

Article 11 Transposition Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 19 May 2006. They shall forthwith communicate to the Commission the text of those provisions and a correlation table between those provisions and this Directive. When Member States adopt these measures, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. The methods of making such reference shall be laid down by Member States. Article 12 Entry into force This Directive shall enter into force on the 20th day following that of its publication in the Official Journal of the European Union. Article 13 This Directive is addressed to the Member States. Done at Luxembourg, 26 April 2004. For the Council The President J. Walsh

1321

Appendix 8 Dir 2004/67/EC – Security of natural gas supply

Notes 1

OJ C 331 E, 31.12.2002, p. 262.

2

OJ C 133, 6.6.2003, p. 16.

3

Opinion not yet published in the Official Journal.

4

OJ L 204, 21.7.1998, p. 1.

5

OJ L 176, 15.7.2003, p. 57.

ANNEX Non-exhaustive list of instruments to enhance the security of gas supply referred to in Article 3(3) and Article 4(3)

– – – – – – – – – – – – – – – –

working gas in storage capacity, withdrawal capacity in gas storage, provision of pipeline capacity enabling diversion of gas supplies to affected areas, liquid tradable gas markets, system flexibility, development of interruptible demand, use of alternative back-up fuels in industrial and power generation plants, cross-border capacities, cooperation between transmission system operators of neighbouring Member States for coordinated dispatching, coordinated dispatching activities between distribution and transmission system operators, domestic production of gas, production flexibility, import flexibility, diversification of sources of gas supply, long term contracts, investments in infrastructure for gas import via regasification terminals and pipelines. 1322

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

APPENDIX 9 REGULATION (EU) 2017/1938 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 194(2) thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee (1), After consulting the Committee of the Regions, Acting in accordance with the ordinary legislative procedure (2), Whereas: (1) Natural gas (gas) remains an essential component of the energy supply of the Union. A large proportion of such gas is imported into the Union from third countries. 1323

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(2)

A major disruption of gas supply can affect all Member States, the Union and Contracting Parties to the Treaty establishing the Energy Community, signed in Athens on 25 October 2005. It can also severely damage the Union economy and can have a major social impact, in particular on vulnerable groups of customers.

(3)

This Regulation aims to ensure that all the necessary measures are taken to safeguard an uninterrupted supply of gas throughout the Union, in particular to protected customers in the event of difficult climatic conditions or disruptions of the gas supply. Those objectives should be achieved through the most cost-effective measures and in such a way that gas markets are not distorted.

(4)

Union law, in particular Directive 2009/72/EC of the European Parliament and of the Council  (3), Directive 2009/73/EC of the European Parliament and of the Council  (4), Regulation (EC) No 713/2009 of the European Parliament and of the Council (5), Regulation (EC) No 714/2009 of the European Parliament and of the Council (6), Regulation (EC) No 715/2009 of the European Parliament and of the Council (7) and Regulation (EU)No 994/2010 of the European Parliament and of the Council (8), has already had a significant positive impact on the security of gas supply in the Union, both in terms of preparation and mitigation. Member States are better prepared to face a supply crisis now that they are required to establish preventive action plans and emergency plans, and they are better protected now that they have to meet a number of obligations regarding infrastructure capacity and gas supply. However, the Commission’s report on the implementation of Regulation (EU) No 994/2010 of October 2014 highlighted areas in which improvements to that Regulation could further bolster the security of gas supply in the Union.

(5)

The Commission’s communication of 16 October 2014 on the shortterm resilience of the European gas system analysed the effects of a partial or complete disruption of gas supplies from Russia and concluded that purely national approaches are not very effective in the event of severe disruption, given their scope, which is by definition limited. The stress test showed how a more cooperative approach among Member States could significantly reduce the impact of very severe disruption scenarios in the most vulnerable Member States.

1324

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(6)

Energy security constitutes one of the objectives of the Energy Union Strategy, as set out in the Commission’s communication of 25 February 2015 on a Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy, which also emphasised the ‘energy efficiency first’ principle and the need to fully implement existing Union energy legal acts. The communication highlighted the fact that the Energy Union rests on solidarity, enshrined in Article 194 of the Treaty on the Functioning of the European Union (TFEU), and trust, which are necessary features of energy security. This Regulation is intended to boost solidarity and trust between the Member States and put in place the measures needed to achieve those aims. When assessing the preventive action plans and the emergency plans established by the Member States, the Commission should also be able to draw the attention of the Member States to the objectives of the Energy Union.

(7)

An internal gas market that operates smoothly is the best guarantee of the security of gas supply across the Union and to reduce the exposure of individual Member States to the harmful effects of disruptions of gas supply. Where a Member State’s security of gas supply is threatened, there is a risk that measures developed unilaterally by that Member State may jeopardise the proper functioning of the internal gas market and damage the gas supply to customers in other Member States. To allow the internal gas market to function even in the face of a shortage of supply, provision must be made for solidarity and coordination in the response to supply crises, as regards both preventive action and the reaction to actual disruptions of gas supply.

(8)

A truly interconnected internal energy market with multiple entry points and reverse flows can be created only by fully interconnecting its gas grids, by building up liquefied natural gas (LNG) hubs in the Union’s Southern and Eastern regions, by completing the North-South and Southern Gas corridors and by further developing domestic production. Therefore, an accelerated development of interconnections and projects aiming to diversify supply sources, as already shortlisted in the Energy Security Strategy, is necessary.

(9)

So far, the potential for more efficient and less costly measures through regional cooperation has not been fully exploited. This has to do not only with better coordination of national mitigation actions in emergency situations, but also with national preventive measures, such as national 1325

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

storage or policies related to LNG, which can be strategically important in certain regions of the Union. (10) In a spirit of solidarity, regional cooperation, involving both public authorities and natural gas undertakings, should be the guiding principle of this Regulation, to mitigate the identified risks and optimise the benefits of coordinated measures and to implement the most cost-effective measures for Union consumers. Regional cooperation should gradually be complemented with a stronger Union perspective, allowing recourse to all available supplies and tools in the entire internal gas market. Unionlevel assessment of the emergency supply corridors should be incorporated into the regional cooperation. (11) A risk-based approach to assessing the security of supply and establishing preventive and mitigating measures enables efforts to be coordinated and brings significant benefits in terms of the effectiveness of measures and optimisation of resources. This applies particularly to measures designed to guarantee a continued supply, under very demanding conditions, to protected customers, and to measures to mitigate the impact of an emergency. Assessing correlated risks jointly in risk groups which is both more comprehensive and more precise, will ensure that Member States are better prepared for any crises. Moreover, in an emergency, a coordinated and pre-agreed approach to the security of supply ensures a consistent response and reduces the risk of negative spill-over effects that purely national measures could have in neighbouring Member States. (12) For the purpose of the risk-based approach, risk groups should be defined based on the major transnational risks to the security of gas supply in the Union. Such risks were identified in the Commission’s communication of 16 October 2014 on the short-term resilience of the European gas system and the assessment included in the latest Ten-Year Network Development Plan (TYNDP) developed by the European Network of Transmission System Operators for Gas (ENTSOG). To allow for a more precise and better focused assessment for the purposes of this Regulation, the risk groups should be composed on the basis of the main gas supply sources and routes. (13) To provide input to the common and national risk assessments, ENTSOG, in consultation with the Gas Coordination Group (GCG) and with the European Network of Transmission System Operators for 1326

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

Electricity (ENTSO-E), should carry out a Union-wide simulation of gas supply and infrastructure disruption scenarios. Such a simulation should be repeated at least every two years. As a means of strengthening regional cooperation by providing information about gas flows as well as providing technical and operational expertise, the Regional Coordination System for Gas (ReCo System for Gas), established by ENTSOG and composed of standing expert groups, should be involved in carrying out simulations. ENTSOG should ensure an appropriate level of transparency and access to the modelling assumptions used in its scenarios. (14) The Commission should be empowered to update the composition of the risk groups by means of a delegated act based on the evolution of the major transnational risks to the security of gas supply in the Union and its impact on Member States, taking into account the result of the Unionwide simulation and the discussion within the GCG. (15) In order to make the regional cooperation feasible, Member States should agree on a cooperation mechanism within each risk group. Such a mechanism should be developed sufficiently in time to allow for conducting the common risk assessment and discussing and agreeing on appropriate and effective cross-border measures, which will require the agreement of each Member State concerned, to be included in the regional chapters of the preventive action plans and the emergency plans, after consulting the Commission. Member States are free to agree on a cooperation mechanism best suited to a given risk group. The Commission should be able to have a facilitating role in the overall process and share best practices for arranging regional cooperation such as a rotating coordination role within the risk groups for the preparation of the different documents or establishing dedicated bodies. In the absence of an agreement on the cooperation mechanism, the Commission should propose a suitable cooperation mechanism for a given risk group. (16) When conducting the common risk assessment, competent authorities should assess all relevant risk factors which could lead to the materialisation of the major transnational risk for which the risk group was created, including disruption of gas supply from the single largest supplier. Those risk factors should be addressed by appropriate cross-border measures agreed by the competent authorities of the Member States concerned. The cross-border measures should be included in the regional chapters of the preventive action plans and the emergency plans. In addition, the 1327

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

competent authorities should conduct a comprehensive national risk assessment and assess natural, technological, commercial, financial, social, political and market-related risks, andany other relevant ones. All risks should be addressed by effective, proportionate and non-discriminatory measures to be developed in the preventive action plans and the emergency plans. The results of the common and national risk assessments should also contribute to the all hazard risk assessments provided for in Article 6 of Decision No 1313/2013/EU of the European Parliament and of the Council (9) and should be fully taken into account in the national risk assessments. (17) To ensure maximum preparedness, so as to avoid a disruption of gas supply and mitigate its effects should it nevertheless occur, the competent authorities of a given risk group should, after consulting stakeholders, establish preventive action plans and emergency plans that will contain regional chapters. They should be designed so as to address national risks in a way that takes full advantage of the opportunities provided by regional cooperation.The plans should be technical and operational in nature, their function being to help prevent the occurrence or escalation of an emergency or to mitigate its effects. The plans should take the security of electricity systems into account and should be consistent with the Energy Union’s strategic planning and reporting tools. (18) When establishing and implementing the preventive action plans and the emergency plans, the competent authorities should, at all times, take account of the safe operation of the gas system at regional and national levels. They should address and set out in those plans the technical constraints affecting the operation of the network, including any technical and safety reasons for reducing flows in the event of an emergency. (19) The Commission should assess the preventive action plans and the emergency plans duly taking into account the views expressed in the GCG and recommend their review, in particular if the plans do not effectively address the risks identified in the risk assessment, if they distort competition or hamper the functioning of the internal energy market, if they endanger the security of gas supply of other Member States or if they do not comply with the provisions of this Regulation or other Union law. The competent authority of the Member State should take account of the Commission’s recommendations. Where, following the final position of the competent authority, the Commission concludes that the measure in 1328

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

question would endanger the security of gas supply of another Member State or the Union, the Commission should continue the dialogue with the Member State concerned for it to agree to amend or withdraw the measure. (20) The preventive action plans and the emergency plans should be updated regularly and published. To ensure that the emergency plans are always up-to-date and effective, Member States should carry out at least one test between the updates of the plans by simulating high and medium-impact scenarios and responses in real time. The competent authorities should present the test results at the GCG. (21) Mandatory comprehensive templates including all the risks to be covered by the risk assessment and all the components of the preventive action plans and the emergency plans are needed to facilitate the risk assessment and preparation of the plans and their assessment by the Commission. (22) To facilitate communication between Member States and the Commission, the risk assessments, the preventive action plans, the emergency plans and all other documents and information exchanges provided for in this Regulation should be notified using a secure and standardised electronic notification system. (23) Certain customers, including households and customers providing essential social services are particularly vulnerable and may need protection against the negative effects of disruption of gas supply. A definition of such protected customers should not conflict with the Union solidarity mechanisms. (24) It is appropriate to narrow down the definition of customers protected under the solidarity mechanism. This is required by the obligation of Member States to provide solidarity in the case of extreme circumstances and for essential needs. The definition of solidarity protected customers should therefore be limited to households while still being able to include, under specific conditions, certain essential social services and district heating installations. It is therefore possible for Member States to treat, in accordance with that framework, healthcare, essential social care, emergency and security services as solidarity protected customers, including where those services are performed by a public administration.

1329

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(25) Responsibility for the security of gas supply should be shared by natural gas undertakings, Member States, acting through their competent authorities, and the Commission, within their respective remits. Such shared responsibility requires very close cooperation between those parties. However, customers using gas for electricity generation or industrial purposes may also have an important role to play in the security of gas supply, as they can respond to a crisis by taking demand-side measures, such as interruptible contracts and fuel switching, which have an immediate impact on the balance of demand and supply. Moreover, the security of gas supply to certain customers using gas for electricity generation may also be considered to be essential in some cases. In an emergency, it should be possible for a Member State to prioritise gas supply to such customers under certain conditions even over the gas supply to protected customers. In exceptional circumstances gas supply to some of such customers prioritised in an emergency over protected customers may also continue in a Member State providing solidarity to avoid severe damage to the functioning of the electricity or gas system in that Member State. Such a specific measure should be without prejudice to Directive 2005/89/EC of the European Parliament and of the Council (10). (26) The competent authorities should cooperate closely with other relevant national authorities, in particular national regulatory authorities, when carrying out the tasks specified in this Regulation. (27) The infrastructure standard should oblige Member States to maintain a minimum level of infrastructure such as to ensure a degree of redundancy in the system in the event of a disruption of the single largest gas infrastructure. As an analysis conducted on the basis of the N – 1 formula constitutes a purely capacity-based-approach, the results of N – 1 formula should be complemented with a detailed analysis that also captures gas flows. (28) Regulation (EU) No 994/2010 requires transmission system operators to enable permanent physical bi-directional capacity on all cross-border interconnections unless an exemption has been granted from that obligation. It aims to ensure that the possible benefits of permanent bi-directional capacity are always taken into account when a new interconnection is planned. However, bi-directional capacity can be used to supply gas both to the neighbouring Member State and to others along the gas supply corridor. The benefits to the security of gas supply of enabling permanent 1330

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

physical bi-directional capacity need to be seen from a broader perspective, in a spirit of solidarity and enhanced cooperation. A comprehensive cost-benefit analysis that takes account of the whole transportation corridor should be conducted when considering whether to implement bi-directional capacity. The competent authorities concerned should be required to re-examine the exemptions granted under Regulation (EU) No 994/2010 on the basis of the results of the common risk assessments. The overall objective should be to have a growing bi-directional capacity and keep one-directional capacity in future cross-border projects to a minimum. (29) Capacity at an interconnection point to a Member State may compete with capacity at exit points from the gas grid into a gas storage facility. As a consequence, a situation could arise where firm booking of exit capacity into storage reduces the technically available capacity to be allocated at the interconnection point. In order to ensure a higher level of energy security in an emergency, this Regulation should provide for a clear priority rule. Any booked capacity at interconnection points should be given priority over competing capacity at an exit point into a storage facility, thereby enabling the transmission system operator to allocate the maximum technical capacity at the interconnection point in order to enable higher gas flows into the neighbouring Member State which has declared an emergency. This may have the consequence that gas injections into storage cannot take place or can take place only with reduced volumes despite being firmly booked in advance. To compensate for the resulting financial loss, this Regulation should provide for a fair compensation to be applied directly and promptly between the affected system users. The transmission system operators concerned should cooperate in accordance with the relevant legal acts in order to apply that priority rule. (30) Council Directive 2008/114/EC (11) lays down a process with a view to enhancing the security of designated European critical infrastructures, including certain gas infrastructure, in the Union. Directive 2008/114/EC together with this Regulation contributes to creating a comprehensive approach to the energy security of the Union. (31) This Regulation lays down security of supply standards that are sufficiently harmonised and cover at least the situation that occurred in January 2009 when gas supply from Russia was disrupted. Those standards take account of the difference between Member States, public service 1331

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

obligations and customer protection measures, as referred to in Article 3 of Directive 2009/73/EC. Security of supply standards should be stable, so as to provide the necessary legal certainty, should be clearly defined, and should not impose unreasonable and disproportionate burdens on natural gas undertakings. They should also guarantee equal access for the Union natural gas undertakings to national customers. Member States should establish measures that will, in an effective and proportionate manner, ensure that natural gas undertakings comply with such a standard, including the possibility to establish fines on suppliers, where they consider it to be appropriate. (32) The roles and responsibilities of all natural gas undertakings and competent authorities should be defined precisely in order to keep the internal gas market functioning properly, particularly in the event of supply disruptions and crises. Such roles and responsibilities should be established in such a way so as to ensure that a three-level approach is respected which would involve, first, the relevant natural gas undertakings and industry, second, Member States at national or regional level, and third, the Union. This Regulation should enable natural gas undertakings and customers to rely on market-based mechanisms for as long as possible when coping with disruptions. However, it should also provide for mechanisms that can be deployed when markets alone are no longer able to deal adequately with a disruption of gas supply. (33) In the event of a disruption of gas supply, market players should be given sufficient opportunity to respond to the situation with market-based measures. Where market-based measures have been exhausted and they are still insufficient, Member States and their competent authorities should take measures to remove or mitigate the effects of a disruption of gas supply. (34) Where Member States plan to introduce non-market-based measures, the introduction of such measures should be accompanied by a description of their economic impact. This ensures customers have the information they need about the costs of such measures and ensures that the measures are transparent, especially as regards their impact on the gas price. (35) The Commission should have the power to ensure that new preventive non-market-based measures do not endanger the security of gas supply of other Member States or in the Union. Given that such measures can be 1332

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

particularly damaging to the security of gas supply, it is appropriate that they enter into force only when they are approved by the Commission or have been amended in accordance with a Commission decision. (36) Demand-side measures, such as fuel switching or reducing the gas supply to large industrial customers in an economically efficient order, may have a valuable role to play in ensuring the security of gas supply, if they can be applied quickly and significantly reduce demand in response to a disruption of gas supply. More should be done to promote efficient energy use, particularly where demand-side measures are needed. The environmental impact of any demand and supply-side measures proposed should be taken into account, with preference being given, as far as possible, to measures that have least impact on the environment. At the same time, aspects of the security of gas supply and competitiveness should be taken into account. (37) It is necessary to ensure the predictability of the action to take in the event of an emergency, allowing all market participants sufficient opportunity to react to and prepare for such circumstances. As a rule, the competent authorities should therefore act in accordance with their emergency plan. In duly justified exceptional circumstances, they should be allowed to take action which deviates from those plans. It is also important to make the way in which emergencies are declared more transparent and predictable. Information on the system balancing position (the overall status of the transmission network), the framework for which is set out in Commission Regulation (EU) No 312/2014 (12), may play an important role in that regard. That information should be available to the competent authorities and, where they are not the competent authorities, the national regulatory authorities, on a real time basis. (38) As demonstrated in the context of the October 2014 stress test exercise, solidarity is needed to ensure the security of gas supply in the Union. It spreads effects out more evenly and reduces overall effects of a severe disruption. The solidarity mechanism is designed to address extreme situations in which supply to solidarityprotected customers as an essential need and a necessary priority is at stake in a Member State. Solidarity ensures cooperation with more vulnerable Member States. At the same time, solidarity is a measure of last resort that applies only in an emergency and only under restrictive conditions. If an emergency is declared in a Member State, a gradual and proportionate approach should therefore be 1333

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

applied to ensure the security of gas supply. The Member State that declared the emergency should, in particular, first implement all emergency measures provided for in its emergency plan in order to ensure gas supply to its solidarity protected customers. At the same time, all Member States which have introduced an increased supply standard should temporarily reduce it to the normal supply standard to make the gas market more liquid, in the event that the Member State declaring the emergency indicates that cross-border action is required. If those two sets of measures fail to provide the necessary supply, solidarity measures by directly connected Member States should be taken to ensure gas supply to solidarity protected customers in the Member State experiencing the emergency, at that Member State’s request. Such solidarity measures should consist in ensuring that the gas supply to customers other than solidarity protected customers in the territory of the Member State providing solidarity is reduced or does not continue, in order to free up gas volumes, to the extent necessary and for as long as the gas supply to solidarity protected customers in the Member State requesting solidarity is not satisfied. Nothing in this Regulation should be understood as requiring or enabling a Member State to exercise public authority in another Member State. (39) Solidarity measures should also be taken as a last resort where a Member State is connected to another Member State via a third country unless flows are restricted through the third country, and where there is agreement of the relevant Member States, who should involve, as appropriate, the third country through which they are connected. (40) Where solidarity measures are taken as a last resort, the reduction or discontinuation of gas supply in the Member State providing solidarity should, where necessary for the Member State to comply with its solidarity obligations, and in order to avoid discriminatory treatment, be applicable to all customers which are not solidarity protected customers, irrespective of whether they receive gas directly or through solidarity protected district heating installations in the form of heating. The same should be ensured vice versa as regards customers, which are not solidarity protected customers in the Member State receiving gas under the solidarity mechanism. (41) Where solidarity measures are taken as a last resort, it is preferable that the gas consumption in the Member State providing solidarity is, as a first step, reduced on a voluntary basis, by means of market-based measures, 1334

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

such as voluntary demand-side measures or reversed auctions, in which certain customers such as industrial customers would indicate to the transmission system operator or another authority responsible the price at which they would reduce or stop their gas consumption. If marketbased measures are found to be insufficient to address the deficit in required gas supply, and given the importance of solidarity measures as a last resort, the Member State providing solidarity should as a second step, be able to make use of non-market-based measures, including curtailment of certain groups of customers, in order to comply with its solidarity obligations. (42) Solidarity measures of a last resort should be provided on the basis of compensation. The Member State providing solidarity should be paid fair compensation promptly by the Member State receiving solidarity, including for the gas delivered into its territory and all other relevant and reasonable costs incurred when providing solidarity. Solidarity measures of a last resort should be subject to the condition that the Member State requesting solidarity undertakes to pay such fair and prompt compensation. This Regulation does not harmonise all aspects of fair compensation. Member States concerned should adopt the necessary measures, in particular technical, legal and financial arrangements, to implement the provisions on prompt and fair compensation between them. (43) When taking solidarity measures pursuant to the provisions of this Regulation, Member States are implementing Union law and are therefore bound to respect fundamental rights guaranteed by Union law. Such measures may therefore give rise to an obligation for a Member State to pay compensation to those affected by its measures. Member States should therefore ensure that national compensation rules are in place which are in conformity with Union law, in particular with fundamental rights. Moreover, it should be ensured that the Member State receiving solidarity ultimately bears all reasonable costs incurred from the said obligation on the Member State providing solidarity to pay compensation and further reasonable costs incurred from the payment of compensation pursuant to the said national compensation rules. (44) Since there may be more than one Member State providing solidarity to a requesting Member State, there should be a burden-sharing mechanism. Under that mechanism, the Member State requesting solidarity should, after consulting all Member States concerned, seek the most advanta1335

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

geous offer on the basis of cost, speed of delivery, reliability and diversification of supplies of gas from different Member States. The Member States should provide such offers on the basis of voluntary demand-side measures as much as and for as long as possible, before resorting to nonmarket-based measures. (45) This Regulation introduces, for the first time, such a solidarity mechanism between Member States as an instrument to mitigate the effects of a severe emergency within the Union including a burden-sharing mechanism. The Commission should therefore review the burden-sharing mechanism and the solidarity mechanism in general in the light of future experience with their functioning, and propose, where appropriate, modifications thereto. (46) Member States should adopt the necessary measures for the implementation of the provisions concerning the solidarity mechanism, including by the Member States concerned agreeing on technical, legal and financial arrangements. Member States should describe the details of those arrangements in their emergency plans. The Commission should prepare legally non-binding guidance concerning the key elements that should be included in such arrangements. (47) For as long as a Member State can cover the gas consumption of its solidarity protected customers from its own production and therefore does not need to request solidarity, it should be exempt from the obligation to conclude technical, legal and financial arrangements with other Member States for the purpose of it receiving solidarity. This should not affect the obligation of the relevant Member State to provide solidarity to other Member States. (48) There should be a safeguard for the event that the Union might incur costs by virtue of a liability, other than for unlawful acts or conduct pursuant to the second paragraph of Article 340 TFEU, in respect of measures that Member States are required to take pursuant to the provisions of this Regulation on the solidarity mechanism. Regarding such instances, it is appropriate that the Member State receiving solidarity reimburse the costs of the Union. (49) Solidarity should also, where needed, take the form of civil protection assistance provided by the Union and its Member States. Such assist1336

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ance should be facilitated and coordinated by the Union Civil Protection Mechanism established by Decision No 1313/2013/EU aiming to strengthen the cooperation between the Union and the Member States and to facilitate coordination in the field of civil protection in order to improve the effectiveness of systems for preventing, preparing for, and responding to natural and man-made disasters. (50) To assess the security of gas supply of a Member State or in part or the whole of the Union, access to the relevant information is essential. In particular, Member States and the Commission need regular access to information from natural gas undertakings regarding the main parameters of the gas supply, including accurate measurements of the available stored reserves, as a fundamental input in the design of security of gas supply policies. On reasonable grounds, irrespective of a declaration of an emergency, access should also be possible to additional information needed to assess the overall gas supply situation. That additional information would typically be non-price-related gas delivery information, such as minimum and maximum gas volumes, delivery points or conditions for the suspension of gas deliveries. (51) An efficient and targeted mechanism for access by Member States and the Commission to key gas supply contracts should ensure a comprehensive assessment of relevant risks that can lead to a disruption of gas supply or interfere with the necessary mitigating measures should a crisis nevertheless occur. Under that mechanism, certain key gas supply contracts should be automatically notified, irrespective of the origin of the gas, within or outside the Union, to the competent authority of the most affected Member States. New contracts or modifications should be notified immediately after their conclusion. In order to ensure transparency and reliability, existing contracts should also be notified. The notification obligation should also cover all commercial agreements that are relevant for the execution of the gas supply contract, including relevant agreements that may be related to infrastructure, storage and any other aspect important for the security of gas supply. (52) Any obligation to notify a contract automatically to the competent authority needs to be proportionate. Applying that obligation to contracts between a supplier and a buyer covering the equivalent of 28 % or more of yearly gas consumption in the national market strikes the right balance in terms of administrative efficiency and transparency and lays 1337

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

down clear obligations for market participants. The competent authority should assess the contract for security of gas supply purposes and submit the results of the assessment to the Commission. If thecompetent authority has doubts as to whether a contract puts the security of gas supply of the Member State or a region at risk it should notify the contract to the Commission for assessment. This does not mean that other gas supply contracts are not relevant to the security of gas supply. Accordingly, where the competent authority of the most affected Member State or the Commission considers that a gas supply contract which is not subject to automatic notification under this Regulation might, due to its specificity, the customer group served, or its relevance for the security of gas supply, put at risk the security of gas supply of a Member State, of a region or of the Union, the competent authority or the Commission should be able to request that contract in order to assess its impact on the security of gas supply. It could, for example, be requested in the event of changes in the pattern of the gas supply to a given buyer or buyers in a Member State which would not be expected if the markets were functioning normally and which could affect the gas supply of the Union or parts of it. Such mechanism will ensure that the access to other key gas supply contracts relevant for the security of supply is guaranteed. Such a request should be reasoned, taking into account the need to limit the administrative burden of that measure as much as possible. (53) The Commission may propose that the Member States amend the risk assessments and the preventive action plans and the emergency plans so as to take account of the information obtained from the contracts. The provisions of this Regulation should be without prejudice to the right of the Commission to launch infringement proceedings in accordance with Article 258 TFEU and to enforce competition, including State aid, rules. (54) All contracts or contractual information received in that framework, including the assessments by the competent authority or the Commission, should remain confidential, in particular in order to protect commercially sensitive information and the integrity and proper functioning of the system of information exchange. Such confidentiality can also be relevant for public security given the importance an essential commodity such as gas may have for Member States. Moreover, meaningful and comprehensive assessments by the competent authorities or the Commission will contain, in particular, information relating to public security, commer1338

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

cial information or reference thereto. It is therefore necessary to ensure the confidentiality of the assessments. It is equally important that those who receive confidential information in accordance with this Regulation are bound by the obligation of professional secrecy. The Commission, competent authorities and national regulatory authorities, bodies or persons which receive confidential information pursuant to this Regulation should ensure the confidentiality of the information which they receive. (55) There should be a proportionate system of crisis management and information exchange based on three crisis levels: early warning, alert and emergency. Where the competent authority of a Member State declares one of the crisis levels, it should immediately inform the Commission as well as the competent authorities of the Member States to which the Member State of that competent authority is directly connected. In the case of a declaration of an emergency, the Member States in the risk group should also be informed. The Commission should declare a regional or Union emergency at the request of at least two competent authorities that have declared an emergency. To ensure an appropriate level of information exchange and cooperation in the case of regional or Union emergency the Commission should coordinate the action of the competent authorities, taking full account of relevant information from, and the results of, the consultation of the GCG. The Commission should declare an end to the regional or Union emergency if, after an assessment of the situation, it concludes that a declaration of an emergency is no longer justified. (56) The GCG should act as an adviser to the Commission to help coordinate security of gas supply measures in the event of a Union emergency. It should also monitor the adequacy and appropriateness of measures to be taken under this Regulation, including the consistency of preventive action plans and emergency plans drawn up by different risk groups. (57) A gas crisis could extend beyond Union borders, also comprising Energy Community Contracting Parties. As a Party to the Energy Community Treaty, the Union should promote amendments to that Treaty with the aim of creating an integrated market and a single regulatory space by providing an appropriate and stable regulatory framework. In order to ensure that an efficient crisis management on borders between the Member States and the Contracting Parties exists in the meantime, they are invited to closely cooperate when preventing, preparing for and handling a gas crisis. 1339

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(58) Since gas supplies from third countries are central to the security of gas supply in the Union, the Commission should coordinate action with regard to third countries, work with supplying and transit countries on arrangements to handle crisis situations and ensure a stable gas flow to the Union. The Commission should beentitled to deploy a task force to monitor gas flows into the Union in crisis situations after consulting Member States and the third countries involved and, where a crisis arises from difficulties in a third country, to act as mediator and facilitator. The Commission should report regularly to the GCG. (59) Where there is reliable information on a situation outside the Union that threatens the security of gas supply of one or several Member States and that may trigger an early warning mechanism involving the Union and a third country, the Commission should inform the GCG without delay and the Union should take appropriate action to try to defuse the situation. (60) Since the objective of this Regulation, namely to safeguard the security of gas supply in the Union, cannot be sufficiently achieved by Member States acting on their own, but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality set out in that Article, this Regulation does not go beyond what is necessary to achieve that objective. (61) In order to allow for a swift Union response to changing circumstances with regard to the security of gas supply, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the composition of the risk groups as well as templates for the risk assessments and for the preventive action plans and the emergency plans. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (13). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts. 1340

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(62) Member States’ right to determine the conditions for exploiting their energy resources in accordance with Article 194(2) TFEU is not affected by this Regulation. (63) Regulation (EU) No 994/2010 should be repealed. However, in order to avoid legal uncertainty, the preventive action plans and the emergency plans drawn up pursuant to that Regulation should remain in force until the new preventive action plans and emergency plans drawn up pursuant to this Regulation are adopted for the first time, HAVE ADOPTED THIS REGULATION: Article 1 Subject matter This Regulation establishes provisions aiming to safeguard the security of gas supply in the Union by ensuring the proper and continuous functioning of the internal market in natural gas (‘gas’), by allowing for exceptional measures to be implemented when the market can no longer deliver the gas supplies required, including solidarity measure of a last resort, and by providing for the clear definition and attribution of responsibilities among natural gas undertakings, the Member States and the Union regarding both preventive action and the reaction to concrete disruptions of gas supply. This Regulation also establishes transparent mechanisms concerning, in a spirit of solidarity, the coordination of planning for, and response to, emergencies at national, regional and Union level. Article 2 Definitions For the purposes of this Regulation, the following definitions apply: (1)

‘security’ means security as defined in point 32 of Article 2 of Directive 2009/73/EC;

1341

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(2)

‘customer’ means customer as defined in point 24 of Article 2 of Directive 2009/73/EC;

(3)

‘household customer’ means household customer as defined in point 25 of Article 2 of Directive 2009/73/EC;

(4)

‘essential social service’ means a service related to healthcare, essential social care, emergency, security, education or public administration;

(5)

‘protected customer’ means a household customer who is connected to a gas distribution network and, in addition, where the Member State concerned so decides, may also mean one or more of the following, provided that enterprises or services as referred to in points (a) and (b) do not, jointly, represent more than 20 % of the total annual final gas consumption in that Member State:

(6)

(a)

a small or medium-sized enterprise, provided that it is connected to a gas distribution network;

(b)

an essential social service, provided that it is connected to a gas distribution or transmission network;

(c)

a district heating installation to the extent that it delivers heating to household customers, small or medium-sized enterprises, or essential social services, provided that such installation is not able to switch to other fuels than gas;

‘solidarity protected customer’ means a household customer who is connected to a gas distribution network, and, in addition, may include one or both of the following: (a)

a district heating installation if it is a protected customer in the relevant Member State and only in so far as it delivers heating to households or essential social services other than educational and public administration services;

(b)

an essential social service if it is a protected customer in the relevant Member State, other than educational and public administration services;

1342

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(7)

‘competent authority’ means a national governmental authority or a national regulatory authority designated by a Member State to ensure the implementation of the measures provided for in this Regulation;

(8)

‘national regulatory authority’ means a national regulatory authority designated in accordance with Article 39(1) of Directive 2009/73/EC;

(9)

‘natural gas undertaking’ means natural gas undertaking as defined in point 1 of Article 2 of Directive 2009/73/EC;

(10) ‘gas supply contract’ means gas supply contract as defined in point 34 of Article 2 of Directive 2009/73/EC; (11) ‘transmission’ means transmission as defined in point 3 of Article 2 of Directive 2009/73/EC; (12) ‘transmission system operator’ means transmission system operator as defined in point 4 of Article 2 of Directive 2009/73/EC; (13) ‘distribution’ means distribution as defined in point 5 of Article 2 of Directive 2009/73/EC; (14) ‘distribution system operator’ means distribution system operator as defined in point 6 of Article 2 of Directive 2009/73/EC; (15) ‘interconnector’ means interconnector as defined in point 17 of Article 2 of Directive 2009/73/EC; (16) ‘emergency supply corridors’ means Union gas supply routes that help Member States to better mitigate the effects of potential disruption of supply or infrastructure; (17) ‘storage capacity’ means storage capacity as defined in point 28 of Article 2 of Regulation (EC) No 715/2009; (18) ‘technical capacity’ means technical capacity as defined in point 18 of Article 2 of Regulation (EC) No 715/2009;

1343

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(19) ‘firm capacity’ means firm capacity as defined in point 16 of Article 2 of Regulation (EC) No 715/2009; (20) ‘interruptible capacity’ means interruptible capacity as defined in point 13 of Article 2 of Regulation (EC) No 715/2009; (21) ‘LNG facility capacity’ means LNG facility capacity as defined in point 24 of Article 2 of Regulation (EC) No 715/2009; (22) ‘LNG facility’ means LNG facility as defined in point 11 of Article 2 of Directive 2009/73/EC; (23) ‘storage facility’ means storage facility as defined in point 9 of Article 2 of Directive 2009/73/EC; (24) ‘system’ means system as defined in point 13 of Article 2 of Directive 2009/73/EC; (25) ‘system user’ means system user as defined in point 23 of Article 2 of Directive 2009/73/EC; (26) ‘ancillary services’ means ancillary services as defined in point 14 of Article 2 of Directive 2009/73/EC. Article 3 Responsibility for the security of gas supply 1.    The security of gas supply shall be the shared responsibility of natural gas undertakings, Member States, in particular through their competent authorities, and the Commission, within their respective areas of activity and competence. 2.    Each Member State shall designate a competent authority. The competent authorities shall cooperate with each other in the implementation of this Regulation. Member States may allow the competent authority to delegate specific tasks set out in this Regulation to other bodies. Where competent authorities delegate the task of declaring any of the crisis levels referred to in Article 11(1), they shall do so only to a public authority, a transmission system operator or a distribution system operator. Del1344

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

egated tasks shall be performed under the supervision of the competent authority and shall be specified in the preventive action plan and in the emergency plan. 3.    Each Member State shall, without delay, notify the Commission, and make public, the name of its competent authority and any changes thereto. 4.    When implementing the measures provided for in this Regulation, the competent authority shall establish the roles and responsibilities of the different actors concerned in such a way as to ensure a three-level approach which involves, first, the relevant natural gas undertakings, electricity undertakings where appropriate, and industry, second, Member States at national or regional level, and third, the Union. 5.    The Commission shall coordinate the action of the competent authorities at regional and Union levels, pursuant to this Regulation, inter alia, through the GCG or, in particular, in the event of a regional or Union emergency pursuant to Article 12(1), through the crisis management group referred to in Article 12(4). 6.    In the event of a regional or Union emergency, the transmission system operators shall cooperate and exchange information using the ReCo System for Gas established by ENTSOG. ENTSOG shall inform the Commission and the competent authorities of the Member States concerned accordingly. 7.    In accordance with Article 7(2), major transnational risks to the security of gas supply in the Union are to be identified and risk groups are to be established on that basis. Those risk groups shall serve as the basis for enhanced regional cooperation to increase the security of gas supply and shall enable agreement on appropriate and effective cross-border measures of all Member States concerned within the risk groups or outside the risk groups along the emergency supply corridors.

The list of such risk groups and their composition are set out in Annex I. The composition of the risk groups shall not prevent any other form of regional cooperation benefiting security of supply.

1345

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

8.    The Commission is empowered to adopt delegated acts in accordance with Article 19 in order to update the composition of the risk groups set out in Annex I by amending that Annex in order to reflect the evolution of the major transnational risks to the security of gas supply in the Union and its impact on Member States, taking into account the result of Union-wide simulation of gas supply and infrastructure disruption scenarios carried out by ENTSOG in accordance with Article 7(1). Before proceeding to the update, the Commission shall consult the GCG in the setting provided for in Article 4(4) on the draft update. Article 4 Gas Coordination Group 1.    A Gas Coordination Group (GCG) shall be established to facilitate the coordination of measures concerning the security of gas supply. The GCG shall be composed of representatives of the Member States, in particular representatives of their competent authorities, as well as the Agency for the Cooperation of Energy Regulators (the ‘Agency’), ENTSOG and representative bodies of the industry concerned and those of relevant customers. The Commission shall, in consultation with the Member States, decide on the composition of the GCG, ensuring it is fully representative. The Commission shall chair the GCG. The GCG shall adopt its rules of procedure. 2.    The GCG shall be consulted and shall assist the Commission in particular on the following issues: (a)

the security of gas supply, at any time and more specifically in the event of an emergency;

(b)

all information relevant to the security of gas supply at national, regional and Union level;

(c)

best practices and possible guidelines to all the parties concerned;

(d)

the level of the security of gas supply, benchmarks and assessment methodologies;

1346

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(e)

national, regional and Union scenarios and testing the levels of preparedness;

(f )

the assessment of the preventive action plans and the emergency plans, the coherence across the various plans, and the implementation of the measures provided for therein;

(g)

the coordination of measures to deal with an Union emergency, with the Energy Community Contracting Parties and with other third countries;

(h)

assistance needed by the most affected Member States.

3.    The Commission shall convene the GCG on a regular basis and shall share the information received from the competent authorities whilst preserving the confidentiality of commercially sensitive information. 4.    The Commission may convene the GCG in a setting which is restricted to the representatives of the Member States and in particular of their competent authorities. The Commission shall convene the GCG in this restricted setting if so requested by one or more of the representatives of the Member States and in particular of their competent authorities. In this case, Article 16(2) shall not apply. Article 5 Infrastructure standard 1.    Each Member State or, where a Member State so provides, its competent authority shall ensure that the necessary measures are taken so that in the event of a disruption of the single largest gas infrastructure, the technical capacity of the remaining infrastructure, determined in accordance with the N – 1 formula as set out in point 2 of Annex II, is able, without prejudice to paragraph 2 of this Article, to satisfy total gas demand of the calculated area during a day of exceptionally high gas demand occurring with a statistical probability of once in 20 years. This shall be done taking into account gas consumption trends, the long-term impact of energy efficiency measures and the utilisation rates of existing infrastructure.

1347

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



The obligation set out in the first subparagraph of this paragraph shall be without prejudice to the responsibility of the transmission system operators to make the corresponding investments and to the obligations of transmission system operators as laid down in Regulation (EC) No 715/2009 and Directive 2009/73/EC.

2.    The obligation to ensure that the remaining infrastructure has the technical capacity to satisfy total gas demand, as referred to in paragraph 1 of this Article, shall also be considered to be fulfilled where the competent authority demonstrates in the preventive action plan that a disruption of gas supply may be sufficiently compensated for, in a timely manner, by appropriate market-based demand-side measures. For that purpose, the N – 1 formula shall be calculated as set out in point 4 of Annex II. 3.    Where appropriate, in accordance with the risk assessments referred to in Article 7, the competent authorities of neighbouring Member States may agree to fulfil, jointly, the obligation set out in paragraph 1 of this Article. In such case the competent authorities shall provide in the risk assessment the calculation of the N – 1 formula together with an explanation in the regional chapters of the preventive action plans how the agreed arrangements fulfil that obligation. Point 5 of Annex II shall apply. 4.    The transmission system operators shall enable permanent physical capacity to transport gas in both directions (‘bi-directional capacity’) on all interconnections between Member States, except:



(a)

in the case of connections to production facilities, to LNG facilities and to distribution networks; or

(b)

where an exemption from that obligation has been granted, after detailed assessment and after consulting other Member States and with the Commission in accordance with Annex III.

For the procedure to enable or enhance bi-directional capacity on an interconnection or to obtain or prolong an exemption from that obligation Annex III shall apply. The Commission shall make public the list of exemptions and keep it updated.

5.    A proposal for enabling or enhancing bi-directional capacity or a request for granting or prolongation of an exemption shall include a cost-benefit 1348

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

analysis prepared on the basis of the methodology pursuant to Article 11 of Regulation (EU) No 347/2013 of the European Parliament and of the Council (14) and shall be based on the following elements: (a)

an assessment of market demand;

(b)

projections for demand and supply;

(c)

the possible economic impact on existing infrastructure;

(d)

a feasibility study;

(e)

the costs of bi-directional capacity including the necessary reinforcement of the transmission system; and

(f )

the benefits to the security of gas supply taking into account the possible contribution of bi-directional capacity to meeting the infrastructure standard set out in this Article.

6.    National regulatory authorities shall take into account the efficiently incurred costs of fulfilling the obligation set out in paragraph 1 of this Article and the costs of enabling bi-directional capacity so as to grant appropriate incentives when fixing or approving, in a transparent and detailed manner, the tariffs or methodologies in accordance with Article  13 of Regulation (EC) No 715/2009 and Article 41(8) of Directive 2009/73/ EC. 7.    In so far as an investment for enabling or enhancing bi-directional capacity is not required by the market but is considered to be necessary for the security of gas supply purposes and where that investment incurs costs in more than one Member State or in one Member State for the benefit of another Member State, the national regulatory authorities of all Member States concerned shall take a coordinated decision on cost allocation before any investment decision is taken. The cost allocation shall take into account the principles described and the elements contained in Article 12(4) of Regulation (EU) No 347/2013, in particular the proportion of the benefits of the infrastructure investments for the increase of the security of gas supply of the Member States concerned as well as investments already made in the infrastructure in question. The cost allocation shall not unduly distort competition and the effective functioning of the 1349

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

internal market and shall seek to avoid any undue distortive effect on the market. 8.    The competent authority shall ensure that any new transmission infrastructure contributes to the security of gas supply through the development of a well-connected network, including, where appropriate, by means of a sufficient number of cross-border entry and exit points relative to market demand and the risks identified.

The competent authority shall assess in the risk assessment whether, with an integrated perspective on gas and electricity systems, internal bottlenecks exist and national entry capacity and infrastructure, in particular transmission networks, are capable of adapting the national and crossborder gas flows to the scenario of disruption of the single largest gas infrastructure at national level and the single largest gas infrastructure of common interest to the risk group identified in the risk assessment.

9.    By way of exception from paragraph 1 of this Article, and subject to the conditions laid down in this paragraph, Luxembourg, Slovenia and Sweden shall not be bound by, but shall endeavour to meet, the obligation set out in that paragraph, while ensuring the gas supplies to protected customers in accordance with Article 6.



The exception shall apply to Luxembourg provided it has: (a)

at least two interconnectors with other Member States;

(b)

at least two different sources of gas supply; and

(c)

no gas storage facilities on its territory.

The exception shall apply to Slovenia provided it has: (a)

at least two interconnectors with other Member States;

(b)

at least two different sources of gas supply; and

(c)

no gas storage facilities or an LNG facility on its territory.

1350

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



The exception shall apply to Sweden provided it has: (a)

no gas transit to other Member States on its territory;

(b)

an annual gross inland gas consumption of less than 2 Mtoe; and

(c)

less than 5 % of total primary energy consumption from gas.



Luxembourg, Slovenia and Sweden shall inform the Commission of any change affecting the conditions laid down in this paragraph. The exception laid down in this paragraph shall cease to apply where at least one of those conditions is no longer fulfilled.



As part of the national risk assessment carried out in accordance with Article 7(3) Luxembourg, Slovenia and Sweden shall describe the situation with respect to the respective conditions laid down in this paragraph and the prospects for compliance with the obligation in paragraph 1 of this Article, taking into account the economic impact of meeting the infrastructure standard, the gas market development and gas infrastructure projects in the risk group. On the basis of the information provided in the national risk assessment and if the respective conditions laid down in this paragraph are still met, the Commission may decide that the exception can continue to apply for four more years. In the event of a positive decision, the procedure set out in this subparagraph shall be repeated after four years. Article 6 Gas supply standard

1.    The competent authority shall require the natural gas undertakings that it identifies, to take measures to ensure the gas supply to the protected customers of the Member State in each of the following cases: (a)

extreme temperatures during a 7-day peak period occurring with a statistical probability of once in 20 years;

(b)

any period of 30 days of exceptionally high gas demand, occurring with a statistical probability of once in 20 years; 1351

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(c)

for a period of 30 days in the case of disruption of the single largest gas infrastructure under average winter conditions.

By 2 February 2018, each Member State shall notify to the Commission its definition of protected customers, the annual gas consumption volumes of the protected customers and the percentage that those consumption volumes represent of the total annual final gas consumption in that Member State. Where a Member State includes in its definition of protected customers the categories referred to in point (5)(a) or (b) of Article 2, it shall specify the gas consumption volumes corresponding to customers belonging to those categories and the percentage that each of those groups of customers represents in total annual final gas consumption.

The competent authority shall identify the natural gas undertakings referred to in the first subparagraph of this paragraph and shall specify them in the preventive action plan.



Any new non-market-based measures envisaged to ensure the gas supply standard shall comply with the procedure established in Article 9(4) to (9).



Member States may comply with the obligation laid down in the first subparagraph through the implementation of energy efficiency measures or by replacing the gas with a different source of energy, inter alia, renewable energy sources, to the extent that the same level of protection is achieved.

2.    Any increased gas supply standard beyond the 30-day period referred to in points (b) and (c) of paragraph 1 or any additional obligation imposed for reasons of security of gas supply shall be based on the risk assessment, shall be reflected in the preventive action plan and shall: (a)

comply with Article 8(1);

(b)

not impact negatively on the ability of any other Member State to supply gas to its protected customers in accordance with this Article in the event of a national, regional or Union emergency; and

(c)

comply with Article 12(5) in the event of a regional or Union emergency. 1352

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply





The Commission may require a justification showing compliance of any measure referred to in the first subparagraph with the conditions laid down therein. Such a justification shall be made public by the competent authority of the Member State that introduces the measure. Any new non-market-based measure pursuant to the first subparagraph of this paragraph, adopted on or after 1 November 2017, shall comply with the procedure established in Article 9(4) to (9).

3.    After the expiry of the periods laid down by the competent authority in accordance with paragraphs 1 and 2, or under more severe conditions than those laid down in paragraph 1, the competent authority and natural gas undertakings shall endeavour to maintain, as far as possible, the gas supply, in particular to protected customers. 4.    The obligations imposed on natural gas undertakings for the fulfilment of the gas supply standards laid down in this Article shall be non-discriminatory and shall not impose an undue burden on those undertakings. 5.    Natural gas undertakings shall be allowed to meet their obligations based on this Article at a regional or Union level, where appropriate. The competent authorities shall not require the gas supply standards laid down in this Article to be met based on infrastructure located only within their territory. 6.    The competent authorities shall ensure that conditions for supplies to protected customers are established without prejudice to the proper functioning of the internal energy market and at a price respecting the market value of the supplies. Article 7 Risk assessment 1.    By 1 November 2017, ENTSOG shall carry out a Union-wide simulation of gas supply and infrastructure disruption scenarios. The simulation shall include the identification and assessment of emergency gas supply corridors and shall also identify which Member States can address identified risks, including in relation to LNG. The gas supply and infrastruc1353

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ture disruption scenarios and the methodology for the simulation shall be defined by ENTSOG in cooperation with the GCG. ENTSOG shall ensure an appropriate level of transparency and access to the modelling assumptions used in its scenarios. The Union-wide simulation of gas supply and infrastructure disruption scenarios shall be repeated every four years unless circumstances warrant more frequent updates. 2.  

 The competent authorities within each risk group listed in Annex I shall make a common assessment at risk group level (‘common risk assessment’) of all relevant risk factors such as natural disasters, technological, commercial, social, political and other risks, which could lead to the materialisation of the major transnational risk to the security of gas supply for which the risk group was created. The competent authorities shall take into account the results of the simulation referred to in paragraph 1 of this Article for the preparation of the risk assessments, preventive action plans and emergency plans.



The competent authorities within each risk group shall agree on a cooperation mechanism to conduct the common risk assessment and report it to the GCG eleven months before the deadline for the notification of the common risk assessment and its updates. At the request of a competent authority the Commission may have a facilitating role in the preparation of the common risk assessment, in particular for the establishment of the cooperation mechanism. If competent authorities within a risk group do not agree on a cooperation mechanism, the Commission shall propose a cooperation mechanism for that risk group, after consulting the competent authorities concerned. The competent authorities concerned shall agree on a cooperation mechanism for that risk group taking utmost account of the Commission’s proposal.



10 months before the deadline for the notification of the common risk assessment or its updates, each competent authority shall share and update, within the agreed cooperation mechanism, all national data necessary for the preparation of the common risk assessment, in particular for running the various scenarios referred to in point (c) of paragraph 4.

3.    The competent authority of each Member State shall make a national risk assessment (‘national risk assessment’) of all relevant risks affecting the security of gas supply. Such assessment shall be fully consistent with the assumptions and results of the common risk assessment(s). 1354

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

4.    The risk assessments referred to in paragraphs 2 and 3 of this Article shall be carried out, as relevant, by: (a)

using the standards specified in Articles 5 and 6. The risk assessment shall describe the calculation of the N – 1 formula at national level and where appropriate include a calculation of the N – 1 formula at regional level. The risk assessment shall also include the assumptions used, including where applicable those for the calculation of the N – 1 formula at regional level, and the data necessary for such calculation. The calculation of the N – 1 formula at national level shall be accompanied by a simulation of disruption of the single largest gas infrastructure using hydraulic modelling for the national territory as well as by a calculation of the N – 1 formula considering the level of gas in storages at 30 % and 100 % of the maximum working volume;

(b)

taking into account all relevant national and transnational circumstances, in particular market size, network configuration, actual flows, including outflows from the Member States concerned, the possibility of physical gas flows in both directions including the potential need for consequent reinforcement of the transmission system, the presence of production and storage and the role of gas in the energy mixes, in particular with respect to district heating and electricity generation and for the operation of industries, and safety and gas quality considerations;

(c)

running various scenarios of exceptionally high demand for gas and disruption of gas supply, taking into account the history, probability, season, frequency and duration of their occurrence and assessing their likely consequences, such as: (i)

disruption of the infrastructure relevant to the security of gas supply, in particular transmission infrastructure, storages or LNG terminals, including the largest gas infrastructure identified for the calculation of N – 1 formula; and

(ii)

disruption of supplies from third-country suppliers, as well as, where appropriate, geopolitical risks;

1355

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(d)

identifying the interaction and correlation of risks among the Member States in the risk group and with other Member States or other risk groups, as appropriate, including, as regards interconnections, cross-border supplies, cross-border access to storage facilities and bi-directional capacity;

(e)

taking into account risks relating to the control of infrastructure relevant to the security of gas supply to the extent that they may involve, inter alia, risks of underinvestment, undermining diversification, misuse of existing infrastructure or an infringement of Union law;

(f )

taking into account the maximal interconnection capacity of each border entry and exit point and various filling levels for storage.

5.    The common and national risk assessments shall be prepared in accordance with the relevant template set out in Annex IV or V. If necessary, Member States may include additional information. The Commission is empowered to adopt delegated acts in accordance with Article 19 in order to amend the templates set out in Annexes IV and V, after consulting the GCG, in order to reflect the experience gained in the application of this Regulation, and to reduce the administrative burden on Member States. 6.    Natural gas undertakings, industrial gas customers, the relevant organisations representing the interests of household and industrial gas customers as well as Member States and, where they are not the competent authorities, the national regulatory authorities, shall cooperate with the competent authorities and provide them upon request with all necessary information for the common and national risk assessments. 7.    By 1 October 2018 Member States shall notify to the Commission the first common risk assessment once agreed by all Member States in the risk group and the national risk assessments. The risk assessments shall be updated every four years thereafter unless circumstances warrant more frequent updates. The risk assessments shall take account of progress made in investments needed to cope with the infrastructure standard defined in Article 5 and of country-specific difficulties encountered in the implementation of new alternative solutions. They shall also build on the experience acquired through the simulation of the emergency plans contained in Article 10(3). 1356

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

Article 8 Establishment of preventive action plans and emergency plans 1.    The measures to ensure the security of gas supply contained in a preventive action plan and an emergency plan shall be clearly defined, transparent, proportionate, non-discriminatory and verifiable, shall not unduly distort competition or the effective functioning of the internal market in gas and shall not endanger the security of gas supply of other Member States or of the Union. 2.    The competent authority of each Member State shall, after consulting the natural gas undertakings, the relevant organisations representing the interests of household and industrial gas customers, including electricity producers, electricity transmission system operators, and, where it is not the competent authority, the national regulatory authority, establish: (a)

a preventive action plan containing the measures needed to remove or mitigate the risks identified, including the effects of energy efficiency and demand-side measures in the common and nationals risk assessments and in accordance with Article 9;

(b)

an emergency plan containing the measures to be taken to remove or mitigate the impact of a disruption of gas supply in accordance with Article 10.

3.    The preventive action plan and the emergency plan shall contain a regional chapter, or several regional chapters, where a Member State is a member of different risk groups as defined in Annex I.

The regional chapters shall be developed jointly by all Member States in the risk group before incorporation in the respective national plans. The Commission shall act as a facilitator so as to enable that the regional chapters collectively enhance the security of gas supply in the Union, and, do not give rise to any contradiction, and to overcome any obstacles to cooperation.



The regional chapters shall contain appropriate and effective cross-border measures, including in relation to LNG, subject to agreement between the Member States implementing the measures from the same or differ1357

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ent risk groups affected by the measure on the basis of the simulation referred to in Article 7(1) and the common risk assessment. 4.    The competent authorities shall report regularly to the GCG on the progress achieved on the preparation and adoption of the preventive action plans and the emergency plans, in particular the regional chapters. In particular, competent authorities shall agree on a cooperation mechanism for the preparation of the preventive action plan and the emergency plan, including the exchange of draft plans. They shall report to the GCG on such agreed cooperation mechanism 16 months before the deadline for agreement of those plans and the updates of those plans.

The Commission may have a facilitating role in the preparation of the preventive action plan and the emergency plan, in particular for the establishment of the cooperation mechanism. If competent authorities within a risk group do not agree on a cooperation mechanism, the Commission shall propose a cooperation mechanism for that risk group. The competent authorities concerned shall agree on the cooperation mechanism for that risk group taking account of the Commission’s proposal. The competent authorities shall ensure the regular monitoring of the implementation of the preventive action plan and the emergency plan.

5.    The preventive action plan and the emergency plan shall be developed in accordance with the templates contained in Annexes VI and VII. The Commission is empowered to adopt delegated acts in accordance with Article 19 in order to amend the templates set out in Annexes VI and VII, after consulting the GCG, in order to reflect the experience gained in the application of this Regulation, and to reduce the administrative burden on Member States. 6.    The competent authorities of neighbouring Member States shall in due time consult each other with a view to ensuring consistency between their preventive action plans and their emergency plans.

The competent authorities shall, within each risk group, exchange draft preventive action plans and emergency plans with proposals for cooperation, at the latest five months before the deadline for submission of the plans.

1358

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



The final versions of the regional chapters referred to in paragraph 3 shall be agreed by all Member States in the risk group. The preventive action plans and emergency plans shall also contain the national measures necessary to implement and enforce the cross-border measures in the regional chapters.

7.    The preventive action plans and the emergency plans shall be made public and notified to the Commission by 1 March 2019. The Commission shall inform the GCG about the notification of the plans and publish them on the Commission’s website.

Within four months of the notification by the competent authorities, the Commission shall assess the plans taking into account the views expressed in the GCG.

8.    The Commission shall issue an opinion to the competent authority with the recommendation to review a preventive action plan or an emergency plan if one or more of the following applies: (a)

it is not effective to mitigate the risks as identified in the risk assessment;

(b)

it is inconsistent with the risk scenarios assessed or with the plans of another Member State or a risk group;

(c)

it does not comply with the requirement laid down in paragraph 1 not unduly to distort competition or the effective functioning of the internal market;

(d)

it does not comply with the provisions of this Regulation or other provisions of Union law.

9.    Within three months of notification of the Commission’s opinion referred to in paragraph 8, the competent authority concerned shall notify the amended preventive action plan or the emergency plan to the Commission, or shall inform the Commission of the reasons for which it disagree with the recommendations.

1359

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



In the event of disagreement related to elements referred to in paragraph 8, the Commission may, within four months of the reply of the competent authority, withdraw its request or convene the competent authority and, where the Commission considers it to be necessary, the GCG, in order to consider the issue. The Commission shall set out its detailed reasons for requesting any amendments to the preventive action plan or the emergency plan. The competent authority concerned shall take full account of the detailed reasons of the Commission.



Where applicable, the competent authority concerned shall without delay amend and make the amended preventive action plan or emergency plan public.



Where the final position of the competent authority concerned diverges from the Commission’s detailed reasons, that competent authority shall provide and make public, together with its position and the Commission’s detailed reasons, the justification underlying its position within two months of receipt of the detailed reasons of the Commission.

10.    For non-market-based measures adopted on or after 1 November 2017, the procedure set out in Article 9(4), (6), (8) and (9) shall apply. 11.

The confidentiality of commercially sensitive information shall be preserved.

12.

Preventive action plans and emergency plans developed under Regulation (EU) No 994/2010, updated in accordance with that Regulation, shall remain in force until the preventive action plans and the emergency plans referred to in paragraph 1 of this Article are established for the first time. Article 9 Content of preventive action plans

1.

The preventive action plan shall contain: (a)

the results of the risk assessment and a summary of the scenarios considered, as referred to in point (c) of Article 7(4); 1360

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(b)

the definition of protected customers and the information described in the second subparagraph of Article 6(1);

(c)

the measures, volumes and capacities needed to fulfil the infrastructure and gas supply standards laid down in Articles 5 and 6, including, where applicable, the extent to which demand-side measures can sufficiently compensate, in a timely manner, for a disruption of gas supply as referred to in Article 5(2), the identification of the single largest gas infrastructure of common interest in the case of the application of Article 5(3), the necessary gas volumes per category of protected customers and per scenario as referred to in Article 6(1), and any increased gas supply standard including any justification showing compliance with the conditions laid down in Article 6(2) and a description of a mechanism to reduce temporarily any increased gas supply standard or additional obligation in accordance with Article 11(3);

(d)

obligations imposed on natural gas undertakings, electricity undertakings where appropriate, and other relevant bodies likely to have an impact on the security of gas supply, such as obligations for the safe operation of the gas system;

(e)

other preventive measures designed to address the risks identified in the risk assessment, such as those relating to the need to enhance interconnections between neighbouring Member States, to further improve energy efficiency, to reduce gas demand and the possibility to diversify gas routes and sources of gas supply and the regional utilisation of existing storage and LNG capacities, if appropriate, in order to maintain gas supply to all customers as far as possible;

(f )

information on the economic impact, effectiveness and efficiency of the measures contained in the plan, including the obligations referred to in point (k);

(g)

a description of the effects of the measures contained in the plan on the functioning of the internal energy market as well as national markets, including the obligations referred to in point (k);

1361

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



(h)

a description of the impact of the measures on the environment and on customers;

(i)

the mechanisms to be used for cooperation with other Member States, including the mechanisms for preparing and implementing preventive action plans and emergency plans;

(j)

information on existing and future interconnections and infrastructure, including those providing access to the internal market, cross-border flows, cross-border access to storage and LNG facilities and the bi-directional capacity, in particular in the event of an emergency;

(k)

information on all public service obligations that relate to the security of gas supply.

Critical information relating to points (a), (c) and (d) of the first subparagraph which, if revealed, could endanger the security of gas supply, may be excluded.

2.    The preventive action plan, in particular the actions to meet the infrastructure standard as laid down in Article 5, shall take into account the Union-wide TYNDP elaborated by ENTSOG pursuant to Article 8(10) of Regulation (EC) No 715/2009. 3.    The preventive action plan shall be based primarily on market-based measures and shall not put an undue burden on natural gas undertakings, or negatively impact on the functioning of the internal market in gas. 4.    Member States, and in particular their competent authorities, shall ensure that all preventive non-market-based measures, such as those referred to in Annex VIII, adopted on or after 1 November 2017, irrespective of whether they are part of the preventive action plan or adopted subsequently, comply with the criteria laid down in the first subparagraph of Article 6(2). 5.    The competent authority shall make public any measure referred to in paragraph 4 which has not yet been included in the preventive action plan, and shall notify to the Commission the description of any such measure and of its impact on the national gas market and, to the extent possible, on the gas markets of other Member States. 1362

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

6.    If the Commission doubts whether a measure referred to in paragraph 4 of this Article complies with the criteria laid down in the first subparagraph of Article 6(2) it shall request from the Member State concerned the notification of an impact assessment. 7.    An impact assessment pursuant to paragraph 6 shall cover at least the following:



(a)

the potential impact on the development of the national gas market and competition at national level;

(b)

the potential impact on the internal gas market;

(c)

the potential impact on the security of gas supply of neighbouring Member States, in particular for those measures that could reduce the liquidity in regional markets or restrict flows to neighbouring Member States;

(d)

the costs and benefits, assessed against alternative market-basedmeasures;

(e)

an assessment of necessity and proportionality in comparison with possible market-based measures;

(f )

an appreciation whether the measure ensures equal possibilities for all market participants;

(g)

a phase-out strategy, the expected duration of the envisaged measure and an appropriate review calendar.

The analysis referred to in points (a) and (b) shall be carried out by the national regulatory authority. The impact assessment shall be made public by the competent authority and shall be notified to the Commission.

8.    Where the Commission considers, based on the impact assessment, that the measure is likely to endanger the security of gas supply of other Member States or of the Union it shall take a decision within four months of notification of the impact assessment requiring, to the extent necessary, the amendment or withdrawal of the measure.

1363

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



The adopted measure shall enter into force only when it is approved by the Commission or has been amended in accordance with the Commission decision.



The four-month period shall begin on the day following receipt of a complete notification. The four-month period may be extended with the consent of both the Commission and the competent authority.

9.    Where the Commission considers, based on the impact assessment, that the measure does not comply with the criteria laid down in the first paragraph of Article 6(2) it may issue an opinion within four months of notification of the impact assessment. The procedure set out in Article 8(8) and (9) shall apply.

The four-month period shall begin on the day following receipt of a complete notification. The four-month period may be extended with the consent of both the Commission and the competent authority.

10.    Article 8(9) shall apply to any measure subject to paragraphs 6 to 9 of this Article. 11.    The preventive action plan shall be updated every four years after 1 March 2019 or more frequently if the circumstances so warrant or at the Commission’s request. The updated plan shall reflect the updated risk assessment and the results of the tests carried out in accordance with Article 10(3). Article 8 shall apply to the updated plan. Article 10 Content of emergency plans 1.    The emergency plan shall: (a)

build upon the crisis levels referred to in Article 11(1);

(b)

define the role and responsibilities of natural gas undertakings, transmission system operators for electricity if relevant and of industrial gas customers including relevant electricity producers, taking account of the different extent to which they are affected in 1364

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

the event of a disruption of gas supply, and their interaction with the competent authorities and where appropriate with the national regulatory authorities at each of the crisis levels referred to in Article 11(1); (c)

define the role and responsibilities of the competent authorities and of the other bodies to which tasks have been delegated as referred to in Article 3(2) at each of the crisis levels referred to in Article 11(1);

(d)

ensure that natural gas undertakings and industrial gas customers including relevant electricity producers are given sufficient opportunity to respond to the crisis levels referred to in Article 11(1);

(e)

identify, if appropriate, the measures and actions to be taken to mitigate the potential impact of a disruption of gas supply on district heating and the supply of electricity generated from gas, including through an integrated view of energy systems operations across electricity and gas if relevant;

(f )

establish detailed procedures and measures to be followed for the crisis levels referred to in Article 11(1), including the corresponding schemes on information flows;

(g)

designate a crisis manager and define its role;

(h)

identify the contribution of market-based measures for coping with the situation at alert level and mitigating the situation at emergency level;

(i)

identify the contribution of non-market-based measures planned or to be implemented for the emergency level, and assess the degree to which the use of such non-market-based measures is necessary to cope with a crisis. The effects of the non-market-based measures shall be assessed and procedures for their implementation defined. Non-market-based measures are to be used only when marketbased mechanisms alone can no longer ensure supplies, in particular to protected customers, or for the application of Article 13;

1365

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(j)

describe the mechanisms used to cooperate with other Member States for the crisis levels referred to in Article 11(1) and information exchange arrangements between the competent authorities;

(k)

detail the reporting obligations imposed on natural gas undertakings and, where appropriate, electricity undertakings at alert and emergency levels;

(l)

describe the technical or legal arrangements in place to prevent undue gas consumption of customers who are connected to a gas distribution or transmission network but not protected customers;

(m) describe the technical, legal and financial arrangements in place to apply the solidarity obligations laid down in Article 13;



(n)

estimate the gas volumes that could be consumed by solidarity protected customers covering at least the cases described in Article 6(1);

(o)

establish a list of predefined actions to make gas available in the event of an emergency, including commercial agreements between the parties involved in such actions and the compensation mechanisms for natural gas undertakings where appropriate, taking due account of the confidentiality of sensitive data. Such actions may involve cross-border agreements between Member States and/or natural gas undertakings.

In order to prevent undue gas consumption during an emergency, as referred to in point (l) of the first subparagraph, or during the application of the measures referred to in Article 11(3) and Article 13, the competent authority of the Member State concerned shall inform customers who are not protected customers that they are required to cease or reduce their gas consumption without creating technically unsafe situations.

2.    The emergency plan shall be updated every four years after 1 March 2019 or more frequently if circumstances so warrant or at the Commission’s request. The updated plan shall reflect the updated risk assessment and the results of the tests carried out in accordance with paragraph 3 of this Article. Article 8(4) to (11) shall apply to the updated plan. 1366

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

3.    The measures, actions and procedures contained in the emergency plan shall be tested at least once between its four-year updates referred to in paragraph 2. In order to test the emergency plan, the competent authority shall simulate high and medium impact scenarios and responses in real time in accordance with that emergency plan. The results of the tests shall be presented at the GCG by the competent authority. 4.

The emergency plan shall ensure that cross-border access to infrastructure in accordance with Regulation (EC) No 715/2009 is maintained as far as technically and safely possible in the event of an emergency and shall not introduce any measure unduly restricting the flow of gas across borders. Article 11 Declaration of a crisis

1.    There shall be the following three crisis levels: (a)

early warning level (‘early warning’): where there is concrete, serious and reliable information that an event which is likely to result in significant deterioration of the gas supply situation may occur and is likely to lead to the alert or the emergency level being triggered; the early warning level may be activated by an early warning mechanism;

(b)

alert level (‘alert’): where a disruption of gas supply or exceptionally high gas demand which results in significant deterioration of the gas supply situation occurs but the market is still able to manage that disruption or demand without the need to resort to nonmarket-based measures;

(c)

emergency level (‘emergency’): where there is exceptionally high gas demand, significant disruption of gas supply or other significant deterioration of the gas supply situation and all relevant market-based measures have been implemented but the gas supply is insufficient to meet the remaining gas demand so that non-marketbased measures have to be additionally introduced with a view, in particular, to safeguarding gas supplies to protected customers in accordance with Article 6. 1367

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

2.    When the competent authority declares one of the crisis levels referred to in paragraph 1, it shall immediately inform the Commission as well as the competent authorities of the Member States with which the Member State of that competent authority is directly connected and provide them with all the necessary information, in particular with information on the action it intends to take. In the event of an emergency which may result in a call for assistance from the Union and its Member States, the competent authority of the Member State concerned shall without delay notify the Commission’s Emergency Response Coordination Centre (ERCC). 3.    Where a Member State has declared an emergency and has indicated that cross-border action is required, any increased gas supply standard or additional obligation under Article 6(2) imposed on natural gas undertakings in other Member States in the same risk group shall be temporarily reduced to the level established in Article 6(1).

The obligations laid down in the first subparagraph of this paragraph shall cease to apply immediately after the competent authority declares an end to an emergency, or the Commission concludes, in accordance with the first subparagraph of paragraph 8, that the declaration of an emergency is not or is no longer justified.

4.    When the competent authority declares an emergency it shall follow the pre-defined action as set out in its emergency plan and shall immediately inform the Commission and the competent authorities in the risk group as well as the competent authorities of the Member States with which the Member State of that competent authority is directly connected in particular of the action it intends to take. In duly justified exceptional circumstances, the competent authority may take action deviating from the emergency plan. The competent authority shall immediately inform the Commission and the competent authorities in its risk group as set out in Annex I, as well as the competent authorities of the Member States with which the Member State of that competent authority is directly connected, of any such action and shall provide a justification for the deviation. 5.    The transmission system operator shall ensure that when an emergency is declared in a neighbouring Member State, capacity at interconnection points to that Member State, irrespective of whether firm or interruptible, and whether it has been booked before or during the emergency, has priority over competing capacity at exit points into storage facilities. The 1368

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

system user of the prioritised capacity shall promptly pay fair compensation to the system user of the firm capacity for the financial loss incurred as a result of prioritisation including a proportionate reimbursement for the cost of the firm capacity being interrupted. The process of determining and paying the compensation shall not affect the implementation of the priority rule. 6.    The Member States and, in particular, the competent authorities shall ensure that: (a)

no measures are introduced which unduly restrict the flow of gas within the internal market at any time;

(b)

no measures are introduced that are likely seriously to endanger the gas supply situation in another Member State; and

(c)

cross-border access to infrastructure in accordance with Regulation (EC) No 715/2009 is maintained as far as technically and safely possible, in accordance with the emergency plan.

7.    During an emergency and on reasonable grounds, upon a request of the relevant electricity or gas transmission system operator a Member State may decide to prioritise the gas supply to certain critical gas-fired power plants over the gas supply to certain categories of protected customers, if the lack of gas supply to such critical gas-fired power plants either: (a)

could result in severe damage in the functioning of the electricity system; or

(b)

would hamper the production and/or transportation of gas.



Member States shall base any such measure on the risk assessment.



Critical gas-fired power plants as referred to in the first subparagraph shall be clearly identified together with the possible gas volumes that would be subject to such a measure and included in the regional chapters of the preventive action plans and emergency plans. Their identification shall be carried out in close cooperation with transmission system operators of the electricity system and the gas system of the Member State concerned.

1369

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

8.    The Commission shall verify, as soon as possible, but in any case within five days of receiving the information referred to in paragraph 2 from the competent authority, whether the declaration of an emergency is justified in accordance with point (c) of paragraph 1 and whether the measures taken follow as closely as possible the actions listed in the emergency plan and are not imposing an undue burden on natural gas undertakings and are in accordance with paragraph 6. The Commission may, at the request of another competent authority, natural gas undertakings or on its own initiative, request the competent authority to modify the measures where they are contrary to the conditions referred to in the first sentence of this paragraph. The Commission may also request the competent authority to declare an end to the emergency where it concludes that the declaration of an emergency is not or is no longer justified in accordance with point (c) of paragraph 1.

Within three days of notification of the Commission request, the competent authority shall modify the measures and shall notify the Commission thereof, or shall inform the Commission of the reasons for which it disagrees with the request. In the latter case, the Commission may, within three days of being informed, amend or withdraw its request or, in order to consider the issue, convene the competent authority or, where appropriate, the competent authorities concerned, and, where the Commission considers it to be necessary, the GCG. The Commission shall set out its detailed reasons for requesting any modification to the action. The competent authority shall take full account of the position of the Commission. Where the final decision of the competent authority diverges from the Commission position, the competent authority shall provide the reasons underlying such decision.

9.    When the competent authority declares an end to one of the crisis levels referred to in paragraph 1, it shall inform the Commission as well as the competent authorities of the Member States with which the Member State of that competent authority is directly connected.

1370

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

Article 12 Regional and Union emergency responses 1.    The Commission may declare a regional or Union emergency at the request of a competent authority that has declared an emergency and following the verification in accordance with Article 11(8).

The Commission shall declare, as appropriate, a regional or Union emergency at the request of at least two competent authorities that have declared an emergency and following the verification in accordance with Article 11(8), and where the reasons for such emergencies are linked.



In all cases, when it declares a regional or Union emergency, the Commission, using the means of communication most appropriate to the situation, shall gather the views of, and take due account of all the relevant information provided by other competent authorities. When the Commission decides, following an assessment, that the underlying basis for the regional or Union emergency no longer justifies the declaration of an emergency, it shall declare an end to the regional or Union emergency and shall give its reasons and inform the Council of its decision.

2.    The Commission shall convene the GCG as soon as it declares a regional or Union emergency. 3.    In a regional or Union emergency, the Commission shall coordinate the action of the competent authorities, taking full account of relevant information from, and the results of, the consultation of the GCG. In particular, the Commission shall: (a)

ensure the exchange of information;

(b)

ensure the consistency and effectiveness of action at Member State and regional levels in relation to the Union level;

(c)

coordinate the actions with regard to third countries.

4.    The Commission may convene a crisis management group composed of the crisis managers referred to in point (g) of Article 10(1), of the Member States concerned by the emergency. The Commission, in agreement 1371

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

with the crisis managers, may invite other relevant stakeholders to participate. The Commission shall ensure that the GCG is informed regularly about the work undertaken by the crisis management group. 5.    The Member States and in particular the competent authorities shall ensure that: (a)

no measures are introduced which unduly restrict the flow of gas within the internal market at any time, in particular the flow of gas to the affected markets;

(b)

no measures are introduced that are likely seriously to endanger the gas supply situation in another Member State; and

(c)

cross-border access to infrastructure in accordance with Regulation (EC) No 715/2009 is maintained as far as technically and safely possible, in accordance with the emergency plan.

6.    Where, at the request of a competent authority or a natural gas undertaking or on its own initiative, the Commission considers that, in a regional or Union emergency, action taken by a Member State or a competent authority or the behaviour of a natural gas undertaking is contrary to paragraph 5, the Commission shall request that Member State or competent authority to modify its action or to take action in order to ensure compliance with paragraph 5, informing it of the reasons therefor. Due account shall be taken of the need to operate the gas system safely at all times.

Within three days of notification of the Commission request, the Member State or the competent authority shall modify its action and notify the Commission thereof, or shall inform the Commission of the reasons for which it disagrees with the request. In the latter case, the Commission may, within three days of being informed, amend or withdraw its request or convene the Member State or the competent authority and, where the Commission considers it to be necessary, the GCG in order to consider the issue. The Commission shall set out its detailed reasons for requesting any modification to the action. The Member State or the competent authority shall take full account of the position of the Commission. Where the final decision of the competent authority or the Member State diverges from the Commission position, the competent authority or the Member State shall provide the reasons underlying such decision. 1372

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

7.    The Commission, after consulting the GCG, shall establish a permanent reserve list for a monitoring task force consisting of industry experts and representatives of the Commission. The monitoring task force may be deployed outside the Union when necessary and shall monitor and report on the gas flows into the Union, in cooperation with the supplying and transiting third countries. 8.    The competent authority shall provide to the Commission’s ERCC the information on any need for assistance. ERCC shall assess the overall situation and advise on the assistance that should be provided to the most affected Member States, and where appropriate to third countries. Article 13 Solidarity 1.    If a Member State has requested the application of the solidarity measure pursuant to this Article, a Member State which is directly connected to the requesting Member State or, where the Member State so provides, its competent authority or transmission system operator or distribution system operator shall as far as possible without creating unsafe situations, take the necessary measures to ensure that the gas supply to customers other than solidarity protected customers in its territory is reduced or does not continue to the extent necessary and for as long as the gas supply to solidarity protected customers in the requesting Member State is not satisfied. The requesting Member State shall ensure that the relevant volume of gas is effectively delivered to solidarity protected customers in its territory.

In exceptional circumstances and upon a duly reasoned request by the relevant electricity or gas transmission system operator to its competent authority, the gas supply may also continue to certain critical gas-fired power plants as defined pursuant to Article 11(7) in the Member State providing solidarity if the lack of gas supply to such plants would result in severe damage in the functioning of the electricity system or would hamper the production and/or transportation of gas.

2.    A Member State shall also provide the solidarity measure to another Member State to which it is connected via a third country unless flows 1373

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

are restricted through the third country. Such an extension of the measure shall be subject to the agreement of the relevant Member States, who shall involve, as appropriate, the third country through which they are connected. 3.    A solidarity measure shall be taken as a last resort and shall apply only if the requesting Member State has: (a)

not been able to cover the deficit in gas supply to its solidarity protected customers despite the application of the measure referred to in Article 11(3);

(b)

exhausted all market-based measures and all measures provided in its emergency plan;

(c)

notified an explicit request to the Commission and to the competent authorities of all Member States with which it is connected either directly or pursuant to paragraph 2 via a third country, accompanied by a description of the implemented measures referred to in point (b) of this paragraph;

(d)

undertaken to pay fair and prompt compensation to the Member State providing solidarity in accordance with paragraph 8.

4.    If there is more than one Member State that could provide solidarity to a requesting Member State, the requesting Member State shall, after consulting all Member States required to provide solidarity, seek the most advantageous offer on the basis of cost, speed of delivery, reliability and diversification of supplies of gas. The Member States concerned shall make such offers on the basis of voluntary demand-side measures as much as and for as long as possible, before resorting to non-market-based measures. 5.    Where market-based measures prove insufficient for the Member State providing solidarity to address the deficit in gas supply to solidarity protected customers in the requesting Member State, the Member State providing solidarity may introduce non-market-based measures in order to comply with the obligations laid down in paragraphs 1 and 2.

1374

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

6.    The competent authority of the requesting Member State shall immediately inform the Commission and the competent authorities of the Member States providing solidarity when gas supply to solidarity protected customers in its territory is satisfied or where the obligations under paragraphs 1 and 2 are, based on its needs, reduced, or where they are suspended at the request of the Member State receiving solidarity. 7.    The obligations laid down in paragraphs 1 and 2 shall apply subject to the technically safe and reliable operation of the gas system of a Member State providing solidarity and the limit of the maximum interconnection export capability of the relevant Member State infrastructure towards the requesting Member State. Technical, legal and financial arrangements may reflect such circumstances in particular those under which the market will deliver up to maximum interconnection capacity. 8.    Solidarity under this Regulation shall be provided on the basis of compensation. The Member State requesting solidarity shall promptly pay, or ensure prompt payment of, fair compensation to the Member State providing solidarity. Such fair compensation shall cover at least:



(a)

the gas delivered into the territory of the requesting Member State;

(b)

all other relevant and reasonable costs incurred when providing solidarity, including, where appropriate, costs of such measures that may have been established in advance;

(c)

reimbursement for any compensation resulting from judicial proceedings, arbitration proceedings or similar proceedings and settlements and related costs of such proceedings involving the Member State providing solidarity vis-a-vis entities involved in the provision of such solidarity.

Fair compensation pursuant to the first subparagraph shall include, inter alia, all reasonable costs that the Member State providing solidarity incurs from an obligation to pay compensation by virtue of fundamental rights guaranteed by Union law and by virtue of the applicable international obligations when implementing this Article and further reasonable costs incurred from payment of compensation pursuant to national compensation rules.

1375

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



By 1 December 2018, the Member States shall adopt the necessary measures, in particular the technical, legal and financial arrangements pursuant to paragraph 10, to implement the first and second subparagraphs of this paragraph. Such measures may provide for the practical modalities of prompt payment.

9.    Member States shall ensure that the provisions of this Article are implemented in conformity with the Treaties, the Charter of Fundamental Rights of the European Union, as well as the applicable international obligations. They shall take the necessary measures to that effect. 10.    By 1 December 2018, the Member States shall adopt the necessary measures, including those agreed in technical, legal and financial arrangements, to ensure that gas is supplied to solidarity protected customers in the requesting Member State in accordance with paragraphs 1 and 2. The technical, legal and financial arrangements shall be agreed among the Member States which are directly connected or, in accordance with paragraph 2, via a third country, and shall be described in their respective emergency plans. Such arrangements may cover, among others, the following elements: (a)

the operational safety of networks;

(b)

gas prices to be applied and/or the methodology for their setting, taking into account the impact on the functioning of the market;

(c)

the use of interconnections, including bi-directional capacity and underground gas storage;

(d)

gas volumes or the methodology for their setting;

(e)

categories of costs that will have to be covered by a fair and prompt compensation, that may include damages for curtailed industry;

(f )

an indication of the method how the fair compensation could be calculated.

The financial arrangement agreed between Member States before solidarity is requested shall contain provisions that allow for the calculation of the fair compensation of at least all relevant and reasonable costs incurred 1376

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

when providing solidarity and an undertaking that such compensation will be paid.

Any compensation mechanism shall provide incentives to participate in market-based solutions such as auctions and demand response mechanisms. It shall not create perverse incentives, including in financial terms, for market players to postpone their action until non-market-based measures are applied. All compensation mechanisms or at least their summary shall be included in the emergency plans.

11.    For as long as a Member State can cover the gas consumption for its solidarity protected customers from its own production, it shall be exempt from the obligation to conclude technical, legal and financial arrangements with Member States with which it is directly connected or, in accordance with paragraph 2, via a third country, for the purpose of receiving solidarity. Such an exemption shall not affect the obligation of the relevant Member State to provide solidarity to other Member States pursuant to this Article. 12.    By 1 December 2017 and after consulting the GCG, the Commission shall provide for legally non-binding guidance for the key elements of the technical, legal and financial arrangements especially on how to apply the elements described in paragraphs 8 and 10 in practice. 13.    Where Member States do not agree on the necessary technical, legal and financial arrangements by 1 October 2018, the Commission may after consulting the competent authorities concerned, propose a framework for such measures setting out the necessary principles to make them operational which shall build on the Commission’s guidance set out in paragraph 12. Member States shall finalise their arrangements by 1 December 2018 taking utmost account of the Commission’s proposal. 14.    The applicability of this Article shall not be affected if Member States fail to agree or finalise their technical, legal and financial arrangements. In such a situation the Member States concerned shall agree on the necessary ad hoc measures and the Member State requesting solidarity shall provide an undertaking in accordance with point (d) of paragraph 3. 15.    The obligations laid down in paragraphs 1 and 2 of this Article shall cease to apply immediately after the declaration of the end of an emergency or 1377

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

the Commission concludes, in accordance with the first subparagraph of Article 11(8), that the declaration of an emergency is not or is no longer justified. 16.    Where the Union incurs costs by virtue of any liability, other than for unlawful acts or conduct pursuant to the second paragraph of Article 340 TFEU, in respect of measures that Member States are required to take pursuant to this Article, those costs shall be reimbursed to it by the Member State receiving solidarity. Article 14 Information exchange 1.    Where a Member State has declared one of the crisis levels referred to in Article 11(1), the natural gas undertakings concerned shall make available, on a daily basis, in particular the following information to the competent authority of the Member State concerned: (a)

the daily gas demand and gas supply forecasts for the following three days, in million cubic metres per day (mcm/d);

(b)

the daily flow of gas at all cross-border entry and exit points as well as at all points connecting a production facility, a storage facility or an LNG terminal to the network, in million cubic metres per day (mcm/d);

(c)

the period, expressed in days, for which it is expected that supply of gas to protected customers can be ensured.

2.    In the event of a regional or Union emergency, the Commission may request that the competent authority referred to in paragraph 1 provide it without delay with at least: (a)

the information set out in paragraph 1;

(b)

information on the measures planned to be undertaken and those already implemented by the competent authority to mitigate the emergency, and information on their effectiveness; 1378

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(c)

the requests made for additional measures to be taken by other competent authorities;

(d)

the measures implemented at the request of other competent authorities.

3.    After an emergency, the competent authority referred to in paragraph 1 shall, as soon as possible and at the latest six weeks after the lifting of the emergency, provide the Commission with a detailed assessment of the emergency and the effectiveness of the measures implemented, including an assessment of the economic impact of the emergency, the impact on the electricity sector and the assistance provided to or received from, the Union and its Member States. Such assessment shall be made available to the GCG and shall be reflected in the updates of the preventive action plans and the emergency plans.

The Commission shall analyse the assessments of the competent authorities and shall inform the Member States, the European Parliament and the GCG of the results of its analysis in an aggregated form.

4.   

In duly justified circumstances irrespective of a declaration of an emergency, the competent authority of the most affected Member State may require natural gas undertakings to provide the information referred to in paragraph 1 or additional information necessary to assess the overall situation of the gas supply in the Member State or other Member States, including contractual information, other than price information. The Commission may request from the competent authorities the information provided by natural gas undertakings under this paragraph, provided that the same information has not been transmitted already to the Commission.

5.    Where the Commission considers the gas supply in the Union or part of the Union to be at risk or is likely to be at risk that may lead to the declaration of one of the crisis levels referred to in Article 11(1), it may require the competent authorities concerned to collect and submit to the Commission information necessary to assess of the gas supply situation. The Commission shall share its assessment with the GCG. 6.    In order for the competent authorities and the Commission to assess the security of gas supply situation at national, regional and Union level, each natural gas undertaking shall notify: 1379

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(a)

to the competent authority concerned the following details of gas supply contracts with a cross-border dimension and a duration of more than one year which it has concluded to procure gas: (i)

contract duration;

(ii)

yearly contracted volumes;

(iii) contracted maximum daily volumes in the event of an alert or emergency; (iv) contracted delivery points; (v)

minimum daily and monthly gas volumes;

(vi) conditions for the suspension of gas deliveries. (vii) an indication whether the contract individually or cumulatively with its contracts with the same supplier or its affiliates is equivalent to or exceeds the threshold of 28 % as referred to in point (b) of paragraph 6 in the most affected Member State. (b)



to the competent authority of the most affected Member State immediately after their conclusion or modification its gas supply contracts with a duration of more than one year, concluded or modified on or after 1 November 2017 that individually or cumulatively with its contracts with the same supplier or its affiliates is equivalent to 28 % or more of yearly gas consumption in that Member State to be calculated on the basis of the most recent available data. In addition, by 2 November 2018 natural gas undertakings shall notify the competent authority of all existing contracts fulfilling the same conditions. The notification obligation shall not cover price information and shall not apply to the modifications related only to the gas price. The notification obligation shall also apply to all commercial agreements that are relevant for the execution of the gas supply contract excluding price information. The competent authority shall notify the data listed in point (a) of the first subparagraph to the Commission in an anonymised form. 1380

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

In the event of new contracts being concluded or changes being made to existing contracts, the whole set of data shall be notified by the end of September of the relevant year. Where the competent authority has doubts whether a given contract obtained under point (b) of the first subparagraph puts the security of gas supply of a Member State or a region at risk, it shall notify the contract to the Commission. 7.    In circumstances duly justified by the need to guarantee transparency of key gas supply contracts relevant to the security of gas supply, and where the competent authority of the most affected Member State or the Commission considers that a gas supply contract may jeopardise the security of gas supply of a Member State, of a region or of the Union, the competent authority of the Member State or the Commission may request the natural gas undertaking to provide the contract, excluding price information, for the assessment of its impact on the security of gas supply. The request shall be reasoned and may cover also details of any other commercial agreements that are relevant for the execution of the gas supply contract excluding price information. The justification shall include the proportionality of the administrative burden involved. 8.    The competent authorities that receive information on the basis of point (b) of paragraph 6 or paragraph 7 of this Article shall assess the received information for security of gas supply purposes within three months and submit the results of their assessment to the Commission. 9.    The competent authority shall take into account the information received under this Article in the preparation of the risk assessment, preventive action plan and emergency plan or their respective updates. The Commission may adopt an opinion proposing to the competent authority to amend the risk assessments or plans on the basis of the information received under this Article. The competent authority concerned shall review the risk assessment and the plans concerned by the request in accordance with the procedure set out in Article 8(9). 10.    By 2 May 2019, the Member States shall lay down the rules on penalties applicable to infringements by natural gas undertakings of paragraph 6 or 7 of this Article and shall take all measures necessary to ensure that they are implemented. The penalties provided for shall be effective, proportionate and dissuasive. 1381

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

11.    For the purpose of this Article, ‘the most affected Member State’ shall mean a Member State where a contract party of a given contract has the most of its sales of gas or customers located. 12.    All contracts or contractual information received on the basis of paragraphs 6 and 7 as well as the respective assessments by the competent authorities or the Commission shall remain confidential. The competent authorities and the Commission shall ensure full confidentiality. Article 15 Professional secrecy 1.    Any commercially sensitive information received, exchanged or transmitted pursuant to Article 14(4) to (8), and Article 18 excluding the results of the assessments referred to in Article 14(3) and (5) shall be confidential and subject to the conditions of professional secrecy laid down in this Article. 2.    The obligation of professional secrecy shall apply to the following persons who receive confidential information in accordance with this Regulation: (a)

persons who work or who have worked for the Commission;

(b)

auditors and experts instructed by the Commission;

(c)

persons who work or who have worked for the competent authorities and the national regulatory authorities or for other relevant authorities;

(d)

auditors and experts instructed by competent authorities and national regulatory authorities or by other relevant authorities.

3.    Without prejudice to cases covered by criminal law, the other provisions of this Regulation or other relevant Union law, confidential information received by the persons referred to in paragraph 2 in the course of their duties may not be divulged to any other person or authority, except in summary or aggregate form such that an individual market participant or market place cannot be identified. 1382

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

4.    Without prejudice to cases covered by criminal law, the Commission, the competent authorities and the national regulatory authorities, bodies or persons which receive confidential information pursuant to this Regulation may use confidential information only in the performance of their duties and for the exercise of their functions. Other authorities, bodies or persons may use that information for the purpose for which it was provided to them or in the context of administrative or judicial proceedings specifically related to the exercise of their functions. Article 16 Cooperation with the Energy Community Contracting Parties 1.    Where the Member States and the Energy Community Contracting Parties cooperate in the process of the establishment of risk assessments and preventive action plans and emergency plans, such cooperation may include, in particular, identifying the interaction and correlation of risks and consultations with a view to ensuring consistency of preventive action plans and emergency plans across the border. 2.    With respect to paragraph 1, Energy Community Contracting Parties may participate in the GCG upon invitation by the Commission on all matters of mutual concern. Article 17 Monitoring by the Commission The Commission shall carry out continuous monitoring of security of gas supply measures and report regularly to the GCG. The Commission, on the basis of the assessments referred to in Article 8(7) shall, by 1 September 2023, draw conclusions as to possible means to enhance the security of gas supply at Union level and submit a report to the European Parliament and to the Council on the application of this Regulation, including, where necessary, legislative proposals to amend this Regulation.

1383

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

Article 18 Notifications The risk assessment, the preventive action plans, the emergency plans and all other documents shall be notified to the Commission electronically through the CIRCABC platform. All correspondence in connection with a notification shall be transmitted electronically. Article 19 Exercise of the delegation 1.    The power to adopt delegated acts is conferred on the Commission subject to the conditions laid down in this Article. 2.    The power to adopt delegated acts referred to in Article 3(8), Article 7(5) and Article 8(5) shall be conferred on the Commission for a period of five years from 1 November 2017. The Commission shall draw up a report in respect of the delegation of power not later than nine months before the end of the five-year period. The delegation of power shall be tacitly extended for periods of an identical duration, unless the European Parliament or the Council opposes such extension not later than three months before the end of each period. 3.    The delegation of power referred to in Article 3(8), Article 7(5) and Article 8(5) may be revoked at any time by the European Parliament or by the Council. A decision to revoke shall put an end to the delegation of the power specified in that decision. It shall take effect the day following the publication of the decision in the Official Journal of the European Union or at a later date specified therein. It shall not affect the validity of any delegated acts already in force. 4.    Before adopting a delegated act, the Commission shall consult experts designated by each Member State in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. 1384

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

5.    As soon as it adopts a delegated act, the Commission shall notify it simultaneously to the European Parliament and to the Council. 6.    A delegated act adopted pursuant to Article 3(8), Article 7(5) and Article 8(5) shall enter into force only if no objection has been expressed either by the European Parliament or the Council within a period of two months of notification of that act to the European Parliament and the Council or if, before the expiry of that period, the European Parliament and the Council have both informed the Commission that they will not object. That period shall be extended by two months at the initiative of the European Parliament or of the Council. Article 20 Derogation 1.    This Regulation shall not apply to Malta and Cyprus for as long as no gas is supplied on their respective territories. For Malta and Cyprus the obligations laid down in, and the choices those Member States are entitled to make pursuant to, the following provisions shall be fulfilled and made within the specified time calculated from the date when gas is first supplied on their respective territories:



(a)

for point 5 of Article 2, Article 3(2), Article 7(5) and point (a) of Article 14(6): 12 months;

(b)

for Article 6(1): 18 months;

(c)

for Article 8(7): 24 months;

(d)

for Article 5(4): 36 months;

(e)

for Article 5(1): 48 months.

In order to fulfil the obligation contained in Article 5(1), Malta and Cyprus may apply the provisions contained in Article 5(2), including by using non-market-based demand-side measures.

1385

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

2.    Obligations related to the work of the risk groups set out in Articles 7 and 8 with regard to the Southern Gas Corridor and Eastern Mediterranean risk groups shall start to apply from the date when the major infrastructure/pipeline enters the test operation. 3.    For as long as Sweden has access to gas via interconnections exclusively from Denmark as its only source of gas and its only possible provider of solidarity, Denmark and Sweden shall be exempted from the obligation in Article 13(10) to conclude technical, legal and financial arrangements for the purpose of Sweden providing solidarity to Denmark. This shall not affect the obligation of Denmark to provide solidarity and to conclude the necessary technical, legal and financial arrangements to that effect pursuant to Article 13. Article 21 Repeal Regulation (EU) No 994/2010 is repealed. References to the repealed Regulation shall be construed as references to this Regulation and shall be read in accordance with the correlation table in Annex IX. Article 22 Entry into force This Regulation shall enter into force on the fourth day following that of its publication in the Official Journal of the European Union. It shall apply from 1 November 2017. However, Article 13(1) to (6), the first and second subparagraphs of Article 13(8), and Article 13(14) and (15) shall apply from 1 December 2018. This Regulation shall be binding in its entirety and directly applicable in all Member States. 1386

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

Done at Strasbourg, 25 October 2017. For the European Parliament The President A. TAJANI For the Council The President M. MAASIKAS

Notes (1)   OJ C 487, 28.12.2016, p. 70. (2)   Position of the European Parliament of 12 September 2017 (not yet published in the Official Journal) and decision of the Council of 9 October 2017. (3)   Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55). (4)   Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211, 14.8.2009, p. 94). (5)   Regulation (EC) No 713/2009 of the European Parliament and of the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1). (6)   Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ L 211, 14.8.2009, p. 15). (7)   Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ L 211, 14.8.2009, p. 36). 1387

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(8)   Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC (OJ L 295, 12.11.2010, p. 1). (9)   Decision No 1313/2013/EU of the European Parliament and of the Council of 17 December 2013 on a Union Civil Protection Mechanism (OJ L 347, 20.12.2013, p. 924). (10)   Directive 2005/89/EC of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment (OJ L 33, 4.2.2006, p. 22). (11)   Council Directive 2008/114/EC of 8 December 2008 on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection (OJ L  345, 23.12.2008, p. 75). (12)   Commission Regulation (EU) No 312/2014 of 26 March 2014 establishing a Network Code on Gas Balancing of Transmission Networks (OJ L 91, 27.3.2014, p. 15). (13)   OJ L 123, 12.5.2016, p. 1. (14)   Regulation (EU) No 347/2013 of the European Parliament and of the Council of 17 April 2013 on guidelines for trans-European energy infrastructure and repealing Decision No 1364/2006/EC and amending Regulation (EC) No 713/2009, (EC) No 714/2009 and (EC) No 715/2009 (OJ L 115, 25.4.2013, p. 39).

1388

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX I Regional cooperation The risk groups of Member States that serve as the basis for risk associated cooperation as referred to in Article 3(7) are the following: 1.

2.

Eastern gas supply risk groups: (a)

Ukraine: Bulgaria, Czech Republic, Germany, Greece, Croatia, Italy, Luxembourg, Hungary, Austria, Poland, Romania, Slovenia, Slovakia;

(b)

Belarus: Belgium, Czech Republic, Germany, Estonia, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Slovakia;

(c)

Baltic Sea: Belgium, Czech Republic, Denmark, Germany, France, Luxembourg, Netherlands, Austria, Slovakia, Sweden;

(d)

North-Eastern: Estonia, Latvia, Lithuania, Finland;

(e)

Trans-Balkan: Bulgaria, Greece, Romania.

North Sea gas supply risk groups: (a)

Norway: Belgium, Denmark, Germany, Ireland, Spain, France, Italy, Luxembourg, Netherlands, Portugal, Sweden, United Kingdom;

(b)

Low-calorific gas: Belgium, Germany, France, Netherlands;

(c)

Denmark: Denmark, Germany, Luxembourg, Netherlands, Sweden;

(d)

United Kingdom: Belgium, Germany, Ireland, Luxembourg, Netherlands, United Kingdom.



1389

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

3.

4.

North African gas supply risk groups:

(a)

Algeria: Greece, Spain, France, Croatia, Italy, Malta, Austria, Portugal, Slovenia;

(b)

Libya: Croatia, Italy, Malta, Austria, Slovenia.

South-East gas supply risk groups: (a)

Southern Gas Corridor — Caspian: Bulgaria, Greece, Croatia, Italy, Hungary, Malta, Austria, Romania, Slovenia, Slovakia;

(b)

Eastern Mediterranean: Greece, Italy, Cyprus, Malta.



1390

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX II Calculation of the N – 1 formula 1.    Definition of the N – 1 formula

The N – 1 formula describes the ability of the technical capacity of the gas infrastructure to satisfy total gas demand in the calculated area in the event of disruption of the single largest gas infrastructure during a day of exceptionally high gas demand occurring with a statistical probability of once in 20 years.



Gas infrastructure shall cover the gas transmission network including interconnections, as well as production, LNG and storage facilities connected to the calculated area.



The technical capacity of all remaining available gas infrastructure in the event of disruption of the single largest gas infrastructure shall be at least equal to the sum of the total daily gas demand of the calculated area during a day of exceptionally high gas demand occurring with a statistical probability of once in 20 years.



The results of the N – 1 formula, as calculated below, shall be at least equal to 100%.

2.    Calculation method of the N – 1 formula, N – 1 ≥ 100%



The parameters used for the calculation shall be clearly described and justified.



For the calculation of the EPm, a detailed list of the entry points and their individual capacity shall be provided.

1391

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

3.    Definitions of the parameters of the N – 1 formula

‘Calculated area’ means a geographical area for which the N – 1 formula is calculated, as determined by the competent authority.



Demand-side definition



‘Dmax’ means the total daily gas demand (in mcm/d) of the calculated area during a day of exceptionally high gas demand occurring with a statistical probability of once in 20 years.



Supply-side definitions

 

‘EPm’: technical capacity of entry points (in mcm/d), other than production, LNG and storage facilities covered by Pm, LNGm and Sm, means the sum of the technical capacity of all border entry points capable of supplying gas to the calculated area.

 

‘Pm’: maximal technical production capability (in mcm/d) means the sum of the maximal technical daily production capability of all gas production facilities which can be delivered to the entry points in the calculated area.



‘Sm’: maximal technical storage deliverability (in mcm/d) means the sum of the maximal technical daily withdrawal capacity of all storage facilities which can be delivered to the entry points of the calculated area, taking into account their respective physical characteristics.

 

‘LNGm’: maximal technical LNG facility capacity (in mcm/d) means the sum of the maximal technical daily send-out capacities at all LNG facilities in the calculated area, taking into account critical elements like offloading, ancillary services, temporary storage and re-gasification of LNG as well as technical send-out capacity to the system.

 

‘Im’ means the technical capacity of the single largest gas infrastructure (in mcm/d) with the highest capacity to supply the calculated area. When several gas infrastructures are connected to a common upstream or downstream gas infrastructure and cannot be separately operated, they shall be considered as one single gas infrastructure.

1392

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

4.    Calculation of the N – 1 formula using demand-side measures



Demand-side definition



‘Deff ’ means the part (in mcm/d) of Dmax that in the case of a disruption of gas supply can be sufficiently and timely covered with market-based demand-side measures in accordance with point (c) of Article 9(1) and Article 5(2).

5.    Calculation of the N – 1 formula at regional level

The calculated area referred to in point 3 shall be extended to the appropriate regional level, where applicable, as determined by the competent authorities of the Member States concerned. The calculation may also extend to the regional level of the risk group, if so agreed with the competent authorities of the risk group. For the calculation of the N – 1 formula at regional level, the single largest gas infrastructure of common interest shall be used. The single largest gas infrastructure of common interest to a region shall be the largest gas infrastructure in the region that directly or indirectly contributes to gas supply to the Member States of that region and shall be defined in the risk assessment.



The calculation of the N – 1 formula at regional level may replace the calculation of the N – 1 formula at national level only where the single largest gas infrastructure of common interest is of major importance for the gas supply of all Member States concerned in accordance with the common risk assessment.



On the level of the risk group, for the calculations referred to in Article 7(4), the single largest gas infrastructure of common interest to the risk groups as listed in Annex I shall be used.

1393

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX III Permanent bi-directional capacity 1.

For the execution of the provisions set out in this Annex the national regulatory authority may act as the competent authority if so decided by the Member State.

2.

To enable or enhance bi-directional capacity on an interconnection or to obtain or prolong an exemption from that obligation, transmission system operators on both sides of the interconnection shall submit to their competent authorities (‘competent authorities concerned’) and to their regulatory authorities (‘regulatory authorities concerned’) after consulting with all transmission system operators potentially concerned: (a)

a proposal to enable permanent physical capacity to transport gas in both directions for permanent bi-directional capacity concerning the reverse direction (‘physical reverse flow capacity’); or

(b)

a request for an exemption from the obligation to enable bi-directional capacity.



The transmission system operators shall endeavour to submit a joint proposal or request for exemption. In the case of a proposal to enable bi-directional capacity, the transmission system operators may make a substantiated proposal for a cross-border cost allocation. Such submission shall take place no later than 1 December 2018 for all interconnections that existed on 1 November 2017, and after completing the feasibility study phase but before the start of detailed technical design phase for new interconnections.

3.

Upon receipt of the proposal or the exemption request the competent authorities concerned shall without delay consult the competent authorities and, where they are not the competent authorities, the national regulatory authorities, of the Member State that could, in accordance with the risk assessment, benefit from the reverse flow capacity, the Agency and the Commission on the proposal or the exemption request. The authorities consulted may issue an opinion within four months of receipt of the consultation request. 1394

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

4.

The regulatory authorities concerned shall within six months upon receipt of the joint proposal, pursuant to Article 5(6) and (7), after consulting the project promoters concerned, take coordinated decisions on the cross-border allocation of investment costs to be borne by each transmission system operator of the project. Where the regulatory authorities concerned have not reached an agreement within that deadline, they shall inform the competent authorities concerned without delay.

5.

The competent authorities concerned shall on the basis of the risk assessment, the information listed in Article 5(5) of this Regulation, the opinions received following the consultation in accordance with point 3 of this Annex and taking into account the security of gas supply and the contribution to the internal gas market take a coordinated decision. That coordinated decision shall be taken within two months. The period of two months shall start to run after the four-month period allowed for the opinions referred to under point 3 of this Annex, unless all opinions have been received before, or after the six-month period referred to in point 4 of this Annex for regulatory authorities concerned to adopt a coordinated decision. The coordinated decision shall: (a)

accept the proposal for bi-directional capacity. Such decision shall contain a cost benefit analysis, a timeline for implementation and the arrangements for its subsequent use and be accompanied by the coordinated decision on the cross-border cost allocation referred to in point 4 and prepared by the regulatory authorities concerned;

(b)

grant or prolong a temporary exemption for a maximum period of four years, if the cost-benefit analysis included in the decision shows that the reverse flow capacity would not enhance the security of gas supply of any relevant Member State or if the investment costs would significantly outweigh the prospective benefits for the security of gas supply; or

(c)

require the transmission system operators to amend and resubmit their proposal or exemption request within a maximum period of four months.

1395

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

6.

The competent authorities concerned shall submit the coordinated decision without delay to the competent authorities and national regulatory authorities who have submitted an opinion in accordance with point 3, the regulatory authorities concerned, the Agency and the Commission including the opinions received following the consultation in accordance with point 3.

7.

Within two months of receipt of the coordinated decision, the competent authorities referred to in point 6 may present their objections to the coordinated decision and submit them to the competent authorities concerned that adopted it, the Agency and the Commission. The objections shall be limited to facts and assessment, in particular cross-border cost allocation that was not subject of consultation in accordance with point 3.

8.

Within three months of receipt of the coordinated decision in accordance with point 6, the Agency shall issue an opinion on the elements of the coordinated decision taking into account any possible objection and submit the opinion to all competent authorities concerned and the competent authorities referred to in point 6 and to the Commission.

9.

Within four months of receipt of the opinion issued by the Agency pursuant to point 8 the Commission may adopt a decision requesting modifications of the coordinated decision. Any such decision of the Commission shall be taken on the basis of: the criteria set out in point 5, the reasons for the decision of the authorities concerned and the opinion of the Agency. The competent authorities concerned shall comply with the request of the Commission by amending their decision within a period of four weeks.



In the event that the Commission does not act within the aforementioned four months period, it shall be considered not to have raised objections to the decision of the competent authorities concerned.

10.

If the competent authorities concerned were not able to adopt a coordinated decision within the deadline set out in point 5 or if the regulatory authorities concerned could not reach an agreement on the cost allocation within the deadline set out in point 4, the competent authorities concerned shall inform the Agency and the Commission at the latest on the day of the expiry of the deadline. Within four months of receipt of that information, the Commission, after possible consultation with the 1396

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

Agency, shall adopt a decision covering all elements of a coordinated decision listed in point 5 with the exception of a cross-border cost allocation and submit that decision to the competent authorities concerned and the Agency. 11.

If the Commission decision pursuant to point 10 of this Annex, requires bi-directional capacity, the Agency shall adopt a decision covering the cross-border cost allocation in line with Article 5(7) of this Regulation within three months of receipt of the Commission decision. Before taking such a decision, the Agency shall consult the regulatory authorities concerned and the transmission system operators. The three-month period may be extended by an additional period of two months where the Agency has to request additional information. The additional period shall begin on the day following receipt of the complete information.

12.

The Commission, the Agency, the competent authorities, the national regulatory authorities and the transmission system operators shall preserve the confidentiality of commercially sensitive information.

13.

Exemptions from the obligation to enable bi-directional capacity granted under Regulation (EU) No 994/2010 shall remain valid unless the Commission or the other concerned Member State requests a revision or their duration expires.

1397

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX IV Template for the common risk assessment The following template shall be completed in a language agreed within the risk group. General information —

Member States in the risk group

—

Name of the competent authorities responsible for the preparation of the risk assessment (1)

1.    Description of the system 1.1

Provide a brief description of the gas system of the risk group, covering: (a)

the main gas consumption figures (2): annual final gas consumption (bcm) and breakdown per type of customers (3), peak demand (total and breakdown per category of consumer in mcm/d);

(b)

a description of the functioning of the gas system in the risk group: main flows (entry/exit/transit), entry/exit point’s infrastructure capacity to and out of the region and per Member State, including utilisation rate, LNG facilities (maximal daily capacity, utilisation rate and access regime), etc.;

(c)

a breakdown, to the extent possible, of gas import sources per country of origin (4);

(d)

a description of the role of storage facilities relevant for the risk group, including cross-border access: (i)

the storage capacity (total and working gas) compared to heating season demand;

(ii)

the maximal daily withdrawal capacity at different filling levels (ideally with full storages and end-of-season levels); 1398

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(e)

(f )

a description of the role of domestic production in the risk group: (i)

the volume of production with regard to the annual final gas consumption;

(ii)

the maximal daily production capacity;

a description of the role of gas in the electricity production (e.g. importance, role as a back-up for renewables), including gas-fired generating capacity (total (MWe) and as percentage of the total generating capacity) and cogeneration (total (MWe) and as percentage of the total generating capacity).

2.    Infrastructure standard (Article 5) Describe the calculations of the N – 1 formula(s) at regional level for the risk group, if so agreed with the competent authorities of the risk group, and the existing bidirectional capacities, as follows:

(a)

N – 1 formula (i)

the identification of the single largest gas infrastructure of common interest for the risk group;

(ii)

the calculation of the N – 1 formula at regional level;

(iii) a description of the values used for all elements in the N – 1 formula, including intermediate figures used for the calculation (e.g. for EPm indicate the capacity of all entry points considered under this parameter); (iv) an indication of the methodologies and assumptions used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations); (b)

bi-directional capacity (i)

indicate the interconnection points equipped with bidirectional capacity and the maximal capacity of bi-directional flows; 1399

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(ii)

indicate the arrangements governing the use of the reverse flow capacity (e.g. interruptible capacity);

(iii) indicate interconnection points where an exemption has been granted in accordance with Article 5(4), the duration of the exemption and the grounds on which it was granted. 3.    Identification of risks

Describe the major transnational risk for which the group was created as well as the risk factors at several instances which could make that risk materialise, their likelihood and consequences.



Non-exhaustive list of risk factors that have to be included in the assessment only if applicable according to the relevant competent authority: (a)

(b)

political —

gas disruption from third countries because of different reasons,

—

political unrest (either in country of origin or in transit country),

—

war/civil war (either in country of origin or in transit country),

—

terrorism;

technological —

explosion/fires,

—

fires (internal to a given facility),

—

leakages,

—

lack of adequate maintenance,

1400

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(c)

(d)

—

equipment malfunction (failure to start, failure during working time, etc.),

—

lack of electricity (or other energy source),

—

ICT failure (hardware or software failure, internet, SCADA problems, etc.),

—

cyber-attack,

—

impact due to excavation works (digging, piling), ground works, etc.;

commercial/market/financial —

agreements with third-country suppliers,

—

commercial dispute,

—

control of infrastructure relevant for the security of gas supply by third-country entities, which may imply, among others, risks of underinvestment, undermining diversification or non-respect of Union law,

—

price volatility,

—

underinvestment,

—

sudden, unexpected peak demand,

—

other risks which could lead to structural underperformance;

social —

strikes (in different related sectors, such as the gas sector, ports, transport, etc.),

—

sabotage,

1401

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(e)



—

vandalism,

—

theft;

natural —

earthquakes,

—

landslides,

—

floods (heavy rain, river),

—

storms (sea),

—

avalanches,

—

extreme weather conditions,

—

fires (external to the facility, like nearby forests, grassland, etc.).

Analysis (a)

describe the major transnational risk and any other relevant risk factors for the risk group, including their likelihood and impact as well as the interaction and correlation of risks among Member States, as appropriate;

(b)

describe the criteria used to determine whether a system is exposed to high/unacceptable risks;

(c)

set a list of relevant risk scenarios in accordance with the sources of risks and describe how the selection was made;

(d)

indicate the extent to which scenarios prepared by ENTSOG have been considered.

1402

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

4.

Risk analysis and assessment



Analyse the set of relevant risk scenarios identified under point 3. In the simulation of risk scenarios include the existing security of gas supply measures, such as, the infrastructure standard calculated using the N – 1 formula as set out in point 2 of Annex II, if appropriate, and the gas supply standard. Per risk scenario: (a)

describe in detail the risk scenario, including all assumptions and, if applicable, the underlying methodologies for their calculation;

(b)

describe in detail the results of the simulation carried out, including a quantification of the impact (e.g. volumes of unserved gas, the socioeconomic impact, the impact on district heating, the impact on electricity generation).

5.    Conclusions

Describe the main results of the common risk assessment, including the identification of risk scenarios that require further action. (1)   Where this task has been delegated by any competent authority, indicate the name of the body/(ies) responsible for the preparation of the present risk assessment on its behalf. (2)   For the first assessment, include data from the last two years. For updates, include data from the last four years. (3)   Including industrial customers, electricity generation, district heating, residential and services and other (please specify the type of customers included here). Indicate as well the volume of consumption of protected customers. (4)   Describe the methodology applied.

1403

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX V Template for the national risk assessment General information Name of the competent authority responsible for the preparation of the present risk assessment (1). 1.    Description of the system 1.1.    Provide a brief consolidated description of the regional gas system for each risk group (2) the Member State participates in, covering: (a)

the main gas consumption figures (3): annual final gas consumption (bcm and MWh) and breakdown per type of customers (4), peak demand (total and breakdown per category of consumer in mcm/d);

(b)

a description of the functioning of the gas system(s) in the relevant risk groups: main flows (entry/exit/transit), entry/exit point’s infrastructure capacity to and out of the risk groups’ region(s) and per Member State, including utilisation rate, LNG facilities (maximal daily capacity, utilisation rate and access regime), etc.;

(c)

a breakdown, to the extent possible, of percentage gas import sources per country of origin (5);

(d)

a description of the role of storage facilities relevant for the risk group, including cross-border access: (i)

the storage capacity (total and working gas) compared to heating season demand;

(ii)

the maximal daily withdrawal capacity at different filling levels (ideally with full storages and end-of-season levels);

1404

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(e)

(f )

a description of the role of domestic production in the risk group(s): (i)

the volume of production with regard to the annual final gas consumption;

(ii)

the maximal daily production capacity and description of how it can cover maximum daily consumption;

a description of the role of gas in the electricity production (e.g. importance, role as a back-up for renewables), including gas-fired generating capacity (total (MWe) and as percentage of the total generating capacity) and cogeneration (total (MWe) and as percentage of the total generating capacity).

1.2.  Provide a brief description of the gas system of the Member State, covering: (a)

the main gas consumption figures: annual final gas consumption (bcm) and breakdown by type of customers, peak demand (mcm/d);

(b)

a description of the functioning of the gas system at national level, including infrastructure (to the extent not covered by point 1.1(b)). If applicable, include L-gas system;

(c)

the identification of the key infrastructure relevant for the security of gas supply;

(d)

a breakdown, to the extent possible, at national level of gas import sources per country of origin;

(e)

a description of the role of storage and include: (i)

the storage capacity (total and working) compared to heating season demand;

(ii)

the maximal daily withdrawal capacity at different filling levels (ideally with full storages and end-of-season levels);

1405

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



(f )

a description of the role of domestic production and include:

(i)

the volume of production with regard to the annual final gas consumption;

(ii)

the maximal daily production capacity;

(g)

a description of the role of gas in the electricity production (e.g. importance, role as a back-up for renewables), including gas-fired generating capacity (total (MWe) and as percentage of the total generating capacity) and cogeneration (total (MWe) and as percentage of the total generating capacity).

2.    Infrastructure standard (Article 5)

Describe how the infrastructure standard is complied with, including the main values used for the N – 1 formula and alternative options for its compliance (with directly connected Member States, demand-side measures) and the existing bidirectional capacities, as follows: (a)

N – 1 formula (i)

the identification of the single largest gas infrastructure;

(ii)

the calculation of the N – 1 formula at national level;

(iii) a description of the values used for all elements in the N – 1 formula, including intermediate values used for their calculation (e.g. for EPm indicate the capacity of all entry points considered under this parameter); (iv) an indication of the methodologies used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations); (v)

an explanation of the results of the calculation of the N – 1 formula considering the level of storages at 30 % and 100 % of the maximum working volume;

1406

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(vi) an explanation of the main results of the simulation of the N – 1 formula using a hydraulic model; (vii) if so decided by the Member State, a calculation of the N – 1 formula using demand-side measures: —

calculation of the N – 1 formula in accordance with point 2 of Annex II,

—

description of the values used for all elements in the N – 1 formula, including intermediate figures used for the calculation (if different to the figures described under point 2(a)(iii)),

—

indicate the methodologies used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations),

—

explain the market-based demand-side measures adopted/to be adopted to compensate a disruption of gas supply and its expected impact (Deff );

(viii) if so agreed with the competent authorities of the relevant risk group(s) or with directly connected Member States, joint calculation(s) of the N – 1 formula: —

calculation of the N – 1 formula in accordance with point 5 of Annex II,

—

description of the values used for all elements in the N – 1 formula, including intermediate values used for their calculation (if different to the figures described under point 2(a)(iii)),

—

indicate the methodologies and assumptions used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations),

1407

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

— (b)

explain the agreed arrangements to ensure compliance with the N – 1 formula;

bi-directional capacity (i)

indicate the interconnection points equipped with bidirectional capacity and the maximal capacity of bi-directional flows;

(ii)

indicate the arrangements governing the use of the reverse flow capacity (e.g. interruptible capacity);

(iii) indicate interconnection points where an exemption has been granted in accordance with Article 5(4), the duration of the exemption and the grounds on which it was granted. 3.    Identification of risks

Describe the risk factors which could have negative impact on the security of gas supply in the Member State, their likelihood and consequences.



Non-exhaustive list of types of risk factors that have to be included in the assessment only if applicable according to the competent authority: (a)



(b)

political —

gas disruption from third countries because of different reasons,

—

political unrest (either in country of origin or in transit country),

—

war/civil war (either in country of origin or in transit country),

—

terrorism; technological

1408

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



—

explosion/fires,

—

fires (internal to a given facility),

—

leakages,

—

lack of adequate maintenance,

—

equipment malfunction (failure to start, failure during working time, etc.),

—

lack of electricity (or other energy source),

—

ICT failure (hardware or software failure, internet, SCADA problems, etc.),

—

cyber-attack,

—

impact due to excavation works (digging, piling), ground works, etc.;

(c)

commercial/market/financial —

agreements with third-country suppliers,

—

commercial dispute,

—

control of infrastructure relevant for the security of gas supply by third-country entities, which may imply, among others, risks of underinvestment, undermining diversification or non-respect of Union law,

—

price volatility,

—

underinvestment,

—

sudden, unexpected peak demand,

—

other risks which could lead to structural underperformance; 1409

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



(d)

(e)



social —

strikes (in different related sectors, such as the gas sector, ports, transport, etc.),

—

sabotage,

—

vandalism,

—

theft;

natural —

earthquakes,

—

landslides,

—

floods (heavy rain, river),

—

storms (sea),

—

avalanches,

—

extreme weather conditions,

—

fires (external to the facility, like nearby forests, grassland, etc.).

Analysis (a)

identify the relevant risk factors for the Member State, including their likelihood and impact;

(b)

describe the criteria used to determine whether a system is exposed to high/unacceptable risks;

(c)

set a list of relevant risk scenarios in accordance with the risk factors and their likelihood and describe how the selection was made.

1410

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

4.    Risk analysis and assessment

Analyse the set of relevant risk scenarios identified under point 3. In the simulation of risk scenarios include the existing security of gas supply measures, such as the infrastructure standard calculated using the N – 1 formula as set out in point 2 of Annex II, and the gas supply standard. Per risk scenario: (a)

describe in detail the risk scenario, including all assumptions and, if applicable, the underlying methodologies for their calculation;

(b)

describe in detail the results of the simulation carried out, including a quantification of the impact (e.g. volumes of unserved gas, the socioeconomic impact, the impact on district heating, the impact on electricity generation).

5.    Conclusions

Describe the main results of the common risk assessment the Member States has been involved in, including the identification of risk scenarios that require further action. (1)   Where this task has been delegated by the competent authority, indicate the name of the body/(ies) responsible for the preparation of the present risk assessment on its behalf. (2)   For the sake of simplicity, present the information at the highest level of the risk groups if possible and merge details as necessary. (3)   For the first assessment, include data from the last two years. For updates, include data from the last four years. (4)   Including industrial customers, electricity generation, district heating, residential and services and other (specify the type of customers included here). Indicate as well the volume of consumption of protected customers. (5)   Describe the methodology applied.

1411

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX VI Template for preventive action plan General information —

Member States in the risk group

—

Name of the competent authority responsible for the preparation of the plan (1)

1.    Description of the system 1.1.    Provide a brief consolidated description of the regional gas system for each risk group (2) the Member States participates in, covering: (a)

the main gas consumption figures (3): annual final gas consumption (bcm) and breakdown per type of customers  (4), peak demand (total and breakdown per category of consumer in mcm/d);

(b)

a description of the functioning of the gas system in the risk groups: main flows (entry/exit/transit), entry/exit point’s infrastructure capacity to and out of the risk group’s region(s) and per Member State, including utilisation rate, LNG facilities (maximal daily capacity, utilisation rate and access regime), etc.;

(c)

a breakdown, to the extent possible, of gas import sources per country of origin (5);

(d)

a description of the role of storage facilities relevant for the region, including cross-border access:

(e)

(i)

the storage capacity (total and working gas) compared to heating season demand;

(ii)

the maximal daily withdrawal capacity at different filling levels (ideally with full storages and end-of-season levels);

a description of the role of domestic production in the region: 1412

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(i)

the volume of production with regard to the annual final gas consumption;

(ii)

the maximal daily production capacity;

(f )

a description of the role of gas in the electricity production (e.g. importance, role as a back-up for renewables), including gas-fired generating capacity (total (MWe) and as percentage of the total generating capacity) and cogeneration (total (MWe) and as percentage of the total generating capacity);

(g)

a description of the role of energy efficiency measures and their effect on annual final gas consumption.

1.2.    Provide a brief description of the gas system per Member State, covering: (a)

the main gas consumption figures: annual final gas consumption (bcm) and breakdown by type of customers, peak demand (mcm/d);

(b)

a description of the functioning of the gas system at national level, including infrastructure (to the extent not covered by point 1.1(b));

(c)

the identification of the key infrastructure relevant for the security of supply;

(d)

a breakdown, to the extent possible, at national level of gas import sources per country of origin;

(e)

a description of the role of storage in the Member State and include:

(f )

(i)

the storage capacity (total and working) compared to heating season demand;

(ii)

the maximal daily withdrawal capacity at different filling levels (ideally with full storages and end-of-season levels);

a description of the role of domestic production and include: 1413

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(g)

(h)

(i)

the volume of production with regard to the annual final gas consumption;

(ii)

the maximal daily production capacity;

a description of the role of gas in the electricity production (e.g. importance, role as a back-up for renewables), including gas-fired generating capacity (total (MWe) and as percentage of the total generating capacity) and cogeneration (total (MWe) and as percentage of the total generating capacity);

a description of the role of energy efficiency measures and their effect on annual final gas consumption.

2.    Summary of the risk assessment

Describe briefly the results of the relevant common and national risk assessment carried out in accordance with Article 7, including: (a)

a list of the scenarios assessed and a brief description of the assumptions applied for each one as well as the risks/shortcomings identified;

(b)

the main conclusions of the risk assessment.

3.    Infrastructure standard (Article 5)

Describe how the infrastructure standard is complied with, including the main values used for the N – 1 formula and alternative options for its compliance (with neighbouring Member States, demand-side measures) and the existing bidirectional capacities, as follows:

3.1.    N – 1 formula (i)

the identification of the single largest gas infrastructure of common interest for the region;

(ii)

the calculation of the N – 1 formula at regional level;

1414

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(iii) a description of the values used for all elements in the N – 1 formula, including intermediate figures used for the calculation (e.g. for EPm indicate the capacity of all entry points considered under this parameter); (iv) an indication of the methodologies and assumptions used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations). 3.2. National level (a)

N – 1 formula (i)

the identification of the single largest gas infrastructure;

(ii)

the calculation of the N – 1 formula at national level;

(iii) a description of the values used for all elements in the N – 1 formula, including intermediate values used for the calculation (e.g. for EPm indicate the capacity of all entry points considered under this parameter); (iv) an indication of the methodologies used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations); (v)

if so decided by the Member State, calculation of the N – 1 formula using demand-side measures: —

the calculation of the N – 1 formula in accordance with point 2 of Annex II,

—

a description of the values used for all elements in the N – 1 formula, including intermediate figures used for the calculation (if different to the figures described under point 3(a)(iii) of this Annex),

—

an indication of the methodologies used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations), 1415

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

—

an explanation of the market-based demand-side measures adopted/to be adopted to compensate a disruption of gas supply and its expected impact (Deff );

(vi) if so agreed with the competent authorities of the relevant risk group(s) or with the directly connected Member States, joint calculation(s) of the N – 1 formula:

(b)

—

the calculation of the N – 1 formula in accordance with point 5 of Annex II,

—

a description of the values used for all elements in the N – 1 formula, including intermediate values used for the calculation (if different to the figures described under point 3(a)(iii) of this Annex),

—

an indication of the methodologies and assumptions used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations),

—

an explanation of the agreed arrangements to ensure compliance with the N – 1 formula;

bi-directional capacity

(i)

indicate the interconnection points equipped with bidirectional capacity and the maximal capacity of bi-directional flows;

(ii)

indicate the arrangements governing the use of the reverse flow capacity (e.g. interruptible capacity);

(iii) indicate interconnection points where an exemption has been granted in accordance with Article 5(4), the duration of the exemption and the grounds on which it was granted.

1416

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

4.

Compliance with the supply standard (Article 6)



Describe the measures adopted in order to comply with the supply standard as well as with any increased supply standard or additional obligation imposed for reasons of security of gas supply: (a)

definition of protected customers applied, including categories of customers covered and their annual gas consumption (per category, net value and percentage of the national annual final gas consumption);

(b)

gas volumes needed to comply with the supply standard in accordance with the scenarios described in the first subparagraph of Article 6(1);

(c)

capacity needed to comply with the supply standard in accordance with the scenarios described in the first  subparagraph of Article 6(1);

(d)

measure(s) in place to comply with the supply standard: (i)

a description of the measure(s);

(ii)

addressees;

(iii) where it exists, describe any ex ante monitoring system for the compliance with the supply standard; (iv) sanctions regime, if applicable; (v)

describe, per measure: —

the economic impact, effectiveness and efficiency of the measure,

—

the impact of the measure on the environment,

—

impact of the measures on consumer,

1417

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(vi) where non-market-based measures are applied (per measure): —

justify why the measure is necessary (i.e. why security of supply cannot be achieved via market-based measures alone),

—

justify why the measure is proportionate (i.e. why the non-market-based measure is the least restrictive means to achieve the intended effect),

—

provide an analysis of the impact of such measure: (1)

on other Member State’s security of supply;

(2)

on the national market;

(3)

on the internal market;

(vii) where measures introduced on or after 1 November 2017, please provide a short summary of the impact assessment or a link to the public impact assessment of the measure(s) carried out in accordance with Article 9(4); (e)

if applicable, describe any increased supply standard or additional obligation imposed for reasons of security of gas supply: (i)

a description of the measure(s);

(ii)

the mechanism to reduce it to usual values in a spirit of solidarity and in accordance with Article 13;

(iii) if applicable, describe any new increased supply standard or additional obligation imposed for reasons of security of gas supply adopted on or after 1 November 2017; (iv) addressees; (v)

affected gas volumes and capacities;

1418

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(vi) indicate how that measure complies with the conditions laid down in Article 6(2). 5.    Preventive measures

Describe the preventive measures in place or to be adopted: (a)

describe each of the preventive measures adopted per identified risk in accordance with the risk assessment, including a description of: (i)

their national or regional dimension;

(ii)

their economic impact, effectiveness and efficiency;

(iii) their impact on customers.

Where appropriate, include: —

measures to enhance interconnections between neighbouring Member States,

—

measures to diversify gas routes and sources of supply,

—

measures to protect key infrastructure relevant for the security of supply in relation to control by third-country entities (including, where relevant, general or sector-specific investment screening laws, special rights for certain shareholders, etc.);

(b)

describe other measures adopted for reasons other than the risk assessment but with a positive impact for the security of supply of the relevant risk group(s) Member State.

(c)

where non-market-based measures are applied (per measure): (i)

justify why the measure is necessary (i.e. why the security of supply cannot be achieved via market-based measures alone);

1419

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(ii)

justify why the measure is proportionate (i.e. why the non-market-based measure is the least restrictive means to achieve the intended effect);

(iii) provide an analysis of the impact of such measure: —

justify why the measure is necessary (i.e. why the security of supply cannot be achieved via market-based measures alone),

—

justify why the measure is proportionate (i.e. why the non-market-based measure is the least restrictive means to achieve the intended effect),

—

provide an analysis of the impact of such measure: (1)

on other Member State’s security of supply;

(2)

on the national market;

(3)

on the internal market;

(4)

explain the extent to which efficiency measures, including on the demand side, have been considered to increase the security of supply;

(5)

explain the extent to which renewable energy sources have been considered to increase the security of supply.

6.    Other measures and obligations (e.g. safety operation of the system)

Describe other measures and obligations that have been imposed on natural gas undertakings and other relevant bodies likely to have an impact on the security of gas supply, such as obligations for the safe operation of the system, including who would be affected by that obligation as well as the gas volumes covered. Explain precisely when and how those measures would apply.

1420

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

7.    Infrastructure projects (a)

describe future infrastructure projects, including Projects of Common Interests in the relevant risk groups, including an estimated timing for their deployment, capacities and estimated impact on the security of gas supply in the risk group;

(b)

indicate how the infrastructure projects take into account the Union-wide TYNDP elaborated by ENTSOG pursuant to Article 8(10) of Regulation (EC) No 715/2009.

8.    Public service obligations related to the security of supply

Indicate the existing public service obligations related to the security of supply and briefly describe them (use annexes for more detailed information). Explain clearly who has to comply with such obligations and how. If applicable, describe how and when those public service obligations would be triggered.

9.    Stakeholder consultations

In accordance with Article 8(2) of this Regulation, describe the mechanism used for and the results of the consultations carried out, for the development of the plan as well as the emergency plan, with: (a)

gas undertakings;

(b)

relevant organisations representing the interests of households;

(c)

relevant organisations representing the interests of industrial gas customers, including electricity producers;

(d)

national regulatory authority.

10.

Regional dimension



Indicate any national circumstances and measures relevant for the security of supply and not covered in the previous sections of the plan.

1421

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply



Indicate how the possible comments received following the consultation described in Article 8(2) have been considered.

11.1. Calculation of the N – 1 at the level of the risk group if so agreed by the competent authorities of the risk group

N – 1 formula (a)

the identification of the single largest gas infrastructure of common interest for the risk group;

(b)

the calculation of the N – 1 formula at the level of the risk group;

(c)

a description of the values used for all elements in the N – 1 formula, including intermediate figures used for the calculation (e.g. for EPm indicate the capacity of all entry points considered under this parameter);

(d)

an indication of the methodologies and assumptions used, if any, for the calculation of parameters in the N – 1 formula (e.g. Dmax) (use annexes for detailed explanations).

11.2. Mechanisms developed for cooperation

Describe the mechanisms used for the cooperation among the Member States in the relevant risk groups, including for developing cross-border measures in the preventive action plan and the emergency plan.



Describe the mechanisms used for the cooperation with other Member States in the design and adoption of the provisions necessary for the application of Article 13.

11.3. Preventive measures

Describe the preventive measures in place or to be adopted in the risk group or as a result of regional agreements: (a)

describe each of the preventive measures adopted per identified risk in accordance with the risk assessment, including a description of: 1422

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(i)

their impact in the Member States of the risk group;

(ii)

their economic impact, effectiveness and efficiency;

(iii) their impact on the environment; (iv) their impact on customers.

Where appropriate, include: —

measures to enhance interconnections between neighbouring Member States,

—

measures to diversify gas routes and sources of supply,

—

measures to protect key infrastructure relevant for the security of supply in relation to control by third-country entities (including, where relevant, general or sector-specific investment screening laws, special rights for certain shareholders, etc.);

(b)

describe other measures adopted for reasons other than the risk assessment but with a positive impact for the security of supply of the risk group.

(c)

where non-market-based measures are applied (per measure): (i)

justify why the measure is necessary (i.e. why the security of supply cannot be achieved via market-based measures alone);

(ii)

justify why the measure is proportionate (i.e. why the non-market-based measure is the least restrictive means to achieve the intended effect);

(iii) provide an analysis of the impact of such a measure: —

justify why the measure is necessary (i.e. why the security of supply cannot be achieved via market-based measures alone),

1423

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

—

justify why the measure is proportionate (i.e. why the non-market-based measure is the least restrictive means to achieve the intended effect),

—

provide an analysis of the impact of such a measure: (1)

on other Member State’s security of supply;

(2)

on the national market;

(3)

on the internal market;

(d)

explain the extent to which efficiency measures, including on the demand side, have been considered to increase the security of supply;

(e)

explain the extent to which renewable energy sources have been considered to increase the security of supply. (1)   Where this task has been delegated by any competent authority, indicate the name of the body/(ies) responsible for the preparation of this plan on its behalf. (2)   For the sake of simplicity, present the information at the highest level of the risk groups if possible and merge details as necessary (3)   For the first plan, include data from the last two years. For updates, include data from the last four years. (4)   Including industrial customers, electricity generation, district heating, residential and services and other (please specify the type of customers included here). (5)   Describe the methodology applied.

1424

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX VII Template for emergency plan General information Name of the competent authority responsible for the preparation of the present plan (1) 1.    Definition of crisis levels (a)

indicate the body responsible for the declaration of each crisis level and the procedures to follow in each case for such declarations;

(b)

where they exist, include here indicators or parameters used to consider whether an event may result in a significant deterioration of the supply situation and to decide upon the declaration of a certain crisis level.

2.    Measures to be adopted per crisis level  (2) 2.1.    Early Warning

Describe the measures to be applied at this stage, indicating, per measure: (i)

a brief description of the measure and main actors involved;

(ii)

describe the procedure to follow, if applicable;

(iii) indicate the expected contribution of the measure to cope with the impact of any event or prepare ahead of its appearance; (iv) describe the flows of information among the actors involved. 2.2.    Alert Level (a)

describe the measures to be applied at this stage, indicating, per measure: 1425

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(i)

a brief description of the measure and main actors involved;

(ii)

describe the procedure to follow, if applicable;

(iii) indicate the expected contribution of the measure to cope with the situation at alert level;



(iv) describe the flows of information among the actors involved; (b) describe the reporting obligations imposed on natural gas undertakings at alert level.

2.3.    Emergency Level (a)

establish a list of predefined actions on the supply and demand side to make gas available in the event of an emergency, including commercial agreements between the parties involved in such actions and the compensation mechanisms for natural gas undertakings where appropriate;

(b)

describe the market-based measures to be applied at this stage, indicating, per measure: (i)

a brief description of the measure and main actors involved;

(ii)

describe the procedure to follow;

(iii) indicate the expected contribution of the measure to mitigate the situation at emergency level; (iv) describe the flows of information among the actors involved; (c)

describe the non-market-based measures planned or to be implemented for the emergency level, indicating, per measure: (i)

a brief description of the measure and main actors involved;

1426

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(ii)

provide an assessment of the necessity of such measure in order to cope with a crisis, including the degree of its use;

(iii) describe in detail the procedure to implement the measure (e.g. what would trigger the introduction of this measure, who would take the decision); (iv) indicate the expected contribution of the measure to mitigate the situation at emergency level as a complement to market-based measures; (v)

assess other effects of the measure;

(vi) justify the compliance of the measure with the conditions laid down in Article 11(6); (vii) describe the flows of information among the actors involved; (d)

describe reporting obligations imposed on natural gas undertakings.

3.    Specific measures for the electricity and district heating (a)

(b)

district heating (i)

briefly indicate the likely impact of a disruption of gas supply in the district heating sector;

(ii)

indicate measures and actions to be taken to mitigate the potential impact of a disruption of gas supply on district heating. Alternatively, indicate why the adoption of specific measures is not appropriate;

supply of electricity generated from gas (i)

briefly indicate the likely impact of a disruption of gas supply in the electricity sector;

1427

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(ii)

indicate measures and actions to be taken to mitigate the potential impact of a disruption of gas supply on the electricity sector. Alternatively, indicate why the adoption of specific measures is not appropriate;

(iii) indicate the mechanisms/existing provisions to ensure appropriate coordination, including exchange of information, between main actors in the gas and electricity sectors, in particular transmission system operators at different crisis levels. 4.    Crisis manager or team

Indicate who the crisis manager is and define its role.

5.    Roles and responsibilities of different actors (a)

per crisis level, define the roles and responsibilities, including interactions with the competent authorities and, where appropriate, with the national regulatory authority, of: (i)

natural gas undertakings;

(ii)

industrial customers;

(iii) relevant electricity producers; (b)

per crisis level, define the role and responsibilities of the competent authorities and the bodies to which tasks have been delegated.

6.    Measures regarding undue consumption by customers who are not protected customers

Describe measures in place to prevent to the extent possible and without endangering the safe and reliable operation of the gas system or creating unsafe situations, the consumption by customers who are not protected customers of gas supply intended for protected customers during an emergency. Indicate the nature of the measure (administrative, technical, etc.), main actors and the procedures to follow.

1428

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

7.    Emergency tests



(a)

indicate the calendar for the real time response simulations of emergency situations;

(b)

indicate actors involved, procedures and concrete high and medium impact scenarios simulated.

For the updates of the emergency plan: describe briefly the tests carried out since the last emergency plan was presented and the main results. Indicate which measures have been adopted as a result of those tests.

8.    Regional Dimension 8.1.    Measures to be adopted per crisis level: 8.1.1. Early Warning

Describe the measures to be applied at this stage, indicating, per measure: (i)

brief description of the measure and main actors involved;

(ii)

describe the procedure to follow, if applicable;

(iii) indicate the expected contribution of the measure to cope with the impact of any event or prepare ahead of its appearance; (iv) describe the flows of information among the actors involved. 8.1.2. Alert Level (a)

describe the measures to be applied at this stage, indicating, per measure: (i)

brief description of the measure and main actors involved;

(ii)

describe the procedure to follow, if applicable;

1429

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(iii) indicate the expected contribution of the measure to cope with the impact of any event or prepare ahead of its appearance; (iv) describe the flows of information among the actors involved; (b)

describe the reporting obligations imposed on natural gas undertakings at alert. level.

8.1.3. Emergency Level (a)

establish a list of predefined actions on the supply and demand side to make gas available in the event of an emergency, including commercial agreements between the parties involved in such actions and the compensation mechanisms for natural gas undertakings where appropriate;

(b)

describe the market-based measures to be applied at this stage, indicating, per measure: (i)

brief description of the measure and main actors involved;

(ii)

describe the procedure to follow;

(iii) indicate the expected contribution of the measure to mitigate the situation at emergency level; (iv) describe the flows of information among the actors involved; (c)

describe the non-market-based measures planned or to be implemented for the emergency level, indicating, per measure: (i)

brief description of the measure and main actors involved;

(ii)

provide an assessment of the necessity of such measure in order to cope with a crisis, including the degree of its use;

1430

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(iii) describe in detail the procedure to implement the measure (e.g. what would trigger the introduction of the measure, who would take the decision); (iv) indicate the expected contribution of the measure to mitigate the situation at emergency level as a complement to market-based measures; (v)

assess other effects of the measure;

(vi) justify the compliance of the measure with the conditions established in Article 11(6); (vii) describe the flows of information among the actors involved; (d)

describe reporting obligations imposed on natural gas undertakings.

8.2.    Cooperation mechanisms (a)

describe the mechanisms in place to cooperate within each of the relevant risk groups and to ensure appropriate coordination for each crisis level. Describe, to the extent they exist and have not been covered in point 2, the decision-making procedures for appropriate reaction at regional level at each crisis level;

(b)

describe the mechanisms in place to cooperate with other Member States out of the risk groups and to coordinate actions for each crisis level.

8.3.    Solidarity among Member States (a)

describe the agreed arrangements among directly connected Member States to ensure the application of the solidarity principle referred to in Article 13;

(b)

if applicable, describe the agreed arrangements between Members States that are connected to each other via a third country to ensure the application of the solidarity principle referred to in Article 13. 1431

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

(1)   Where this task has been delegated by any competent authority, please indicate the name of the body/(ies) responsible for the preparation of this plan on its behalf. (2)   Include regional and national measures.

1432

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX VIII List of non-market-based security of gas supply measures In developing the preventive action plan and the emergency plan the competent authority shall consider the contribution of the following indicative and nonexhaustive list of measures only in the event of an emergency: (a)

(b)

supply-side measures: —

use of strategic gas storage,

—

enforced use of stocks of alternative fuels (e.g. in accordance with Council Directive 2009/119/EC (1)),

—

enforced use of electricity generated from sources other than gas,

—

enforced increase of gas production levels,

—

enforced storage withdrawal;

demand-side measures: —

various steps of compulsory demand reduction including:

—

enforced fuel switching,

—

enforced utilisation of interruptible contracts, where not fully utilised as part of market-based measures,

—

enforced firm load shedding.

(1)   Council Directive 2009/119/EC of 14 September 2009 imposing an obligation on Member States to maintain minimum stocks of crude oil and/ or petroleum products (OJ L 265, 9.10.2009, p. 9).

1433

Appendix 9 Regulation (EU) 2017/1938 – Measures to safeguard the security of gas supply

ANNEX IX Correlation table Regulation (EU) No 994/2010

This Regulation

Article 1

Article 1

Article 2

Article 2

Article 3

Article 3

Article 6

Article 5

Article 8

Article 6

Article 9

Article 7

Article 4

Article 8

Article 5

Article 9

Article 10

Article 10

Article 10

Article 11

Article 11

Article 12

—

Article 13

Article 13

Article 14

Article 12

Article 4

—

Article 15

—

Article 16

Article 14

Article 17

—

Article 18

—

Article 19

Article 16

Article 20

Article 15

Article 21

Article 17

Article 22

Annex I

Annex II

Article 7

Annex III

Annex IV

Annex I

—

Annex IV

—

Annex V

—

Annex VI

—

Annex VII

Annex II

—

Annex III

Annex VIII

—

Annex IX

1434

Appendix 10 SWD 2009/72/EC – The unbundling regime

Appendix 10 Commission staff working paper Interpretative note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas The unbundling regime Contents 1.

Introduction

2.

Unbundling for transmission system operators

2.1 2.2 2.3 2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 2.4 2.4.1 2.4.2 2.4.3 2.4.4 2.4.5 2.4.6

Introduction and general provisions Ownership unbundling ndependent system operator (ISO) Appointment and certification procedure Tasks of the ISO Tasks of the transmission system owner Specific duties of the regulatory authority Unbundling of transmission system owners Independent transmission operator (ITO) Rules on assets, equipment, staff and identity of the ITO Independence of the ITO Independence of the staff and the management of the ITO Supervisory Body Network development and powers to make investment decisions Specific duties of the regulatory authority 1435

Appendix 10 SWD 2009/72/EC – The unbundling regime

2.4.7 Review clause 2.5 Certification procedure 3.

Unbundling for distribution system operators (DSOs)

3.1 3.2 3.3 3.3.1 3.3.2 3.3.3 3.3.4 3.4 3.5 3.5.1 3.5.2

Introduction Legal unbundling Functional unbundling Management separation Effective decision-making rights Compliance programme Additional measures to ensure functional unbundling Accounting unbundling Exemptions for DSOs serving less than 100000 connected customers Application in practice — two basic scenarios Discretion of Mem

THE UNBUNDLING REGIME 1. INTRODUCTION With the adoption of Directive 2009/72/EC (‘the Electricity Directive’)1 and Directive 2009/73/EC (‘the Gas Directive’)2, new rules have been introduced on unbundling for transmission system operators (‘TSOs’) and for distribution system operators (‘DSOs’). The present note aims to provide a comprehensive overview of these new unbundling rules. It sheds light on the Commission services’ understanding of how the provisions of the Electricity and Gas Directives are to be interpreted. It does however not cover in detail the process of certification of potential TSOs controlled by persons from third countries. The note aims to enhance legal certainty but does not create any new legislative rules. In any event, giving binding interpretation of European Union law is ultimately the role of the European Court of Justice. The present note is not legally binding.

1436

Appendix 10 SWD 2009/72/EC – The unbundling regime

2. UNBUNDLING FOR TRANSMISSION SYSTEM OPERATORS (TSOS) 2.1 Introduction and general provisions The rules on legal and functional unbundling of TSOs as provided for in Directive 2003/54/EC and in Directive 2003/55/EC have not led to effective unbundling. The Electricity and Gas Directives therefore provide for a new unbundling regime with the following three models: (i)

the ownership unbundling model, which is analysed below under 2.2;

(ii) the independent system operator (‘ISO’), which is analysed below under 2.3; (iii) the independent transmission operator (‘ITO’), which is analysed below under 2.4. All these models are subject to a certification procedure, which is analysed below under 2.5. Although these models provide for different degrees of structural separation of network operation from production and supply activities, each of them is expected to be effective in removing any conflict of interests between producers, suppliers and transmission system operators. This means that they should remove the incentive for vertically integrated undertakings to discriminate against competitors as regards access to the network, as regards access to commercially relevant information and as regards investments in the network. The three models should create incentives for the necessary investments and guarantee the access of new market entrants under a transparent and efficient regulatory regime (recitals 11 and 12 Electricity Directive and recitals 8 and 9 Gas Directive). This requirement for effective separation should provide general guidance for the interpretation of the unbundling rules of the Directives. Member States are free to opt for one of the three models, which are on an equal footing in the Directives, under the following restrictions. (i)

The ISO and ITO models can only be chosen for a specific TSO if on entry into force of the Directives, i.e. 3 September 2009, the transmission system belonged to a vertically integrated undertaking (Article 9(8) 1437

Appendix 10 SWD 2009/72/EC – The unbundling regime

Electricity and Gas Directives)3. It is not possible to go from a situation of ownership unbundling to an ISO or an ITO if on entry into force of the Directives the transmission system did not belong to a vertically integrated undertaking. For Member States having several TSOs, only in situations where the transmission system was part of a vertically integrated undertaking on entry into force of the Directives can the ISO or ITO model be chosen. New transmission systems, in particular systems which did not yet exist on 3 September 2009, will have to follow the ownership unbundling regime. (ii) A Member State cannot prevent a vertically integrated undertaking from complying with the requirements of ownership unbundling. At the same time, where a Member State has opted for ownership unbundling, either in general or as regards a specific TSO, the vertically integrated undertaking does not have the right to set up an ISO or ITO. A Member State having several TSOs is free to opt for several models for different TSOs. However, once a choice has been made for a specific TSO to apply one of the unbundling models — ownership unbundling, ISO or ITO — all the elements of that model have to be complied with; elements of different models cannot be mixed in order to create a new unbundling model for a TSO which has not been provided for by the Electricity and Gas Directives (Article 9(9) Electricity and Gas Directives provides an exception, see page 5). Member States intending to designate only ISOs or ITOs on their territory must in any event also transpose the provisions on ownership unbundling into their national law, in view of the fact that they cannot prevent a vertically integrated undertaking owning a transmission system from complying with the requirements of ownership unbundling (Article 9(11) Electricity and Gas Directives). To ensure a level playing field within the European Union as regards the three unbundling models, an undertaking performing any of the functions of generation or supply in a Member State must comply with the rules on ownership unbundling as regards the acquisition of rights in a TSO in another Member State having opted for ownership unbundling. This means that the supplier in the first Member State cannot directly or indirectly exercise control or any right within the meaning of Article 9 of the Electricity and Gas Directives over a TSO from a Member State that has opted for ownership unbundling (Article 9(12) Electricity and Gas Directives). Article 43 Electricity Directive and Article 47 Gas Directive additionally allow Member States to adopt measures in order to 1438

Appendix 10 SWD 2009/72/EC – The unbundling regime

ensure a level playing field, provided that these measures are transparent, nondiscriminatory, proportionate and compatible with the Treaty on the functioning of the European Union and European Union law, and provided they are notified to and approved by the Commission in advance. This will require a prior assessment on a case-by-case basis, in which the distortion of the level playing field — or the risk of such distortion — must be demonstrated, as well as compliance with the other conditions of the clause4. Since compliance with unbundling rules may impose restructuring of vertically integrated undertakings, Member States benefit from additional time to apply the rules on unbundling. In general, the Directives must be transposed and applied by Member States by 3 March 2011. However, the rules on unbundling of TSOs, which must be transposed by 3 March 2011, must be applied only by 3 March 2012. It is underlined that all three models, including the ISO and ITO model, can benefit from this additional period of time. Even more time is granted for application of certain requirements of the ownership unbundling model, if the TSO is not part of a vertically integrated undertaking. In particular, in those cases the requirements of Article 9(1)(b) and (c) Electricity and Gas Directives must be applied as from 3 March 2013 (Article 9(4) Electricity and Gas Directives). For the application of the certification procedure in relation to third countries as provided for in Article 11 Electricity and Gas Directives, the date of 3 March 2013 has been stipulated. Member States can derogate from the specific rules concerning ownership unbundling, ISOs and ITOs, where on 3 September 2009 the transmission system belonged to a vertically integrated undertaking and at that date arrangements were in place which guarantee more effective independence of the TSO than the specific provisions concerning the ITO model of Articles 17-23 of the Directives (Article 9(9) Electricity and Gas Directives). Under the certification procedure of Article 10 Electricity and Gas Directives, the Commission must verify that the arrangements in place clearly guarantee more effective independence of the TSO than the provisions of Articles 17-23 of the Directives. Only if that is the case can the TSO be certified. The regulatory authority must follow the decision of the Commission in this respect, in accordance with Article 3(6) of the Electricity Regulation5 and the Gas Regulation6. Exemptions from the unbundling rules can furthermore be granted for a defined 1439

Appendix 10 SWD 2009/72/EC – The unbundling regime

period of time in the case of major new gas infrastructure, i.e. interconnectors, Liquefied Natural Gas (LNG) and storage facilities, provided that the specific requirements of Article 36 Gas Directive are met. A similar possibility is provided by Article 17 Electricity Regulation in the case of new direct current interconnectors. Exemptions for new infrastructure that have already been granted pursuant to Article 22 of Directive 2003/55/EC and Article 7 of Regulation (EC) 2003/1228 continue to apply until the expiry date stipulated in the exemption decision, also after entry into force of the Gas Directive and the Electricity Regulation (recital 35 Gas Directive and recital 23 Electricity Regulation). Unless provided otherwise in the exemption decisions themselves, such exemptions must not be altered by application of the provisions on new infrastructure set out in Article 36 Gas Directive and Article 17 Electricity Regulation7. 2.2

Ownership unbundling

Article 9 Electricity and Gas Directives lay down the following main rules on ownership unbundling: 1. Member States shall ensure that …: (a) each undertaking which owns a transmission system acts as a transmission system operator; (b) the same person or persons are not entitled: (i) directly or indirectly to exercise control over an undertaking performing any of the functions of production or supply, and directly or indirectly to exercise control or exercise any right over a transmission system operator or over a transmission system; or (ii) directly or indirectly to exercise control over a transmission system operator or over a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of production or supply; (c) the same person or persons are not entitled to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, of a transmission system operator or a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of production or supply; and 1440

Appendix 10 SWD 2009/72/EC – The unbundling regime

(d) the same person is not entitled to be a member of the supervisory board, the administrative board or bodies legally representing the undertaking, of both an undertaking performing any of the functions of production or supply and a transmission system operator or a transmission system. 2. The rights referred to in points (b) and (c) of paragraph 1 shall include, in particular: (a) the power to exercise voting rights; (b) the power to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking; or (c) the holding of a majority share.

Article 9(1) Electricity and Gas Directives define ownership unbundling. The requirements of paragraph 1(a) to 1(d) are cumulative. Paragraph 2 defines the concept of rights as referred to in paragraph 1(b) and 1(c). Under paragraph 1(a), each undertaking which owns a transmission system is required to act as a TSO. Compliance with ownership unbundling means that the undertaking which is the owner of the transmission system also acts as the TSO, and is as a consequence responsible among other things for granting and managing third-party access on a non-discriminatory basis to system users, collecting access charges, congestion charges, and payments under the inter-TSO compensation mechanism, and maintaining and developing the network system. As regards investments, the owner of the transmission system is responsible for ensuring the long-term ability of the system to meet reasonable demand through investment planning. Under Article 9(1)(b)(i) Electricity and Gas Directives, the same person is not entitled to exercise control over an undertaking performing any of the functions of production or supply, and to exercise control or exercise any right over a TSO or a transmission system. Paragraph 1(b)(ii) provides for the same rule but covers the alternative situation of a person exercising control over a TSO, and exercising control or any right over an undertaking performing any of the functions of production or supply. The definition of the term ‘control’ in Article 2(34) Electricity Directive and Article 2(36) Gas Directive is taken from Council Regulation (EC) No 139/2004 1441

Appendix 10 SWD 2009/72/EC – The unbundling regime

of 20 January 2004 on the control of concentrations between undertakings (‘the EC Merger Regulation’)8 and should be interpreted accordingly (recital 13 Electricity Directive and recital 10 Gas Directive). Under Article 3(2) EC Merger Regulation, control is constituted by ‘rights, contracts or any other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking’. The key consideration in this regard is the concept of ‘decisive influence’. The EC Merger Regulation clarifies that decisive influence can arise in particular from: (a) ownership or the right to use all or part of the assets of an undertaking; or (b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking. The reference to control thus encompasses both de iure and de facto control, and also includes both direct and indirect control, through an intermediate subsidiary for example. This is in line with the concept of control under the EC Merger Regulation. The EC Merger regulation clarifies in its Article 3(3) that control is acquired by persons or undertakings which: (a) are holders of the rights or entitled to rights under the contracts concerned; or (b) while not being holders of such rights or entitled to rights under such contracts, have the power to exercise the rights deriving therefrom. For further guidance on these concepts, reference is made to the Commission notices and guidelines on the Merger Regulation9. The concept of ‘person’ in the Directives covers private individuals, companies or any other public or private entities. Typically, the person referred to in Article 9(1)(a) of the Electricity and Gas Directive will be either the company having the supply or network operation activity or a parent company having subsidiaries acting as suppliers or network operators. The concept of ‘rights’ used in Article 9(1)(b) Electricity and Gas Directives is further explained in Article 9(2), which provides for a non-exhaustive list of 1442

Appendix 10 SWD 2009/72/EC – The unbundling regime

these rights. These are, first, the power to exercise voting rights, secondly, the power to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, and thirdly, the holding of a majority share. Article 9(2) Electricity and Gas Directives implies that shareholding can only provide financial rights, i.e. the right to receive dividends, but cannot confer any right to take part in the decision-making process of the company or exercise any influence on the company. The concept of voting rights refers to any voting rights, no matter how limited, including voting rights which do not amount to control. In practice the requirements of Article 9(1)(b) Electricity and Gas Directives can be complied with as follows. A supplier can keep a direct or indirect shareholding in a network operator or in a network system, provided the following cumulative conditions are met: (i)

this shareholding does not constitute a majority share,

(ii) the supplier does not directly or indirectly exercise any voting rights as regards his shareholding, (iii) the supplier does not directly or indirectly exercise the power to appoint members of bodies legally representing the network operator or the network system such as the supervisory board or the administrative board, and (iv) the supplier does not directly or indirectly have any form of control over the network operator or the network system. Reciprocally, a transmission network operator may keep a direct or indirect shareholding in a supplier, provided the following cumulative conditions are met: (i)

this shareholding is not a majority share,

(ii) the network operator does not directly or indirectly exercise any voting rights as regards its shareholding,

1443

Appendix 10 SWD 2009/72/EC – The unbundling regime

(iii) the network operator does not directly or indirectly exercise the power to appoint members of bodies legally representing the supplier such as the supervisory board or the administrative board, and (iv) the network operator does not directly or indirectly have any form of control over the supplier. Similar rules apply in case of the presence of a parent company, such as a holding company: a parent company is not entitled to exercise control over a supplier, and directly or indirectly exercise control or exercise any right over a TSO or over a transmission system. Nor is a parent company entitled to exercise control over a TSO or a transmission system, and directly or indirectly exercise control or any right over an undertaking performing any of the functions of generation or supply (Article 9(1)(b)(i) and (ii) Electricity and Gas Directives). Article 9(1)(c) and (d) Electricity and Gas Directives provide for the following two additional requirements. Under subparagraph (c), the same person is not entitled to appoint members of the supervisory board, the administrative board or bodies legally representing the undertaking, of a TSO or a transmission system, and directly or indirectly to exercise control or exercise any right over an undertaking performing any of the functions of generation or supply. In practice this rule adds to the rules of subparagraph (b) a specific requirement as regards parent companies or other entities that do not have any controlling interest in a TSO or a supplier. It aims to avoid a situation where a parent company having some influence over a supplier, even minimal, can appoint board members of a TSO. As a consequence, a parent company (or other entity) that holds a majority share, or has the power to appoint board members or exercise voting rights in a supplier, cannot appoint board members of a TSO. Subparagraph (d) addresses the issue of conflict of interest for board members by prohibiting the same person from being a member of the board of both a supplier and a TSO. It is irrelevant for the prohibition whether the board member of the supplier and the TSO is appointed by the same person or not. The rules on unbundling apply equally to private and public entities. For the purpose of the rules on ownership unbundling, two separate public bodies should therefore be seen as two distinct persons and should be able to control generation and supply activities on the one hand and transmission activities on 1444

Appendix 10 SWD 2009/72/EC – The unbundling regime

the other provided they are not under the common influence of another public entity in violation of the rules on ownership unbundling provided for in Article 9 Electricity and Gas Directives; the public bodies concerned must be truly separate. In these cases, the Member State in question will need to be able to demonstrate that the requirements of ownership unbundling of Article 9 Electricity and Gas Directives are enshrined in national law and are duly complied with. This will have to be assessed on a case-by-case basis (recital 23 and Article 9(6) Electricity Directive and recital 20 and Article 9(6) Gas Directive). So as to avoid undue influence arising from vertical relations between gas and electricity markets, Article 9(3) Electricity and Gas Directives clarify that ownership unbundling applies across the gas and electricity markets, thereby prohibiting joint influence over an electricity supplier and a gas TSO or a gas supplier and an electricity TSO. The rule however only applies to the core requirements of ownership unbundling of Article 9(1)(b) Electricity and Gas Directives, not to the ancillary rules provided for in subparagraphs (c) and (d). Article 9(5) Electricity and Gas Directives clarify that ownership unbundled TSOs creating a joint venture which acts as a TSO in two or more Member States can keep the ownership of their network without contravening the requirement set out in Article 9(1)(a) Electricity and Gas Directives. 2.3

Independent system operator (ISO)

Where on the date of entry into force of the Electricity and Gas Directives, i.e. 3 September 2009, the transmission system belonged to a vertically integrated undertaking, the Member State concerned may decide not to apply the rules on ownership unbundling of the Directives, but may designate an independent system operator (‘ISO’) instead (Article 9(8)(a) Electricity and Gas Directives). For electricity, the concept of ‘vertically integrated undertaking’ is defined in Article 2(21) Electricity Directive as ‘an electricity undertaking or a group of electricity undertakings where the same person or the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings perform at least one of the functions of transmission or distribution, and at least one of the functions of generation or supply of electricity’. For gas, a similar definition is included in Article 2(20) Gas Directive. The definition of the term ‘control’ as laid down in Article 2(34) Electricity Directive and Article 2(36) Gas Directive has been taken from the EC Merger Regulation and should be applied accordingly. Control is constituted by ‘rights, contracts or any other means which, either separately or in combination and having regard to 1445

Appendix 10 SWD 2009/72/EC – The unbundling regime

the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking’. Further explanations on the concept of control are provided under point 2.2. The concept of ‘vertically integrated undertaking’ is not limited to undertakings established in one and the same Member State; the concept includes any undertaking or group of undertakings irrespective of place of establishment, where the same persons are entitled, directly or indirectly, to exercise control, and where the undertaking or group of undertakings perform at least one of the functions of transmission or distribution of electricity, or of transmission, distribution, LNG or storage of natural gas and at least one of the functions of generation or supply of electricity, or of production or supply of natural gas. Where on the date of entry into force of the Electricity and Gas Directives the transmission system does not belong to a vertically integrated undertaking within the meaning referred to above, the rules on ownership unbundling must be followed; the ISO model cannot be applied in such cases. 2.3.1 Appointment and certification procedure Under Article 13(1) and (3) Electricity Directive and Article 14(1) and (3) Gas Directive, the ISO is proposed by the owner of the transmission system concerned. It is approved and designated as an ISO by the Member State concerned under the condition that it has been certified by the regulatory authority as having complied with the specific requirements listed in paragraph 2 of the Articles mentioned. Designation must also be subject to the approval of the Commission. As part of the certification procedure, the regulatory authority must ensure in accordance with Article 13(2) Electricity Directive and Article 14(2) Gas Directive that the following conditions are met: –

the candidate operator complies with the rules on ownership unbundling of Article 9(1)(b), (c) and (d) Electricity and Gas Directives (subparagraph (a));

–

the candidate operator has demonstrated that it has at its disposal the required financial, technical, physical and human resources to carry out its tasks under Article 12 Electricity Directive and Article 13 Gas Directive (subparagraph (b)); 1446

Appendix 10 SWD 2009/72/EC – The unbundling regime

–

the candidate operator has undertaken to comply with a ten-year network development plan monitored by the regulatory authority (subparagraph (c));

–

the transmission system owner has demonstrated its ability to comply with its obligations under paragraph 5 (subparagraph (d)), see below);

–

the candidate operator has demonstrated its ability to comply with its obligations under the Electricity and Gas Regulations (subparagraph (e)).

It should be noted that the burden of proof as to whether the above requirements are met is clearly put on the candidate operator or on the system owner, not on the regulatory authority. From a procedural standpoint, the general certification procedure (see below under point 2.5) set out in Article 10 Electricity and Gas Directives applies. When certification is requested for an ISO which is controlled by a person from a non-EU country, the certification procedure in relation to third countries under Article 11 Electricity and Gas Directives applies, in addition to the requirements of Article 13(2) Electricity Directive and Article 14(2) Gas Directive. 2.3.2 Tasks of the ISO As regards its tasks, an ISO should be considered as a TSO and has to comply with all the obligations applicable to TSOs under the Electricity and Gas Directives and the Electricity and Gas Regulations. This follows from Article 13(4) Electricity Directive and Article 14(4) Gas Directive: ‘… the independent system operator shall act as a transmission system operator …’

In particular, this means that each ISO is responsible for granting and managing third-party access, including the collection of access charges, congestion charges, and payments under the inter-TSO compensation mechanism in compliance with the Electricity and Gas Regulations. The ISO is also responsible for operating, maintaining and developing the transmission system. This list of tasks is not exhaustive. The transmission system owner has no responsibility and no prerogatives as regards granting and managing third-party access.

1447

Appendix 10 SWD 2009/72/EC – The unbundling regime

As regards investments, the ISO has full responsibility for ensuring the longterm ability of the system to meet reasonable demand through investment planning. The Electricity and Gas Directives expressly state that when developing the transmission system, the ISO is responsible for planning, including obtaining the necessary authorisations and for the construction and commissioning of new infrastructure. Again, the transmission system owner has no responsibility and no prerogatives as regards investment planning. 2.3.3 Tasks of the transmission system owner As the owner of the network, the transmission system owner has a number of tasks and obligations which are listed in Article 13(5) Electricity Directive and Article 14(5) Gas Directive. Its first obligation is to provide all the relevant cooperation to the ISO for the fulfilment of its tasks. This concerns in particular the provision of all relevant information concerning the network. The network owner must also provide for the coverage of liability relating to the network assets. The Electricity and Gas Directives state that this excludes the liability relating to the tasks of the independent system operator. In practice, it means that the network owner must cover liability for e.g. the condition of the network, but not for the management of the network. The regulatory authority must review and approve the arrangements between the ISO and the network owner in the context of the certification procedure and then on a continuous basis as part of its monitoring task under Article 37(3) Electricity Directive and Article 41(3) Gas Directive, so as to ensure compliance. As regards the financing of the network, the network owner is in principle under the obligation to finance the investments decided by the ISO. This however only concerns the investments that have been approved by the regulatory authority. If the network owner does not want to finance the investments itself, it has to give its agreement to the financing of the investments by any interested party, including the ISO. This may mean that the network owner will not become the owner of the new parts of the network that it has not financed. The relevant financing arrangements are subject to approval by the regulatory authority, which is under an obligation to consult the transmission system owner together with other interested parties, including the ISO.

1448

Appendix 10 SWD 2009/72/EC – The unbundling regime

The network owner is also under the obligation to provide financial guarantees to facilitate the financing of the network expansions unless it has agreed to financing by another party. 2.3.4 Specific duties of the regulatory authority Article 37(3) Electricity Directive and Article 41(3) Gas Directive provide for a number of specific duties for regulatory authorities when an ISO is designated. These duties are additional to the duties regulatory authorities generally have in the context of the certification procedure (see below under point 2.5). These specific duties are as follows: –

Monitoring the transmission system owner’s and the ISO’s compliance with their obligations under this Article;

–

Monitoring the relations and communications between the ISO and the transmission system owner. This should include the approval of any contracts between the ISO and the transmission system owner;

–

Acting as a dispute settlement authority between the ISO and the transmission system owner. This applies in particular to complaints submitted pursuant to Article 37(11) Electricity Directive and Article 41(11) Gas Directive;

–

Approving the investment planning and the multi-annual network development plan to be presented annually by the ISO. This is in addition to the approval of the first ten-year network development plan under the certification procedure in compliance with Article 13(2)(c) Electricity Directive and Article 14(2)(c) Gas Directive;

–

Ensuring that network access tariffs collected by the ISO include remuneration for the network owner. Adequate remuneration should be provided for network assets and for new investments made in the network, provided these investments are economically and efficiently incurred. In practice, this means that the investments taken into consideration for the remuneration are approved by the regulatory authority;

1449

Appendix 10 SWD 2009/72/EC – The unbundling regime

–

Exercising the powers to carry out inspections, including unannounced inspections, at the premises of the transmission system owner and the independent system operator; and

– ����������������������������������������������������������������������� Monitoring the use of congestion charges collected by the ISO in accordance with the rules of the Electricity and Gas Regulations. More generally, the regulatory authority must ensure compliance of the ISO with its obligations, in particular through constant monitoring of the activities of the ISO and of the transmission system owner. In the event of a violation, the regulatory authority is empowered to issue penalties for non-compliance in accordance with the general rules under Article 37(4)(d) Electricity Directive and Article 41(4)(d) Gas Directive. Penalties must be effective, proportionate and dissuasive and should be able to go up to 10% of the annual turnover either of the vertically integrated company or of the ISO, as the case may be. 2.3.5 Unbundling of transmission system owners If an ISO has been appointed, the Electricity and Gas Directives require legal and functional unbundling of the transmission system owner. Article 14(1) Electricity Directive and Article 15(1) Gas Directive refer explicitly to the obligation of legal unbundling. The requirement is similar to the provisions on legal unbundling of distribution system operators (‘DSOs’) and should be interpreted accordingly (see below under point 3.2). Article 14(2) Electricity Directive and Article 15(2) Gas Directive provide for rules on functional unbundling. These rules aim to ensure the independence of the transmission system owner from other activities of the vertically integrated company not related to transmission, in terms of organisation and decisionmaking power (subparagraphs (a) and (b)), and require the establishment of a compliance programme (subparagraph (c)). These rules, which are minimum requirements, are similar to the rules concerning unbundling of DSOs and should be interpreted accordingly (see below under point 3.3). Article 31 Electricity and Gas Directives provide for specific rules on unbundling of accounts. These rules, which apply to electricity and gas undertakings in general, are further explained under point 3.4.

1450

Appendix 10 SWD 2009/72/EC – The unbundling regime

2.4

Independent transmission operator (ITO)

Where on the date of entry into force of the Electricity and Gas Directives, i.e. 3 September 2009, the transmission system belonged to a vertically integrated undertaking, the Member State concerned may decide not to apply the rules on ownership unbundling, but may set up an independent transmission operator (‘ITO’) in compliance with the rules of the Electricity and Gas Directives (Article 9(8)(b) Electricity and Gas Directives). The concept of ‘vertically integrated undertaking’ is defined in Article 2(21) Electricity Directive and Article 2(20) Gas Directive, and is explained in more detail under point 2.3. If on the date of entry into force of the Directives the transmission system does not belong to a vertically integrated undertaking, the rules on ownership unbundling have to be followed; the ITO model cannot be applied in such cases. Under the ITO model, the TSO may remain part of a vertically integrated undertaking. However, numerous detailed rules are provided in order to ensure effective unbundling. Key provisions concerning the ITO model are laid down in Articles 17-23 of the Electricity and Gas Directives. 2.4.1 Rules on assets, equipment, staff and identity of the ITO The ITO has to be autonomous. In Article 17(1) Electricity and Gas Directives it is made clear that the ITO must be equipped with all financial, technical, physical and human resources necessary to fulfil its obligations and to carry out the activity of electricity or gas transmission. The activities of electricity or gas transmission are defined in Article 17(2) Electricity and Gas Directives. They include all the tasks of a TSO under Article 12 Electricity Directive and Article 13 Gas Directive. In addition, Article 17(2) Electricity and Gas Directives list a number of other tasks for which the ITO has to be autonomous. The lists in Articles 12 and 17(2) Electricity Directive and Articles 13 and 17(2) Gas Directive are indicative and not exhaustive. The Directives impose a general obligation on the ITO to be autonomous.

1451

Appendix 10 SWD 2009/72/EC – The unbundling regime

The Electricity and Gas Directives provide for specific rules as regards the assets, the personnel and the financial resources that are necessary for fulfilling the tasks and obligations of the ITO relating to the activity of electricity or gas transmission. As regards assets, Article 17(1)(a) Electricity and Gas Directives state that these must be owned by the ITO. This obligation concerns not only the network, but also any other assets necessary for the activity of electricity or gas transmission. As regards staff, Article 17(1)(b) Electricity and Gas Directives stipulate that personnel which is necessary for the activity of electricity or gas transmission must be employed by the ITO. This concerns personnel necessary for performing the core activities of the ITO, including management and network operation. As regards corporate services, including legal services, accountancy and IT services, which are considered to constitute part of the activity of electricity or gas transmission as defined in Articles 12 and 17(2) Electricity Directive and Articles 13 and 17(2) Gas Directive, the ITO must employ a sufficient number of qualified staff members to handle day-to-day core activities. Only if the ITO has employed a sufficient number of staff members for day-to-day handling of these activities may it, in specific circumstances and by way of exception, conclude contracts with third-party service providers for legal, IT, or accountancy services. The same applies to specific services relating to, for example, the development and repair of the network. The ITO should employ a sufficient number of qualified staff members to handle day-to-day activities in this area, in order to be autonomous. Only if this condition is fulfilled can it, by way of exception, conclude contracts for services in this area with third-party service providers. The ITO cannot transfer part of its responsibilities relating to the activity of electricity or gas transmission to other entities. For example, it is not possible for an ITO to transfer part of its tasks and responsibilities to other ITOs, with, for example, one ITO assuming responsibility for system operation, another for maintenance, etc. This requirement concerning autonomy of the ITO does not relate to activities that do not directly concern the activity of electricity or gas transmission, such as office cleaning services or office security services. As regards these ancillary activities personnel does not necessarily have to be employed by the ITO and contracts for services can be concluded with third-party service providers whenever this is considered appropriate. 1452

Appendix 10 SWD 2009/72/EC – The unbundling regime

A specific regime concerns the leasing of personnel and contracting of services between any part of the vertically integrated undertaking and the ITO. As the ITO should be autonomous and not dependent on other parts of the vertically integrated undertaking, leasing of personnel and contracting of services to the ITO by other parts of the vertically integrated undertaking, including by the DSO, are categorically prohibited (Article 17(1)(c) Electricity and Gas Directives). Provision of services by the ITO to other parts of the vertically integrated undertaking is permitted only in specific circumstances, in particular if there is no discrimination of other system users, if there is no restriction of competition in generation or supply and if the regulatory authority has approved the provision of the services concerned, in accordance with Article 17(1)(c) Electricity and Gas Directives. Furthermore, the ITO is not allowed to share IT systems or equipment, physical premises and security access systems with any other part of the vertically integrated undertaking. The ITO is also not allowed to use the same consultants or external contractors for IT systems or equipment, security access systems or auditing, in accordance with Article 17(5) and (6) Electricity and Gas Directives. Pursuant to Article 17(2)(g) Electricity and Gas Directives the ITO is allowed to set up appropriate joint ventures, including with one or more TSOs, power exchanges, and other relevant actors pursuing the objectives of furthering the creation of regional markets or of facilitating the liberalisation process. As regards financing, Article 17(1)(d) Electricity and Gas Directives provide for a general rule that appropriate financial resources for future investment projects and/or for the replacement of existing assets must be made available to the ITO by other parts of the vertically integrated undertaking in due time, following an appropriate request thereto from the ITO. These resources have to be approved by the Supervisory Body in compliance with Article 20 Electricity and Gas Directives. The ITO must inform the regulatory authority of these financial resources, in accordance with Article 18(8) Electricity and Gas Directives. Under Article 17(4) Electricity and Gas Directives, the ITO must not, in its corporate identity, communication, branding and premises, create confusion in respect of the separate identity of other parts of the vertically integrated undertaking. This implies a general obligation to avoid any confusion for consumers between the TSO and the supply company. In order to identify whether there is confusion or not in a particular case, European Union trade mark law may serve as a point of reference10. 1453

Appendix 10 SWD 2009/72/EC – The unbundling regime

Article 17(3) Electricity and Gas Directives require the ITO to be organised in the legal form of a limited liability company as referred to in Article 1 of Council Directive 68/151/EEC. Article 31 Electricity and Gas Directives provide for specific rules on unbundling of accounts. These rules apply to electricity and gas undertakings in general, and are further explained under point 3.4. 2.4.2 Independence of the ITO Article 18 Electricity and Gas Directives lay down the general principle that the ITO must have effective decision-making rights, independent from any other part of the vertically integrated undertaking, with respect to assets necessary to operate, maintain and develop the transmission system. This implies a general requirement of independence as regards network ownership and operation. In particular, any other part of the vertically integrated undertaking is not allowed to determine, directly or indirectly, the competitive behaviour of the ITO in relation to the day­to-day activities and management of the network, and in relation to activities of the ITO for the preparation of the ten-year network development plan (Article 18(4) Electricity and Gas Directives). Without prejudice to the decisions of the Supervisory Body under Article 20 Electricity and Gas Directives, this principle is further substantiated by the following rules: (i)

the ITO must have the power to raise money on the capital market (Article 18(1)(b) Electricity and Gas Directives);

(ii) subsidiaries of the vertically integrated undertaking performing functions of generation or supply cannot have any direct or indirect shareholding in the ITO. The ITO itself cannot have any direct or indirect shareholding in any subsidiary of the vertically integrated undertaking performing functions of generation or supply, nor receive dividends or any other financial benefit from such subsidiary (Article 18(3) Electricity and Gas Directives). In practice this means that the supply subsidiary and the ITO can be positioned under a common parent company, but cannot be a direct or indirect subsidiary of each other;

1454

Appendix 10 SWD 2009/72/EC – The unbundling regime

(iii) so as to avoid any preferential treatment, all commercial and financial relations between the ITO and other parts of the vertically integrated undertaking, including loans from the ITO to other parts of the vertically integrated undertaking, must comply with market conditions (Article 18(6) Electricity and Gas Directives) and must be revealed to the regulatory authority upon request. All commercial and financial relations with other parts of the vertically integrated undertaking giving rise to a formal agreement, oral or written, must be submitted for approval to the regulatory authority (Article 18(7) Electricity and Gas Directives); and (iv) other parts of the vertically integrated undertaking must refrain from any action impeding or prejudicing the ITO from complying with its obligations and must not require the ITO to seek permission from it in fulfilling those obligations (Article 18(9) Electricity and Gas Directives). The overall management structure and the corporate statutes of the ITO should provide for a decision-making structure and rules ensuring effective independence of the ITO in compliance with these provisions. The ITO is under the obligation to establish and implement a compliance programme setting out the measures taken in order to ensure that discriminatory conduct is excluded. The compliance programme must be approved by the regulatory authority. A compliance officer is to be appointed by the Supervisory Body, subject to approval by the regulatory authority. The compliance officer is specifically in charge of ensuring observance of the compliance programme and has a general role as regards guaranteeing that the ITO is independent in practice and does not pursue discriminatory conducts. The compliance programme and the compliance officer are subject to the detailed rules of Article 21 Electricity and Gas Directives. From a procedural standpoint, only an ITO which complies with the rules of the Electricity and Gas Directives can be certified and therefore approved and designated as a TSO by the Member State concerned. The certification procedures of Articles 10 and 11 Electricity and Gas Directives are applicable to the ITO model.

1455

Appendix 10 SWD 2009/72/EC – The unbundling regime

2.4.3. Independence of the staff and the management of the ITO Article 19 Electricity and Gas Directives set out rules on the independence of the management of the ITO. The term ‘management’, used for the purposes of this sub-section, refers to the persons responsible for the top management of the ITO. Depending on the form of the company and its statutes, it covers the members of the executive management of the ITO — which typically will include the Chairman, the Managing Director, and/or Chief Executive Officer — and/or any member of a board having decision-making powers other than members of the Supervisory Body of the ITO. The Supervisory Body of the ITO is in charge of taking all decisions regarding the appointment and renewal, working conditions including remuneration, and termination of the term of office of the management of the ITO. These decisions must be notified to the regulatory authority and can become binding only if the regulatory authority has not raised any objections within a period of three weeks after the notification. The regulatory authority must ensure that the management of the ITO is professionally independent from other parts of the vertically integrated company, and that its working conditions can actually ensure such independence. The regulatory authority can therefore object to any decision concerning appointment, renewal or termination of office of the persons responsible for the management of the ITO, if it has any doubt as to the professional independence of these persons or as to the justification for their removal. In addition to the control of the regulatory authority, Article 19 Electricity and Gas Directives lay down specific rules aimed at ensuring that any conflict of interest is avoided as regards the management, but also as regards the employees, of the ITO. These rules include the following: (i)

The management of the ITO cannot exercise any professional position or responsibility, interest or business relationship, directly or indirectly, with any part of the vertically integrated undertaking, or with its controlling shareholders, other than the ITO, for a period of three years before its appointment. This rule also applies to the persons directly reporting to the management on matters related to the operation, maintenance or development of the network (Article 19(3) Electricity and Gas Directives).

(ii) The management and the employees of the ITO cannot have any other professional position or responsibility, interest or business relationship, directly or indirectly, with any other part of the vertically integrated undertaking or with its controlling shareholders. 1456

Appendix 10 SWD 2009/72/EC – The unbundling regime



This rule prohibits for example the holding by the management and by employees of shares in the vertically integrated undertaking.

(iii) The management and the employees of the ITO cannot hold an interest in or receive any financial benefit, directly or indirectly, from any part of the vertically integrated undertaking other than the ITO. In addition, remuneration of the management and employees cannot depend on activities or results of any part of the vertically integrated undertaking other than the ITO. This last rule prevents for example the granting to the management of stock options based on the shares of the vertically integrated undertaking. (iv) After termination of their term of office in the ITO, the management cannot have any professional position or responsibility, interest or business relationship with any part of the vertically integrated undertaking, or with its controlling shareholders, other than the ITO, for a period of not less than four years. The management is allowed to remain within the ITO after termination of their term of office in the ITO, but only in a non-managerial position. This rule also applies to the persons directly reporting to the management on matters related to the operation, maintenance or development of the network (Article 19(7) Electricity and Gas Directives). The rule under (i) as laid down in Article 19(3) Electricity and Gas Directives only applies to the majority of the management and to the persons directly reporting to them on matters related to the operation, maintenance or development of the network. Where management functions are exercised by a board or a college, this means that the rule of Article 19(3) Electricity and Gas Directives applies to half plus one of the members of the board or of the college. If however one person has essentially all the executive powers within the ITO, the majority rule implies that the rule of paragraph 3 applies to this person. The persons belonging to the management of the ITO who are not subject to Article 19(3) Electricity and Gas Directives and the persons directly reporting to them on matters related to the operation, maintenance or development of the network must not have exercised any management or other relevant activity in any other part of the vertically integrated undertaking for a period of at least six months before their appointment.

1457

Appendix 10 SWD 2009/72/EC – The unbundling regime

2.4.4 Supervisory Body A key requirement as regards the ITO model is the setting-up of a Supervisory Body. In addition to the decisions concerning the management of the ITO, the Supervisory Body is in charge of taking the decisions that may have a significant impact on the value of the assets of the shareholders within the ITO. This includes the decisions regarding the approval of the annual and longer-term financial plans, the level of indebtedness of the ITO and the amount of dividends distributed to shareholders. However, the Supervisory Body cannot interfere with the day-to-day activities of the ITO and the management of the network, or with the preparation of the ten-year network development plan under Article 22 Electricity and Gas Directives. In accordance with Article 20(3) Electricity and Gas Directives the following rules are applicable to at least half of the members of the Supervisory Body minus one: (i)

The identity and the conditions governing the term, the duration and the termination of office of the members of the Supervisory Body, and the reasons for any proposed decision terminating such term of office, must be notified to the regulatory authority, which can object within three weeks of notification. The regulatory authority must ensure that the members of the Supervisory Body are professionally independent and that their working conditions can ensure such independence. The regulatory authority may object to any decision concerning appointment, renewal or termination of office of the members of the Supervisory Board, if it has any doubt as to the professional independence of the persons concerned or as to the justification for their removal;

(ii) the members of the Supervisory Body cannot exercise any professional position or responsibility, interest or business relationship, directly or indirectly, with any part of the vertically integrated undertaking, or with its controlling shareholders, for a period of three years before their appointment. A derogation to this rule concerns the ITO itself;

1458

Appendix 10 SWD 2009/72/EC – The unbundling regime

(iii) the members of the Supervisory Body of the ITO cannot have any other professional position or responsibility, interest or business relationship, directly or indirectly, with any other part of the vertically integrated undertaking; (iv) the members of the Supervisory Body of the ITO cannot hold an interest in or receive any financial benefit, directly or indirectly, from any part of the vertically integrated undertaking other than the ITO. In addition, their remuneration must not depend on activities or results of the vertically integrated undertaking other than those of the TSO; and (v) after termination of their term of office in the ITO, the members of the Supervisory Body cannot have any professional position or responsibility, interest or business relationship with any part of the vertically integrated undertaking, or with its controlling shareholders, for a period of not less than four years. A derogation to this rule concerns the ITO itself. As an exception, the rule mentioned above under (i) that the regulatory authority can object to the removal of the members of the Supervisory Body if it has any doubt as to the justification for their removal applies to all the members of the Supervisory Body, and not only to half of the members minus one (Article 20(3), second subparagraph, Electricity and Gas Directives). 2.4.5 Network development and powers to make investment decisions So as to ensure that under the ITO model the necessary investments are made in the network, specific obligations are imposed on the ITO as regards network development and investment decisions. The ITO is under the obligation to submit annually to the regulatory authority a ten-year network development plan, following the procedure set out in Article 22 Electricity and Gas Directives. The ten-year network development plan must in particular indicate to market participants the main transmission infrastructure that needs to be built or upgraded over the next ten years, together with a time frame. It has to contain all the investments already decided and it must identify the new investments which need to be executed in the next three years. When elaborating the ten-year network development plan, the ITO must make reasonable assumptions about the evolution of the generation or production, supply, consumption and exchanges with other countries, taking into account investment plans for regional and European Union-wide networks. 1459

Appendix 10 SWD 2009/72/EC – The unbundling regime

The regulatory authority is under the obligation to consult all actual or potential system users on the ten-year network development plan in an open and transparent manner and must publish the result of the consultation process, in particular possible needs for investments. The regulatory authority must examine whether the ten-year network development plan covers all investment needs identified during the consultation process, and whether it is consistent with the non-binding European Union-wide ten-year network development plan referred to in Article 8(3)(b) Electricity and Gas Regulations. The regulatory authority may require the ITO to amend its ten-year network development plan. If the ITO, other than for overriding reasons beyond its control, does not execute an investment which, under the ten-year network development plan, was to be executed in the following three years, the Member States must ensure that the regulatory authority is required to take at least one of the following measures: (a) require the ITO to execute the investments in question; (b) organise a tender procedure open to any investors for the investment in question; or (c)

oblige the ITO to accept a capital increase to finance the necessary investments and allow independent investors to participate in the capital.

The Directives make clear that through the implementation of these measures the Member State in question has an obligation of result in that it must ensure that the investment in question is made. Article 23 Electricity and Gas Directives additionally provide for specific rules concerning the connection to the transmission system of new power plants, storage facilities, LNG re­gasification facilities, and industrial customers. 2.4.6 Specific duties of the regulatory authority Article 37(5) Electricity Directive and Article 41(5) Gas Directive lay down a list of specific duties and powers to be assigned to regulatory authorities where an ITO is designated. These duties and powers are additional to the duties and powers generally conferred on regulatory authorities as regards TSOs. The list of specific duties and powers is not exhaustive. These specific duties and powers are the following: 1460

Appendix 10 SWD 2009/72/EC – The unbundling regime

(a) to issue penalties for discriminatory behaviour favouring the vertically integrated undertaking of up to 10 % of the annual turnover either of the vertically integrated undertaking or of the ITO, as the case may be; (b) to monitor communications between the ITO and other parts of the vertically integrated undertaking in order to ensure compliance of the ITO with its obligations; (c)

to act as dispute settlement authority between the ITO and other parts of the vertically integrated undertaking in respect of complaints;

(d) to monitor commercial and financial relations including loans between the ITO and other parts of the vertically integrated undertaking; (e)

to approve all commercial and financial agreements between the ITO and other parts of the vertically integrated undertaking provided that they comply with market conditions;

(f ) to request justification from the vertically integrated undertaking as to any proposed decision on investment plans or individual investments, in particular as regards absence of discrimination to the advantage of the vertically integrated undertaking; (g) to carry out inspections, including unannounced ones, on the premises of the ITO and other parts of the vertically integrated undertaking; and (h) to assign all or specific tasks of the ITO to an independent system operator where the ITO persistently breaches its obligations under the Directives, in particular where it engages in repeated discriminatory behaviour to the benefit of the vertically integrated undertaking. 2.4.7 Review clause The Commission will monitor closely whether and to what extent the unbundling requirements for the ITO model are successful in practice in ensuring full and effective independence of the ITO. By 3 March 2013, the Commission is required to submit a detailed specific report on this topic to the European Parliament and the Council (Article 47(3) Electricity Directive and Article 52(3) Gas Directive).

1461

Appendix 10 SWD 2009/72/EC – The unbundling regime

2.5

Certification procedure

A TSO can only be approved and designated as a TSO following the certification procedure laid down in Article 10 Electricity and Gas Directives in combination with the provisions of Article 3 Electricity and Gas Regulations. These rules must be applied to all TSOs for their initial certification, and subsequently at any time when a reassessment of a TSO’s compliance with the unbundling rules is required. The regulatory authorities are under the obligation to open a certification procedure upon notification by a potential TSO, or upon a reasoned request from the Commission. Apart from that, regulatory authorities must monitor compliance of TSOs with the rules on unbundling on a continuous basis, and must open a new certification procedure on their own initiative where according to their knowledge a planned change in rights or influence over transmission system owners or TSOs may lead to an infringement of unbundling rules, or where they have reason to believe that such an infringement may have occurred. The certification procedure is applicable to all unbundling models: ownership unbundling, ISO and ITO. As regards certification of the ISO and ITO models some additional requirements are applicable (see above under points 2.3 and 2.4). Formally, certification procedures can be conducted as from 3 March 2011, as soon as the provisions of the Electricity and Gas Regulations apply. Where certification is requested by a potential TSO which is controlled by a person from a third country, the procedure of Article 10 is replaced by the procedure of Article 11 Electricity and Gas Directives concerning certification in relation to third countries. The concept of control is the same as that used in the EC Merger Regulation and should be interpreted accordingly (see above under point 2.2). Under Article 11 Electricity and Gas Directives, the regulatory authority must refuse the certification if it has not been demonstrated: (a) that the entity concerned complies with the requirements of the unbundling rules. This applies equally to ownership unbundling, ISOs and ITOs; and (b) that granting certification will not put at risk the security of energy supply of the Member State and the European Union. This assessment is to 1462

Appendix 10 SWD 2009/72/EC – The unbundling regime

be carried out by the regulatory authority or another competent authority designated by the Member State. The competent authority must in particular take into consideration for its assessment the international agreements between the European Union and/or the Member State in question and the third country concerned which address the issue of security of energy supply, as well as other specific facts and circumstances of the case and of the third country concerned. The burden of proof as to whether the above conditions are complied with is put on the potential TSO which is controlled by a person from a third country. The Commission must provide a prior opinion on the certification. The national regulatory authority, when adopting its final decision on the certification, must take utmost account of this Commission opinion.

3. UNBUNDLING FOR DISTRIBUTION SYSTEM OPERATORS (DSOS) 3.1 Introduction The unbundling regime of DSOs laid down in Article 26 Electricity and Gas Directives remains in substance unchanged as compared to the preceding regime. Where the DSO is part of a vertically integrated undertaking, the basic elements of this unbundling regime are the following: (a) legal unbundling of the DSO from other activities of the vertically integrated undertaking not related to distribution; (b) functional unbundling of the DSO in order to ensure its independence from other activities of the vertically integrated undertaking; (c)

accounting unbundling: requirement to keep separate accounts for DSO activities;

(d) possibility of exemptions from the requirement of legal and functional unbundling for certain DSOs. 3.2

Legal unbundling

Article 26 Electricity and Gas Directives require that distribution is performed by a separate ‘network’ company. The obligation to create a separate company 1463

Appendix 10 SWD 2009/72/EC – The unbundling regime

only concerns the network activities. Other activities such as supply and production can be carried on within a single company. The vertically integrated undertaking is in principle free to choose the legal form of the DSO, provided that this legal form ensures a sufficient level of independence of the management of the DSO from other parts of the vertically integrated undertaking in order to fulfil the requirements of functional unbundling. As a consequence, if the supervision regime provided for by national law for the type of company selected does not match the requirements of functional unbundling, for example because the regime permits instructions from other parts of the vertically integrated undertaking concerning day-to-day activities of the DSO, it is necessary to require its modification. Likewise, any contractual arrangements introducing further supervision rights, in addition to those provided for by national law and limiting the independence of the DSO, have to be compatible with the requirements of functional unbundling. 3.3

Functional unbundling

3.3.1 Management separation Article 26 Electricity and Gas Directives require that the persons responsible for the management of the DSO do not participate in company structures of the vertically integrated undertaking responsible, directly or indirectly, for the day-to-day operation of production, transmission or supply activities. Article 26 does not restrict the group of persons responsible for the management of the DSO to the top management, such as members of the executive management and/or members of a board having decision-making powers. Article 26 addresses a wider group of persons, including the operational (middle) management of the DSO. As a consequence, a manager of the DSO cannot at the same time be a director of the related transmission, supply or production company, or vice versa. Whether and to what extent a manager of the DSO can work at the same time for the holding company of the vertically integrated undertaking if the holding company is not at the same time directly involved in production or supply, because legally separate entities exist for these activities, must be decided on a case-by-case basis. In any event, such a combination of functions can only be permissible if the holding company does not take any day-to-day management decisions concerning the supply, production or network activity.

1464

Appendix 10 SWD 2009/72/EC – The unbundling regime

Article 26 Electricity and Gas Directives furthermore require that appropriate measures are taken to ensure that the professional interests of the persons responsible for the management of the DSO are taken into account in a manner that ensures that they are capable of acting independently. It is for Member States further to determine these measures, in the light of national circumstances; in determining these measures situations such as the following need to be addressed. Independence of the persons responsible for the network management may be put into jeopardy by their salary structure, notably if their salary is based on the performance of the holding company or of the production or supply company, as this may create conflicts of interest. Also the transfer of managers from the DSO to other parts of the company and vice versa may entail a risk of conflicts of interest and requires rules and measures safeguarding independence. Conflicts of interest for the network management may also arise if the DSO directly or indirectly holds shares in the related supply or production company and obtains a financial interest in its performance. Likewise, the issue of shareholding on a personal basis of the managers of the DSO can give rise to concerns as far as independence of management is concerned. Decisions of the parent company to replace one or more members of the management of the DSO may also undermine the independence of the DSO in certain circumstances, notably if the reasons for replacement of members of the management have not been established beforehand in the charter of the DSO. Situations referred to above need to be addressed by Member States in a way that ensures the independence of the DSO and its management. When shaping the rules on independence of the staff and the management of the DSO, the detailed provisions on independence of the staff and the management of the ITO as laid down in Article 19 Electricity and Gas Directives may serve as a point of reference, where appropriate. An important question in the context of management separation is the extent to which it is permissible to have common services, i.e. services that are shared between transmission/distribution, supply and possibly other businesses within the vertically integrated undertaking. Such services could relate to personnel and finance, IT services, accommodation and transport. It is appropriate to look at this issue on a case-by-case basis. Under Article 26(2)(c) Electricity and Gas Directives the DSO must have at its disposal the necessary resources, including human, technical, physical and financial resources, in order to fulfil its tasks of operating, maintaining and developing the network. This means that the DSO cannot unduly rely on the services of other parts of the vertically integrated undertaking, as the DSO itself must have the necessary resources at its disposal to operate, maintain and develop the network. Provision of services by other parts of the vertically integrated undertaking to 1465

Appendix 10 SWD 2009/72/EC – The unbundling regime

the DSO will therefore be limited. Where such services are provided, conditions should be fulfilled to reduce competition concerns and to exclude conflicts of interest. In particular, any cross-subsidies being given by the DSO to other parts of the vertically integrated undertaking cannot be accepted. To ensure this, the service must be provided at market conditions and laid down in a contractual arrangement. It is recalled that the DSO is not entitled to provide any services to the related ITO (Article 17(1)(c) Electricity and Gas Directives). 3.3.2 Effective decision-making rights The DSO must have effective decision-making rights, independent from other parts of the vertically integrated undertaking, with respect to assets necessary to operate, maintain or develop the network. In order to fulfil those tasks, the DSO must have at its disposal the necessary resources, including human, technical, physical and financial resources (Article 26(2)(c) Electricity and Gas Directives). This does not necessarily imply that the DSO must own the assets. Where another part of the vertically integrated undertaking remains the owner of the assets and puts these at the disposal of the DSO, the basic decisions concerning the assets must remain with the DSO, while the other part of the vertically integrated undertaking may be involved in the implementation of these decisions, provided that safeguards are put in place ensuring that the other part of the vertically integrated undertaking only executes the decisions taken by the DSO. The requirement of effective decision-making rights is without prejudice to the supervision rights of the vertically integrated undertaking in respect of the return on assets in a subsidiary. Regarding the scope of these supervision rights, Article 26(2)(c) Electricity and Gas Directives expressly refer to two items: the annual financial plan of the DSO or any equivalent instrument, and its overall level of indebtedness. Regarding the limits of the supervision rights, the Directives are equally clear: any detailed day-to-day oversight of the network function by parts of the vertically integrated undertaking other than the DSO is not permitted. Also instructions regarding decisions on the construction or upgrading of the network, if these decisions stay within the terms of the approved financial plan, are not permitted. Within the scope of the approved financial plan, the DSO must have complete independence. Furthermore, the financial plan, whilst it can be adopted by the vertically integrated undertaking, must be compatible with the requirement to 1466

Appendix 10 SWD 2009/72/EC – The unbundling regime

ensure that the DSO has sufficient financial resources to maintain and extend the existing infrastructure. The Directives refer to the financial plan or ‘any equivalent instrument’. The latter term must be interpreted restrictively in the sense that only instruments that are functionally equivalent to a financial plan, but which according to the applicable national terminology are not denominated a ‘financial plan’, may be subject to approval of the vertically integrated undertaking. 3.3.3 Compliance programme Article 26(2)(d) Electricity and Gas Directives require the DSO to establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded and to ensure that observance of this prohibition is adequately monitored. The main purpose of a compliance programme is to provide a formal framework for ensuring that the network activities as a whole, as well as individual employees and the management of the DSO, comply with the principle of non-discrimination. The compliance programme contains rules of conduct which have to be respected by staff in order to exclude discrimination. Such rules relate, for example, to the obligation to preserve the confidentiality of commercially sensitive and commercially advantageous information (Article 27 Electricity and Gas Directives). The compliance programme may lay down in detail the kind of information that is to be considered confidential in this sense and how the information should be treated. It may also refer to the sanctions imposed under national legislation in case of non-respect of confidentiality rules. Another set of rules which, for example, can form part of a compliance programme relates to the behaviour of staff vis-à-vis network customers. Employees of a DSO must refrain from any reference to the related supply business in their contacts with customers of the DSO. The compliance programme must be actively implemented and promoted through specific policies and procedures. Such policies may consist, inter alia, of the following elements: –

active, regular and visible support of the management for the programme, for example through a personal message to the staff from the management stating its commitment to the programme;

– ���������������������������������������������������������������������� written commitment of staff to the programme by signing up to the compliance programme; 1467

Appendix 10 SWD 2009/72/EC – The unbundling regime

–

clear statements that disciplinary action will be taken against staff violating the compliance rules;

–

training on compliance on a regular basis and notably as part of the induction programme for new staff.

Article 26(2)(d) Electricity and Gas Directives require the DSO to appoint a compliance officer. The compliance officer must be fully independent and must have access to all the necessary information of the DSO and any affiliated undertaking to fulfil his or her task. There is a clear obligation of result. When shaping the specific rules and guarantees for independence of the compliance officer of the DSO, the rules on the compliance officer of the ITO as laid down in Article 21(2) Electricity and Gas Directives may serve as a point of reference, where appropriate. If the programme is to be successful, its effectiveness needs to be regularly monitored. This is essential not only as a means of ensuring that the programme is working properly but also to enable the identification of those areas that present the highest risks of non-compliance. The evaluation process must be carried out in a transparent manner, and may indicate to employees that their conduct is being reviewed against the terms of the compliance programme on a continuous basis. The compliance officer must on a yearly basis submit a report to the national regulatory authority, setting out all the measures taken. This report must be published (Article 26(2)(d) Electricity and Gas Directives). 3.3.4 Additional measures to ensure functional unbundling Article 26(3) Electricity and Gas Directives require that where the DSO is part of a vertically integrated company, Member States must ensure that the activities of the DSO are monitored by regulatory authorities or other competent bodies so that the DSO cannot take advantage of its vertical integration to distort competition. The DSO in its communication and branding cannot create confusion in respect of the separate identity of the supply company of the vertically integrated undertaking (Article 26(3) Electricity and Gas Directives). This implies a general obligation to avoid any confusion for consumers between the DSO and the supply company. In order to identify whether or not there is confusion in a particular case, European Union trade mark law may serve as a point of reference11. It should be noted that the rules on unbundling contained in the Electricity 1468

Appendix 10 SWD 2009/72/EC – The unbundling regime

and Gas Directives are minimum rules. Member States may therefore consider supplementing the minimum set of rules with further measures, with a view to ensuring effectiveness of unbundling. 3.3.5 Preservation of confidentiality The rules on functional unbundling are supplemented with the obligation of DSOs to preserve the confidentiality of commercially sensitive information obtained in the course of carrying out their business, and with the obligation of DSOs to prevent information about their own activities which may be commercially advantageous being disclosed in a discriminatory manner. This means, for example, that personnel working for the supply business must not have privileged access to databases containing information that could be commercially advantageous, such as details on actual or potential network users (Article 27 Electricity and Gas Directives). 3.4

Accounting unbundling

The provisions on accounting unbundling in the Electricity and Gas Directives remain largely unchanged as compared to the preceding legislation. The basic principle laid down in Article 31(3) Electricity and Gas Directives is that companies have to keep separate accounts for each of their transmission and distribution activities related to electricity and gas. Consolidated accounts are possible for all other activities, including their remaining electricity and gas activities. Unlike legal and functional unbundling, no derogation is possible from the rules on accounting unbundling in the case of smaller DSOs. Accounting unbundling is thus the minimum separation requirement to be respected by every network operator, without exception. For accounting unbundling, an accurate application of accounting principles is of fundamental importance. It is vital that cost items are allocated in a transparent and accurate manner to the activities concerned. Notably, any overstatement of the costs of the network business must be excluded. Such inaccurate cost allocation is likely to lead to cross-subsidisation favouring the supply business and thus distorting competition in the supply market. It should be noted that regulatory authorities play a key role in this respect, in view of their duty to ensure, through monitoring effective accounting unbun1469

Appendix 10 SWD 2009/72/EC – The unbundling regime

dling, that there are no cross­subsidies between, on the one hand, transmission and/or distribution and, on the other hand, generation and/or supply. Since Article 31(4) Electricity and Gas Directives underline that the audit provided for in Article 31(2) looks at the issue of possible cross-subsidisation, it is clear that the audit will examine the way costs have been allocated. 3.5

Exemptions for DSOs serving less than 100 000 connected customers

Smaller DSOs serving less than 100000 connected customers can be exempted from the requirements of both legal and functional unbundling (Article 26(4) Electricity and Gas Directives). This possibility of an exemption is not limited in time. The Directives do not provide a definition of the term ‘connected customers’. ‘Connected customers’ could reasonably be interpreted as meaning: ‘connections’. According to such an interpretation a household is considered to constitute one connection within the meaning of the Directives, irrespective of the number of people forming part of the household. In contrast, a building composed of, for example, eight apartments, is considered to have eight connections within the meaning of the Directives. 3.5.1 Application in practice — two basic scenarios Where distribution, supply and/or generation are performed in a single legal entity, the application of the 100000 rule is straightforward. If the undertaking has less than 100000 connected customers, i.e. if the distribution network in question has less than 100000 connections, an exemption is possible, in which case the company can continue to operate the network and its supply/generation activities within the same legal entity. In contrast, if the number of connections is above 100 000, a separate network company has to be created. When creating such a separate company, the undertaking has two basic choices: –

it can keep the shares in the network company, allowing it to control the network company within the meaning of Article 3(3) EC Merger Regulation. In this case the network company remains part of a vertically integrated undertaking and, consequently, needs to be independent in functional terms within the meaning of Article 26 Electricity and Gas Directives; or

1470

Appendix 10 SWD 2009/72/EC – The unbundling regime

–

it can give up control over the company, for example by selling shares in the company to third parties. As a consequence, the network company does not form part of a vertically integrated undertaking any more and in particular Article 26 Electricity and Gas Directives no longer apply.

If an undertaking involved in supply and/or generation controls one or more legally separate DSOs and the group of companies as a whole forms one single vertically integrated company, all connected customers of all the DSOs served by the undertaking have to be aggregated. Where applicable, the customers connected to a distribution network which is operated in the same company structure as the supply/generation business in question have to be added as well. If the aggregated figure of connected customers is above 100000, all controlled DSOs controlled by the same company or person have to be unbundled in compliance with Article 26 Electricity and Gas Directives even if the companies in question, when looked at individually, serve less than 100 000 connected customers. Hereunder, three practical examples illustrate the application of the 100000 connected customers rule: 1.

A company involved in supply buys three DSOs, each serving 40000 connected customers: all three companies have to be functionally unbundled (or be merged into one or two unbundled companies).

2.

A company involved in supply buys five DSOs, one serving 120 000, the remaining four each serving 1000 connected customers: all five companies have to be unbundled (or be merged into one or more several unbundled companies).

3.

A company involved in supply and operating a distribution network of 80000 connected customers in the same company structure (i.e. not unbundled) buys a DSO serving 30000 connected customers: the whole network business, including the network serving the 80000 connected customers, has to be unbundled.

3.5.2 Discretion of Member States in applying the exemption The threshold of 100000 connected customers was chosen since it was considered an appropriate figure in view of the situation in the European Union as a whole. However, when deciding on a possible derogation, Member States may 1471

Appendix 10 SWD 2009/72/EC – The unbundling regime

consider national circumstances as well and, as a consequence, lower the threshold where this is appropriate. In particular, Member States may choose not to systematically exempt DSOs with less than 100000 connected customers from both legal and functional unbundling. A more gradual approach is possible. In such an approach only the smallest sized DSOs would be exempted from both legal and functional unbundling requirements. The relatively bigger sized DSOs — with still less than 100000 connected customers — would only obtain an exemption from legal unbundling, while maintaining the requirement of functional unbundling, or at least certain elements of functional unbundling.

1472

Appendix 10 SWD 2009/72/EC – The unbundling regime

Notes 1

Directive 2009/72/EC of the European Parliament and the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55).

2

Directive 2009/73/EC of the European Parliament and the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211, 14.8.2009, p. 94).

3

The term ‘vertically integrated undertaking’ is defined in Article 1(21) of the Electricity Directive and in Article 1(20) of the Gas Directive and is further discussed under point 2.3.

4

The call for a level playing field clause originally came from Member States that wanted to protect their unbundled production and supply companies from acquisitions by vertically integrated undertakings of other Member States.

5

Regulation (EC) No 714/2009 of the European Parliament and the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ L 211, 14.8.2009, p. 15).

6

Regulation (EC) No 715/2009 of the European Parliament and the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ L 211, 14.8.2009, p. 36).

7

The Commission issued a declaration to this effect in Coreper on 16 June 2009 with a view to the adoption

8

OJ L 24, 29.1.2004, p. 1.

9

They are available at: http://ec.europa.eu/competition/mergers/legislation/legislation.html.

10

See in particular Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade marks,

of the Gas Directive and the Electricity Regulation.

OJ L 11, 14.1.1994, p. 1, as amended, and Directive 2008/95/EC of the European Parliament and of the Council of 22 October 2008 to approximate the laws of the Member States relating to trade marks, OJ L 299, 8.11.2008, p. 25. 11

See in particular Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade marks, OJ L 11, 14.1.1994, p. 1, as amended, and Directive 2008/95/EC of the European Parliament and of the Council of 22 October 2008 to approximate the laws of the Member States relating to trade marks, OJ L 299, 8.11.2008, p. 25.

1473

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

Appendix 11 Commission staff working paper Interpretative note on directive 2009/73/EC concerning common rules for the internal market in natural gas Third-party access to storage facilities

Contents 1.

INTRODUCTION

2.

DEFINITIONS AND SCOPE

2.1. 2.2. 2.3. 2.4.

Production operations Exclusive reservation for TSOs The part of liquefied natural gas (LNG) facilities used for storage Transparency in defining ‘storage facilities’

3.

DESIGNATION AND TASKS OF SYSTEM OPERATORS

4.

LEGAL AND FUNCTIONAL UNBUNDLING

5.

CONFIDENTIALITY

6.

ACCESS TO STORAGE FACILITIES 1475

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

6.1. Background 6.2. Criteria to determine the access regime 6.2.1. Technical and economic necessity of access to storage 6.2.2. Negotiated or regulated third-party access 6.2.3. Definition of criteria 6.3. Access obligations 7. 8. 9.

STORAGE AND SECURITY OF SUPPLY OBLIGATIONS TRANSPARENCY REFUSAL OF ACCESS

THIRD-PARTY ACCESS TO STORAGE FACILITIES 1. INTRODUCTION Significant amendments have been made to the Gas Directive1 and to the Gas Regulation2 with regard to third-party access to storage. Article 33 of the Gas Directive requires Member States to define and publish criteria according to which the access regime may be determined. In addition, Article 15 of the Gas Directive requires storage system operators (SSOs) to be at least legally and operationally unbundled. Finally, Articles 15, 17, 19, 20 and 22 of the Gas Regulation set legally binding standards for third-party access services, capacity allocation and congestion management, and transparency concerning storage facilities. This note provides further information to guide the implementation of measures in the new Gas Directive relating to third-party access to storage. It outlines the new requirements and procedures that are included in the legislation, and the new roles and duties of Member States, national regulatory authorities (NRAs) and SSOs. The note presents the Commission’s services’ understanding of how the relevant provisions of the Gas Directive are to be interpreted. It aims to enhance legal certainty but does not create any new rules. In any event, giving binding interpretation of European Union law is ultimately the role of the European Court of Justice. The present note is not legally binding.

1476

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

2. DEFINITIONS AND SCOPE Pursuant to Article 2(9) of the Gas Directive, ‘storage facility’ means a facility used for the stocking of natural gas and owned and/ or operated by a natural gas undertaking, including the part of LNG facilities used for storage but excluding the portion used for production operations, and excluding facilities reserved exclusively for transmission system operators in carrying out their functions;

The definition restricts the scope of the application of the Directive’s provisions on access to storage to those storage facilities that are not exclusively reserved for transmission system operators (TSOs) in carrying out their functions. The portion of storage facilities used for production operations is also excluded from the scope of the definition. The part of LNG facilities used for storage is included in the definition. With a view to clearly defining storage facilities and the portion of storage facilities falling under the access to storage rule (Article 33 Gas Directive), it is necessary to delimit the definition of storage facilities. 2.1. Production operations The Directive excludes from the definition those (portions of ) storages that serve a function as part of production operations. Producers may need to resort to portions of storages for their exclusive use in order to smooth production swings. They may invoke exclusive use for smoothing irregularities associated with the specific process of production fields or areas. In light of the EU’s general policy goal of stimulating domestic production, such exclusive use of storage for production operations is therefore justified if it enables or improves the production process. It is the responsibility of the Member State in which the production is located to ensure that the use of storage for production operations is not abused by producers, through the creation of de facto priority access to storages. Irregularities caused by consumption or demand are in the realm of supply and not production operations. Consequently, it is the view of the services of the Commission that such irregularities cannot justify exclusive reservation for production operations of certain portions of what would otherwise be considered a storage facility. 1477

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

2.2. Exclusive reservation for TSOs The functions carried out by TSOs are mainly listed in Article 2(4) Gas Directive, according to which a TSO is: responsible for operating, ensuring the maintenance of, and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transportation of gas.

Among these responsibilities, only operating the transmission system can reasonably involve the use of storage. More specifically, in this sense, a TSO will need to resort to such facilities for the purpose of ensuring that the system remains physically stable and secure, i.e. ensuring that shippers’ or consumers’ behaviour does not lead to a loss in pressure that could result in impediments to the functioning of the network or in supply interruption. This means that, in addition to what is covered by the definition of a TSO, maintaining the system’s stability, including the procurement of the necessary energy for carrying out this function, should be included in the functions of a TSO. In order to fulfil its tasks related to system stability, a TSO will typically need to buy and sell certain quantities of gas, and it will need to resort to certain facilities to store such gas. As Article 2(9) Gas Directive points out, such facilities may be reserved exclusively for TSOs3. Unlike the reservation for production purposes, Article 2(9) Gas Directive does not allow the exclusive reservation of only portions of a facility for TSOs in carrying out their functions. Rather, it takes an all-or-nothing approach, either reserving an entire facility exclusively for TSOs or labelling it a ‘storage facility’. Since this approach chosen by the legislator will lead to entire facilities being reserved for a TSO, this reservation can only apply to such facilities which by their function and dimension are conceptualised as tools to guarantee system stability. This will, a priori, not allow exclusive reservation of such facilities that serve mainly for seasonal purposes and facilities in general that do not respond quickly enough to be able to fulfil system stability purposes. Neither will it allow exclusive reservation of facilities that are too large to serve as a system stability facility, because such withdrawal from the definition would turn the exceeding portion of the facility into something other than a ‘storage facility’. Consequent1478

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

ly, facilities reserved exclusively for TSOs can only be those that are technically and in terms of size designed and suitable for system stability purposes. This may in particular include fast responding overground facilities with limited capacity. The remainder (and in most Member States the majority) of facilities will consequently be treated as ‘storage facilities’ under the definition of the Directive. In case TSOs could not guarantee the same level of reliability and consistency in operating the network when they have to resort to facilities qualifying as storage facilities, Member States may resort to measures in accordance with Article 3 of the Gas Directive on SSOs to the benefit of TSOs. The TSO could then be given priority with regard to storage capacities to be allocated to it whilst the charges incurred would be those applicable to parties other than the TSO. In the view of the Commission services, the use of storage facilities for balancing purposes does not fall under the exclusive use by a TSO. Balancing is a task distinct from ensuring system stability. Balancing must be market-based, since Article 13(5) Gas Directive requires with respect to gas procurement for balancing purposes by TSOs that: Transmission system operators shall procure the energy they use for the carrying

out of their functions according to transparent, non-discriminatory and market based procedures. In addition, Article 21(1) of the Gas Regulation states that: Balancing rules shall be market-based.

and Article 21(3) of the Gas Regulation specifies that: Imbalance charges shall be cost-reflective to the extent possible, whilst providing appropriate incentives on network users to balance their input and off-take of gas.

Therefore, cost reflectivity of imbalance charges can only be ensured if the TSO charges the network users for its costs for using the storage capacity. Those costs have to be market­based, which means that TSOs have to purchase storage capacity in the market, ruling out a priori any exclusive use of a storage facility by a TSO for balancing purposes.

1479

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

2.3. The part of liquefied natural gas (LNG) facilities used for storage LNG facilities need storage of liquefied gas in order to operate effective re-gasification and send-out of gas into the transmission system. In determining which parts of LNG facilities are to be considered ‘storage facilities’ in the sense of the definition, and which parts belong exclusively to the LNG facility, Article 2(11) of the Gas Directive provides guidance: ‘LNG facility’ means a terminal which is used for the liquefaction of natural gas or the importation, offloading, and re-gasification of LNG, and includes ancillary services and temporary storage necessary for the re-gasification process and subsequent delivery to the transmission system, but does not include any part of LNG terminals used for storage; Since, under this definition, an LNG facility includes temporary storage necessary for the re­gasification process, such storage is outside the scope of the definition of ‘storage facility’. On the other hand, the definition of ‘LNG facility’ explicitly excludes any other part of the terminals used for storage. Such part consequently falls under the definition of ‘storage facility’ in Article 2(9) of the Gas Directive, which in turn covers it as ‘including the part of LNG facilities used for storage’.

Even if physical injection from the grid into the storage is not possible, as gas cannot be liquefied at the LNG facility, access to such storage can be offered through virtual (interruptible) entry capacity. 2.4. Transparency in defining ‘storage facilities’ In the view of the services of Commission, and for the avoidance of doubt, SSOs running facilities both within and outside the definition of ‘storage facility’ under Article 2(9) of the Gas Directive, should as a good practice indicate and substantiate which portion of the storage facility concerned would be necessary for production purposes or which entire facility would be for exclusive TSO use and would therefore not be available for third-party access (TPA).

1480

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

3.

DESIGNATION AND TASKS OF SYSTEM OPERATORS

Pursuant to Article 2(13) of the Gas Directive, ‘system’ means any transmission networks, distribution networks, LNG facilities and/or storage facilities owned and/or operated by a natural gas undertaking, including linepack and its facilities supplying ancillary services and those of related undertakings necessary for providing access to transmission, distribution and LNG;

Article 12 of the Gas Directive requires Member States to designate system operators, or to ask gas undertakings to designate system operators (which includes SSOs), and stipulates that the designated system operators must act in accordance with Articles 13, 15 and 16 of the Gas Directive. Such designation is for the purpose of ensuring effective TPA, and therefore it is the party responsible for commercialisation of the capacity that is logically designated as the SSO. Where there are more operators for (parts of ) the same storage facility, Member States and national regulatory authorities (NRAs) are encouraged to ensure that such shared operator does not work to the detriment of access to the storage facility and that commercialisation of capacity to third parties is optimised for the whole facility. Article 13 of the Gas Directive lays down the tasks of system operators, including SSOs. Article 13(1) Gas Directive reads: 1. Each transmission, storage and/or LNG system operator shall: (a) operate, maintain and develop under economic conditions secure, reliable and efficient transmission, storage and/or LNG facilities to secure an open market, with due regard to the environment, ensure adequate means to meet service obligations; (b) refrain from discriminating between system users or classes of system users, particularly in favour of its related undertakings; (c) provide any other transmission system operator, any other storage system operator, any other LNG system operator and/or any distribution system operator, sufficient information to ensure that the transport and storage of natural gas may take place in a manner compatible with the secure and efficient operation of the interconnected system; and

1481

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

(d) provide system users with the information they need for efficient access to the system.

Beyond the general obligations of SSOs listed above, further obligations with respect to TPA to storage facilities are laid down in Articles 15, 17, 19, 20 and 22 of the Gas Regulation. Those obligations apply to both regulated and negotiated TPA, as is stated in the penultimate paragraph of Article 1 of the Gas Regulation: This Regulation, with the exception of Article 19(4)4, shall apply only to storage facilities falling under Article 33(3) or (4) of Directive 2009/73/EC.

Moreover, SSOs have the obligation to consult with system users when developing access conditions. In the view of Commission services, the correct implementation of these provisions requires SSOs to make use of a standard contract or a storage code.

4.

LEGAL AND FUNCTIONAL UNBUNDLING

Article 15 of the Gas Directive requires SSOs which are part of a vertically integrated undertaking to be legally and functionally unbundled from other activities not related to transmission, distribution, and storage. It can be concluded that a fully ownership unbundled SSO (which is at the same time the owner of the storage facility) is compliant, irrespective of whether it is the same company as the fully ownership unbundled TSO or a separate one. In accordance with Article 15(1) of the Gas Directive, the unbundling obligation only applies to operators of those storage facilities that are technically and/or economically necessary for providing efficient access to the system for the supply of customers pursuant to Article 33 of the Gas Directive. Therefore, the obligation to unbundle legally and functionally does not apply to those operators of storage facilities that have no obligation under the Gas Directive to grant TPA either on a negotiated or on a regulated basis5.

5.

CONFIDENTIALITY

Article 16 of the Gas Directive, concerning confidentiality for TSOs and transmission system owners, applies explicitly to storage operators. The requirement 1482

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

of confidentiality and, as a consequence, the setting-up of effective ‘Chinese walls’between the SSO and remaining parts of the undertaking6 is particularly important where an SSO forms part of a vertically integrated company containing storage and supply undertakings. With a view to ensuring compliance with the confidentiality requirement, the relevant authorities should at least require sufficient evidence from the companies concerned that well­functioning ‘Chinese walls’ have effectively been established between the SSO and the supply branch of the vertically integrated company as defined in Article 15 of the Gas Directive. The confidentiality requirement of Article 16 of the Gas Directive applies in the same manner to combined operators (cf. Article 29 Gas Directive) encompassing an SSO, in particular since SSOs owned by a TSO may be competing with other SSOs.

6. ACCESS TO STORAGE FACILITIES 6.1. Background Article 33 of the Gas Directive is the core provision as far as the regulatory framework for operating storage facilities is concerned: Access to storage 1. For the organisation of access to storage facilities and linepack when technically and/or economically necessary for providing efficient access to the system for the supply of customers, as well as for the organisation of access to ancillary services, Member States may choose either or both of the procedures referred to in paragraphs 3 and 4. Those procedures shall operate in accordance with objective, transparent and non-discriminatory criteria.

The regulatory authorities where Member States have so provided or Member States shall define and publish criteria according to which the access regime applicable to storage facilities and linepack may be determined. …

Article 33(1) of the Gas Directive establishes the right of access to storage ‘when technically and/or economically necessary … for the supply of customers’, while leaving it to Member States to determine whether a negotiated or regulated access regime should be implemented.

1483

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

The goal of these provisions is to ensure a well-functioning European storage market that contributes to a competitive and integrated gas market. Therefore, these provisions also need to be implemented in a way that does not distort market integration and competition across national borders, and that can adapt to changing circumstances7. In practice, three different situations can be derived from Article 33 of the Gas Directive. Either access is not technically and/or economically necessary or it is, in which case access can be regulated or negotiated. The choice of access procedure is explicitly left to Member States, as the use of storage, the geological potential for storage, and the function of storage differ between Member States. Moreover, as markets integrate, the geographical scope of that market may change, as may the uses and functions of storage. Therefore, Member States should be able to adapt their rules for access to storage based on changing market circumstances. Precisely for that reason, criteria have to be published, so as to ensure that under changing market circumstances, the rules governing access to storage facilities will be adapted accordingly. Such criteria are moreover needed for investors in storage facilities, to give certainty as to the access regime that will be applied to them when operating a storage facility. The obligation to establish delineating criteria refers not only to the determination of the choice between the options provided in Article 33(3) or (4) of the Gas Directive. Rather, the regulatory authorities (where Member States have so provided) or the Member States are also required to define and publish criteria according to which the technical or economic necessity may be determined. This follows from the wording of recital 23 and Article 33(1), second subparagraph Gas Directive, which establishes this obligation with respect to the access regime as a whole, rather than limiting it to the choice between regulated or negotiated TPA. Moreover, the obligation to establish criteria for the choice between regulated or negotiated TPA cannot be sensibly fulfilled without addressing in the same manner the overriding and arguably more crucial of the two questions, i.e. whether TPA is technically and economically necessary. The criteria under Article 33(1) of the Gas Directive must be established by the regulatory authorities (where Member States have so provided) or by the Member States and they must be applied correctly. It is left to Member States to decide who (e.g. the Member State, the National Regulatory Authority [NRA], or the SSO) determines, on the basis of the published criteria, the rules governing access to a specific storage facility, but this access regime has to be made public, pursuant to Article 33(1) second subparagraph of the Gas Directive: 1484

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

They [i.e. Member States or NRAs] shall make public, or oblige storage and transmission system operators to make public, which storage facilities, or which parts of those storage facilities, and which linepack is offered under the different procedures referred to in paragraphs 3 and 4.

There is no discretion left to Member States, NRAs, or SSOs as to whether and how these criteria, once established, are applied. Article 41(1)(s) of the Gas Directive requires the NRA to monitor whether these criteria are correctly applied in practice: Monitoring the correct application of the criteria that determine whether a storage facility falls under Article 33(3) or (4);

This monitoring automatically includes a duty for NRAs to examine whether the definition of storage facility has been correctly applied. In order to do so, NRAs will need an overview of all existing facilities in their jurisdiction, including any found to be outside the scope of the definition. The monitoring power of NRAs must be effective also where a Member State itself decides to determine the access regime instead of leaving this decision to the NRA or the SSO. Where institutional arrangements do not allow the NRA to monitor actions by the Member State, the determination of the access regime may not be made by the Member State, but will rather need to be made by an actor subject to NRA supervision. Finally, it is worth noting that the storage facility to which access is requested and the customer who is supplied from this storage facility need not necessarily be situated in the same Member State. This requires Member States, when choosing the criteria to determine technical and economic necessity of access to storage and the type of access regime, to take due account of the market situation in the relevant area or areas for which storage facilities may be economically or technically necessary to supply customers. Depending on the geographical situation and the connection of the storage, this area or these areas will normally be the balancing area or areas to which the storage facility is connected, whereas possible effects on neighbouring areas will also need to be examined. In the process, relevant provisions with respect to the cooperation of Member States and NRAs need to be taken into account.

1485

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

6.2. Criteria to determine the access regime 6.2.1. Technical and economic necessity of access to storage A certain degree of flexibility in supplying gas to consumers is indispensable for the gas business. While storage is not the only tool offering flexibility to network users for supplying their customers, it is one of the most important ones and, considering the underlying economics, often the only suitable one. Supply flexibility in the sense of production or import flexibility, linepack and spot gas may also in principle be available, but would often not suit the needs of the customer/network user due to either the scale and the short notice of the flexibility required or the underlying economics. For example, providing the entire seasonal flexibility by import flexibility would mean that considerable pipeline capacity is left unused, thereby exorbitantly increasing capital costs and rendering gas supply uneconomic and no longer competitive. Production flexibility would usually not allow short-term demand hikes to be met, no matter whether they are foreseen or not. Neither can balancing regimes fully compensate the functions of storage with respect to the supply of consumers. Finally, whereas a combination of the alternative measures above may allow all customers to be supplied from a technical point of view, thus rendering access to storage not technically necessary, it is difficult to conceive a scenario where access to storage would not be economically necessary, i.e. where it is not at lower costs and/or risks. But even if a combination of the alternative measures above may allow supply to all customers at reasonable costs, a competitive advantage would remain for those suppliers who (can additionally) resort to storage. Therefore, the dispensability of storage for some suppliers with superior access to other means of flexibility (e.g. very flexible upstream contracts and sufficient import capacity) cannot be equated with a general conclusion that access to storage is not necessary. Hence, even where access to storage may not be necessary for larger suppliers, who can, for example, benefit from greater portfolio effects, storage may still be necessary for smaller suppliers. Where there are shippers requesting access to storage, this is a strong indication that it is economically necessary. In the view of the services of the Commission, should storage nonetheless not be deemed economically necessary, despite such requests, this would need to be proven to a very high standard. Without prejudice to the regulatory authorities’ (where Member States have so provided) or the Member States’ right and obligation to determine whether access to storage is technically and/or economically necessary, in the view of the 1486

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

Commission’s services such necessity could be determined along the lines of the following indicative principles: –

Per type of storage. The key question is whether there are other instruments available for suppliers to obtain the same level of technical and economic flexibility as through a storage facility. This depends on the availability and price of transport capacity (including, but not limited to, the LNG supply chain), liquidity of hubs and other traded markets. While differentiation between different types of storage needs and facilities corresponding to those needs (short-term vs. seasonal storage) is possible, partial substitution between them should be considered (large salt caverns may for example also be used for seasonal flexibility). Importing the entire seasonal flexibility would usually not be feasible, as this would mean that considerable pipeline capacity is left unused, thereby disproportionately increasing capital costs and rendering gas supply uneconomic. Furthermore, short-term flexibility needs of gas-fired power plants will often also require storage in a balancing area8. It is hard to conceive a situation in which access to storages primarily used for seasonal balancing, such as depleted fields and aquifers, is not technically and/or economically necessary.

–

Per storage facility. A general assessment of the market and the flexibility needs of customers in one or more relevant areas within and beyond a Member State can lead to criteria that determine that access is required to only a part of the storage facilities, as there is no other technical or economic alternative for access to storage for only a certain part of the market. However, utmost caution and constant surveillance of market development is necessary in such an assessment.

–

Not per storage client and not excluding storage clients on the basis of their portfolio of customers. The internal market legislation decouples infrastructure operation from supply. Therefore, the access regime and the basic rules for access may not depend on which customers a supplier intends to supply. It is therefore not possible to exclude certain suppliers from access to storage based on the customer portfolio.

–

Investment in new storage and geological potential. The possibility to invest in new storage is no reason to state that access to existing storage is not necessary, as new investment is no alternative at the moment of supply. Investment in storage typically takes more than five years and there1487

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

fore cannot be used as a criterion. However, after a new storage facility has been made available, the assessment related to the appropriate access regime may change as a consequence. In that case the market may become more competitive and negotiated TPA may be more appropriate than regulated TPA. The decision as to whether storage is technically and economically necessary will not only entail consequences with respect to the obligation to grant TPA. It will also determine whether, pursuant to Article 15(1) of the Gas Directive, respective storage facilities are subject to the unbundling obligations laid down therein. 6.2.2. Negotiated or regulated third-party access The Gas Directive allows both a negotiated and a regulated access regime without discriminating against either of them. This means that the results of both regimes should comply with the principle of non-discrimination and competition enshrined in the Gas Directive. It should be noted that under Article 1 of the Gas Regulation, the provisions of the Gas Regulation on storage apply in the case of both negotiated and regulated TPA. Pursuant to Article 41(1)(n) Gas Directive, in the case of negotiated TPA, NRAs do not have the power to review tariffs. However, in the view of the Commission services, under default competences of regulatory oversight, NRAs are entitled and required to ensure compliance with the general principle of nondiscrimination, including as regards tariff setting. This derives inter alia from Article 15 of the Gas Regulation, according to which the same service must be offered to different customers under equivalent terms and conditions. With respect to transparency requirements, only Article 33(4) of the Gas Directive expressly requires tariffs to be published. Nonetheless, in the case of negotiated TPA, in the view of the Commission services, the obligation to publish ‘main commercial conditions’ pursuant to Article 33(3) Gas Directive includes at least the publication of prices for standard services. Without prejudice to the regulatory authorities’ (where Member States have so provided) or the Member States’ right and obligation to decide whether negotiated or regulated TPA should be applied, in the view of the Commission’s services, this could be determined along the lines of the following indicative principles:

1488

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

–

Existence of a flexibility market. Does effective competition between facilities or between facilities and other flexibility services in the market area exist? Is there competitive pressure between storage facilities or between facilities and other flexibility services such that efficient tariffs, products, product variety and access to the services offered is a result of market mechanisms? Such an outcome would normally require a sufficient number of independent providers of storage services.

–

Effective access to storage. Is there a high proportion of storage capacity booked long-term without having previously been allocated in a non-discriminatory manner, and is only a comparatively small amount of capacity offered to the market each year?

–

Degree of dispersion of storage clients. Is capacity largely booked by one or very few large undertakings? Are storage pricing and the access regime distorted by such concentrated interest and does it thus not result in efficient use of the storage?

Barriers to entry into the storage market can be a relevant criterion for opting for either negotiated or regulated TPA. Such barriers can be technical, administrative or economic in nature. Technical barriers would exist if all potential storage fields have been explored, leaving no additional geological potential. Administrative barriers could exist if necessary permits cannot realistically be obtained. Economic barriers could exist if the cost structures of possible new storages were substantially higher than those of existing ones, or the lumpiness of new storage capacity would make their development uneconomic. Analysis of such economic barriers needs to take into account the demand for storage as high demand may result in lower economic barriers. High entry barriers would normally be likely to prevent the emergence of a competitive market, except if the existing capacity is sufficient to cover all the market demand at a reasonable price. A finding of low entry barriers still requires an assessment of the timeliness of such entry. Storage capacity that may enter the market in five years’ time does not necessarily constrain the existing market players in the meantime. In such cases, it might stimulate investment in new storages if the requirements for the future replacement of a regulated access system by a negotiated one were laid down in a transparent manner.

1489

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

6.2.3. Definition of criteria The definition of criteria as required in Article 33(1) Gas Directive therefore consists at least of the following: –

An analysis of the availability and need for (different types of ) flexibility for gas supply;

–

An analysis of the available instruments to meet the different types of flexibility;

–

A checklist according to which the access regime is determined.

6.3 Access obligations Irrespective of the system chosen (negotiated or regulated), it has to operate in accordance with the specific requirements established by the Gas Regulation and be objective, transparent and non-discriminatory. These conditions refer to the access regime itself and should not be confused with the criteria that need to be established in order to determine the access regime. ‘Objective’ in this respect means that the criteria for access have to relate to the factual characteristics of the storage facilities, such as existing technical features or quality requirements. They have to be comprehensible for any third party and need to be technically justified. ‘Transparent’ means that all criteria have to be published ex ante, in order to allow a third party to evaluate the technical and economic consequences of TPA to storage facilities. They also have to allow insight into derivation of the criteria, i.e. the underlying technical and economic reasons for establishing them. ‘Non-discriminatory’ means that the SSO provides the same objective service on equal terms to all customers, whether affiliated undertakings or third parties. This non-discrimination obligation would equally cover pricing and other access conditions. The precise requirements regarding the offering of TPA services, how to allocate capacity and how to deal with congestion, as well as the requirements on transparency of the use of the storage facilities and the trading of storage capacity rights, are laid down in Articles 15, 17, 19, 20 and 22 of the Gas Regulation. 1490

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

7. STORAGE AND SECURITY OF SUPPLY OBLIGATIONS Should a Member State decide to maintain a gas reserve in a storage that cannot be used for commercial purposes but is left aside for exceptional emergencies (e.g. strategic storages or strategic stocks), such storage is still considered a storage facility under the definition of the Gas Directive. The Directive does not provide for special treatment of such storages but it allows Member States to take such measures under Article 3(2) Gas Directive under strict conditions, requiring a notification to the Commission under Article 3(11) Gas Directive. Further requirements for such measures are laid down in Council Directive 2004/67/EC concerning measures to safeguard security of natural gas supply, to ensure that they do not distort competition and are not discriminatory. It has to be noted that the Commission has proposed a Regulation on security of gas supply [COM(2009) 363] to replace this Directive.

8. TRANSPARENCY Whereas most rules in the Gas Regulation apply only to storage facilities that grant regulated or negotiated access (cf. Article 1 Gas Regulation), this is not the case for rules on transparency regarding use, availability, and gas in stock, as laid down in Article 19(4) Gas Regulation. As explicitly stated in that Article, this obligation applies to all storage facilities, regardless of whether or not TPA is in place. Pursuant to Article 19(4) Gas Regulation, in cases where there is only one storage user, certain transparency requirements do not apply, if the NRA has found that confidentiality interests prevail over market transparency, in accordance with the procedure laid down in this provision. The TSO still has to include information on such a storage facility in its aggregated information, except in cases where the aggregated data are identical to the data of the individual storage facility, i.e. when the storage facility is the only storage facility in the system. If storage facilities are offered jointly, for example in the case of a virtual offering of storage based on multiple individual storage facilities, this would entail an obligation to publish the required data on an aggregated basis. Transparency is key, which is why it is mentioned explicitly in Article 41(1)(i) of the Gas Directive as a task for NRAs to monitor: Monitoring the level of transparency […], and ensuring compliance of natural gas undertakings with transparency obligations. 1491

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

9. REFUSAL OF ACCESS Under Article 35 of the Gas Directive, access to storage facilities can be refused on the same grounds as access to the network system, i.e. lack of capacity, public service obligations (PSOs) and take-or-pay problems. A number of conditions must be met if it is to be ensured that any refusal is compatible with the overall objectives of the Directive. In order to justify refusal of access to storage facilities on the grounds of lack of capacity, these conditions are: 1.

Objectivity and transparency. The storage operator must comprehensibly prove that no capacity is available. Minimum requirements for such proof would include regularly published data on available capacity (injection, withdrawal, volume) over a certain period of time, including historical data and distinguishing, as the case may be, between firm and interruptible storage capacity. The data should show that the entire working capacity of the storage facility concerned is contractually booked (no availability of firm capacity) or physically used (no availability of interruptible capacity).

2.

Non-discrimination. This means that the outcome of a request for access to storage submitted to an SSO or a combined operator running a storage facility would be the same (i.e. refusal on the grounds of lack of capacity), no matter who is behind the third party submitting a request (a marketing affiliate of the SSO or a company not related to the SSO). It also means that a change in terms of available capacities would be made known to all parties concerned/interested in a non-discriminatory manner, so that all parties concerned/interested would be able to submit their request under a non-discriminatory capacity allocation mechanism.

3.

Depending on the situation in each Member State, a Member State may take measures necessary to ensure that lack of capacity is remedied through cost-efficient measures, as laid down in Article 35(2) Gas Directive. Under this provision, Member States may decide that an SSO cannot refuse access on grounds of lack of capacity, if the required capacity could be provided by enhancements. This requires that such enhancements are economically feasible or that a potential customer is willing to pay for them.

1492

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

A clear and transparent definition of PSOs, as required by Article 3(2) Gas Directive, in terms of storage capacities is considered an indispensable prerequisite for refusal of access to storage facilities on grounds of PSOs. If PSOs are not in line with the requirements of Article 3(2) Gas Directive, as well as the proposed Security of Gas Supply Regulation, they cannot constitute grounds for refusing access to storage. In that respect, it should also be taken into account whether the relevant PSOs (for example for security of supply) could be achieved by using other instruments, such as, in the case of security of supply, supply flexibility, spot markets or interruptible contracts, provided this can economically be justified. In determining the storage needs for fulfilling PSOs, there must be no discrimination against newcomers, i.e. new market entrants taking PSOs must be given the same right and their storage needs for PSOs must be taken into account in the same manner as for the incumbent companies. In view of the separation between supply and storage functions, TPA to storage is not likely to be refused on grounds of take-or-pay obligations.

1493

Appendix 11 SWP 2009/73/EC – Third-party access to storage facilities

Notes 1

Directive 2009/73/EC of the European Parliament and of the Council concerning common rules for the

2

Regulation EC No 715/2009 of the European Parliament and of the Council on conditions for access to the

internal market in natural gas and repealing Directive 2003/55/EC, OJ L 211, 14.8.2009, p. 94. natural gas transmission networks and repealing Regulation (EC) No 1775/2005, OJ L 211, 14.8.2009, p. 36. 3

Of course, this does not mean that TSOs are precluded from resorting to storage facilities within the scope

4

Article 19(4) of the Gas Regulation concerns transparency in storage capacity and use. It applies to all stor-

5

See for further details on the Commission services’ interpretation of the unbundling rules the Commis-

of the definition for balancing operations. age facilities, including those where access is not economically or technically necessary. sion Staff Working Paper: Interpretative Note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas — The unbundling regime, 22 January 2010 (http://ec.europa.eu/energy/gas_electricity/ interpretative_notes/interpretative_note_en.htm). 4

Article 19(4) of the Gas Regulation concerns transparency in storage capacity and use. It applies to all storage facilities, including those where access is not economically or technically necessary.

5

See for further details on the Commission services’ interpretation of the unbundling rules the Commission Staff Working Paper: Interpretative Note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas — The unbundling regime, 22 January 2010 (http://ec.europa.eu/energy/gas_electricity/ interpretative_notes/interpretative_note_en.htm).

6

This excludes, for instance, personnel working for the supply business having privileged access to databases containing information which could be commercially advantageous, such as details on actual or potential storage users.

7

Recital 23 of the Gas Directive explains: ‘It is also necessary to increase transparency in respect of the storage capacity that is offered to third parties, by obliging Member States to define and publish a non-discriminatory, clear framework that determines the appropriate regulatory regime applicable to storage facilities. That obligation should not require a new decision on access regimes but should improve the transparency regarding the access regime to storage. …’

8

This need for flexibility is expected to increase due to the complementarity of wind and gas-fired power production.

1494

Appendix 12 SWP 2009/73/EC – Retail markets

Appendix 12 Commission staff working paper Interpretative note on directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas Retail markets

Contents 1.

Introduction

2.

Retail markets

3.

National regulatory authorities

4.

Consumer protection

4.1. 4.2. 4.3. 4.4. 4.5. 4.6. 4.7. 4.8.

Licensing and authorisation regimes Access to consumer information Billing information and obligations relating to switching processes Vulnerable customers Single points of contact, complaints and dispute settlement European Energy Consumer Checklist Implementation of intelligent metering systems Smart grids 1495

Appendix 12 SWP 2009/73/EC – Retail markets

5.

Closed distribution systems

5.1. Background 5.2. What can constitute a closed distribution system 5.3. Not a separate category of systems 5.4. Specific exemptions

RETAIL MARKETS

1. INTRODUCTION Extensive amendments have been made to the provisions of Article 3 and Annex I of both the Electricity1 and Gas Directives2 with regard to consumer protection. In addition, Articles 36 and 37 of the Electricity Directive and Articles 40 and 41 of the Gas Directive assign new objectives, duties and powers to national regulatory authorities and Articles 40 and 41 respectively of the Electricity and Gas Directives introduce new rules on the functioning of the retail market. This note provides further information to guide the implementation of measures in the new Electricity and Gas Directives relating to retail market issues. It outlines the new consumer protection measures that are included in the legislation; describes the new roles and duties of regulators; provides direction for the long-term assessment of the cost-benefit analyses that may be carried out on the implementation of intelligent metering systems (smart meters); and provides guidance on closed distribution systems. The note sheds light on the Commission’s services understanding of how the provisions of the Electricity and Gas Directives are to be interpreted. It aims to enhance legal certainty but does not create any new legislative rules. In any event, giving binding interpretation of European Union law is ultimately the role of the European Court of Justice. For the purpose of this note, the terms consumer and customer are used interchangeably. The present note is not legally binding.

1496

Appendix 12 SWP 2009/73/EC – Retail markets

2. RETAIL MARKETS Member States must ensure that the roles and responsibilities of energy undertakings, for example distribution system operators and suppliers, are defined with respect to contractual arrangements, commitment to customers, data exchange and settlement rules, data ownership and meter responsibility (Article 41 of the Electricity Directive, Article 45 of the Gas Directive). These rules should specify which entity has responsibility for the roll-out of smart meters and address issues such as confidentiality of consumer data. The rules should be defined so as to facilitate consumers’ understanding of the retail market and the entry of new suppliers. The rules must be subject to review by national regulatory authorities and other relevant national authorities. Given the national regulatory authorities’ general objective of promoting competitive, secure and environmentally sustainable internal energy markets, their review of the rules would be essential. Other relevant national authorities may also be consulted. Ultimately, in a single market, roles and responsibilities should converge across Member States. Given the national regulatory authorities’ new roles and objectives with regard to protecting consumers and promoting competition, it is reasonable to assume that their review is central to producing rules that satisfy the requirements of the Directives (Articles 36 and 37 of the Electricity Directive, Articles 40 and 41 of the Gas Directive).

3. NATIONAL REGULATORY AUTHORITIES National regulatory authorities have been given the considerably enhanced role of ensuring that customers benefit from the efficient functioning of their national market, promoting effective competition and helping to ensure consumer protection (Article 36(g) of the Electricity Directive, Article 40(g) of the Gas Directive). This provision requires working closely with other national organisations responsible for the protection of consumers, such as consumer bodies and competition authorities, to ensure that consumer protection measures, including those outlined in Annex I to the Electricity and Gas Directives, are effective. The Commission’s services consider that this interaction should, as a minimum, take the form of open and transparent public consultation between the relevant bodies and provide for the capacity to share information. Interaction between the organisations should be reinforced by legislation, where appropriate, in order to facilitate the sharing of confidential information and market investigations. 1497

Appendix 12 SWP 2009/73/EC – Retail markets

In fulfilling their enhanced role, national regulatory authorities will have a duty to monitor the effectiveness of market opening and competition at the retail level (Article 37(1)(j) of the Electricity Directive, Article 41(1)(j) of the Gas Directive). This should take place across a range of indicators that will promote the active monitoring of retail markets by national regulatory authorities. If the national regulatory authority does not have competence for the enforcement of competition law, it will have to work in close cooperation with the relevant competition authorities and financial regulators. Part of the monitoring work that will have to be carried out by the national regulatory authority is in relation to its examination of supply prices to determine whether or not they are consistent with Article 3 of the Electricity and Gas Directives, i.e. whether they are the minimum necessary to protect consumers, vulnerable or otherwise, while not inhibiting effective competition in the market (Article 37(1)(o) of the Electricity Directive, Article 41(1)(o) of the Gas Directive). Where supply prices are clearly anti-competitive, for example because they deter market entry by negatively affecting the ability of entrants to acquire a viable customer base, it should be reported to the appropriate national authority for remedial action. As part of this examination, it will be for the regulator to determine whether prices are reasonable, easily and clearly comparable, transparent and non-discriminatory. In this context, such prices should be consistent with a competitive market outcome. Collectively, the duties and powers of national regulatory authorities broaden the role of the regulators to include additional monitoring and regulation of the operation of the internal energy market.

4. CONSUMER PROTECTION 4.1. Licensing and authorisation regimes In line with Article 56 of the Treaty on the Functioning of the European Union on the freedom to provide services, consumers in one Member State have the right to be supplied with energy by a supplier who is registered in another Member State (Article 3(4) of the Electricity Directive, Article 3(5) of the Gas Directive) as long as the supplier follows the applicable trading and balancing rules for electricity and gas, and the security of supply requirements for gas. With regard to those Member States that do not have formal licensing regimes, the provisions also apply to other authorisation procedures that allow undertakings to supply 1498

Appendix 12 SWP 2009/73/EC – Retail markets

energy. These provisions should encourage Member States to have due regard to licensing, authorisation and registration systems in other Member States in an attempt to avoid restrictions on trade and assist in the harmonisation of retail markets in line with the Regional Initiatives, which were established as an interim step towards creating a single electricity and gas market. The Agency for the Cooperation of Energy Regulators should report on progress on these matters as part of its obligations under Article 11 of Regulation (EC) No 713/20093. 4.2. Access to consumer information As a means of improving customers’ ability to switch supplier, customers are entitled to receive all consumption data in an easily understandable harmonised format (Article 3(5) of the Electricity Directive, Article 3(6) of the Gas Directive). The data that should be considered to be relevant for the purposes of this Article include all information that a consumer would need either to assess his or her own consumption pattern or compare his or her consumption costs with offers provided by other suppliers. This does not imply that customers must receive the data, they are entitled to receive the data in a non-discriminatory manner as regards costs, effort or time if they choose to request it. Annex I to both the Electricity and Gas Directives further elaborates on this provision of information to consumers. In addition to consumers being entitled to receive their consumption data from electricity and gas undertakings, they are also permitted to allow any registered supply undertaking to have access to their consumption data (Annex I(h) of the Electricity Directive, Annex I(h) of the Gas Directive). This service is to be provided free of charge for consumers. The term ‘registered supply undertaking’ should be interpreted as an undertaking licensed or otherwise authorised to supply energy. It is the task of the national regulatory authority to provide an easily understandable harmonised format for the consumption data (Article 37(p) of the Electricity Directive, Article 41(q) of the Gas Directive). Taken together, these new provisions of Article 3 and Annex I are designed to make it easier for consumers to understand their own consumption, use this information either to compare it with offers from other energy suppliers, or to allow other suppliers to have access to their consumption data so as to provide them with a new offer of supply.

1499

Appendix 12 SWP 2009/73/EC – Retail markets

4.3. Billing information and obligations relating to switching processes Annex I(1)(i) states that consumers must be properly informed of actual electricity/gas consumption and costs frequently enough to enable them to regulate their own electricity/gas consumption. The Commission services note that the introduction of appropriate smart meters would greatly assist the fulfilment of this obligation. Annex I also points out that consumers must be offered a wide choice of payment methods, which do not unduly discriminate between customers. Furthermore, prepayment systems must be fair and adequately reflect likely consumption. These provisions are intended to ensure that consumers do not pay an excessive amount as part of a regular payment system and that consumers have access to a range of methods for payment. It is reasonable to assume that consumers should have access to systems that are paid in arrears or in advance and are accessible to all consumers, including those without bank accounts or access to the internet. In addition to a consumer having the right to switch supplier within three weeks, while respecting contractual conditions (Article 3(5)(a) of the Electricity Directive, Article 3(6)(a) of the Gas Directive), consumers must receive a final closure account following any change of electricity or gas supplier no later than six weeks after the change of supplier has taken place (Annex I(1)(j) of the Electricity Directive, Annex I(1)(j) of the Gas Directive). 4.4. Vulnerable customers There is an obligation on Member States to define the concept of vulnerable customers (Article 3(7) of the Electricity Directive, Article 3(3) of the Gas Directive). To fulfil this requirement, Member States must define the categories of consumer that will qualify as vulnerable customers. It is anticipated that the actual number of consumers that fall within the category of vulnerable customers will be quite low. It would be reasonable to assume that disabled or elderly consumers could qualify as being vulnerable but not all consumers within these groups should be considered vulnerable, for example those with high incomes. The protection of vulnerable customers may refer to a prohibition of disconnection at critical times. For example, elderly consumers on an extremely low income may be considered to be vulnerable during a severe winter if they use electricity to heat their home. The prohibition may take the form of a licence condition or obligation.

1500

Appendix 12 SWP 2009/73/EC – Retail markets

Article 3 notes that social policy and energy policy, including energy efficiency measures, can interact to protect vulnerable customers. However, it is not the intention that energy policy should in any way substitute for the protection of vulnerable customers through social policy. Crucially, any measures taken to protect consumers through the energy market must not interfere with either market opening or the functioning of the market. Any measures taken must be notified to the Commission. 4.5. Single points of contact, complaints and dispute settlement In order to build confidence among consumers so that they will actively participate in the internal energy market, it is vital that their concerns and complaints are dealt with in a transparent, effective and non-discriminatory manner. To this end, Member States must ensure that there is an independent mechanism, such as an energy ombudsman or consumer body, to deal efficiently with complaints and facilitate out-of-court dispute settlements (Article 3(13) of the Electricity Directive, Article 3(9) of the Gas Directive). Under Annex I(1)(f ), consumers must benefit from transparent, simple and inexpensive procedures for dealing with their complaints. This should include a good standard of complaint handling by their energy service providers. Out-ofcourt dispute settlements should be completed within three months. Member States must ensure that suppliers effectively communicate to consumers their rights, including information on alternative dispute settlement procedures. Member States should have regard to best practices in complaint handling, in particular in relation to those systems that are available free of charge. To avoid consumers becoming confused when dealing with the various agents involved in the supply of energy, Member States must ensure that there are single points of contact to provide consumers with all necessary information on their rights and how they can have access to the relevant dispute settlement procedure (Article 3(12) of the Electricity Directive, Article 3(9) of the Gas Directive). 4.6. European Energy Consumer Checklist As a means of providing consumers with practical information relating to energy consumer rights, Member States are to ensure that the European Energy Consumer Checklist as prepared by the Commission is effectively communicated to all consumers (Article 3(16) of the Electricity Directive, Article 3(12) of the Gas Directive). The Checklist has been discussed at the Citizens’ Energy 1501

Appendix 12 SWP 2009/73/EC – Retail markets

Forum in London4. The Checklist responses that are prepared by Member States should answer all practical questions that a consumer might have in relation to their local retail energy market. So that the responses are meaningful, Member States should ensure that they are clear, concise and comprehensible. Although there is no legal duty to notify the Checklist answers to the Commission, the implementation of the Checklist will be reviewed in the context of the Citizens’ Energy Forum. 4.7. Implementation of intelligent metering systems An intelligent metering system or ‘smart meter’ is an electronic device that can measure the consumption of energy, adding more information than a conventional meter, and can transmit data using a form of electronic communication. A key feature of a smart meter is the ability to provide bi-directional communication between the consumer and supplier/operator. It should also promote services that facilitate energy efficiency within the home. The move from old, isolated and static metering devices towards new smart/active devices is an important issue for competition in energy markets. The implementation of smart meters is an essential first step towards the implementation of smart grids4. It has been noted in the Commission’s Benchmarking Reports5 on the internal market for electricity and gas that switching levels are relatively low, even in some of the more established markets. This indicates that there may still be barriers to consumers’ effective participation in the market. There is evidence that consumers are willing to switch when given access to sufficient, accurate and timely information on the benefits of their participation. Therefore, the current perceived transaction cost of switching needs to be addressed. An appropriate solution would be the widespread roll-out of smart meters as a means of facilitating consumers’ participation in the retail market. Under the Electricity and Gas Directives, Member States must ensure the implementation of intelligent metering systems that help consumers to participate actively in the electricity and gas supply markets (Annex I(2) of the Electricity and Gas Directives). Therefore, the technology chosen must facilitate the consumer’s active participation in the electricity and gas supply market. As such, the ownership of the meter is a key consideration and must not inhibit the development of retail market competition. The implementation of such metering systems may be subject to an economic assessment of all the long-term costs and benefits to the market and the individual consumer or of which form of intelligent metering is economically reasonable and cost-effective and which time1502

Appendix 12 SWP 2009/73/EC – Retail markets

frame is feasible for their distribution. This assessment must be completed by 3 September 2012. For consumers and the operation of the retail market, there are a number of benefits associated with the roll-out of smart meters that the Commission considers should be covered by the economic analysis, including: –

improved retail competition;

–

energy efficiency and energy savings;

–

lower bills due to better customer feedback;

–

new services for consumers, including vulnerable consumers;

–

improved tariff innovation with time of use tariffs;

–

accurate billing;

–

reduced costs and increased convenience for pre-pay;

–

less environmental pollution due to reduced carbon emissions; and

–

the facilitation of microgeneration, including renewable generation.

This is not an exhaustive list of potential benefits. Smart metering would also bring benefits to the energy companies in the form of reduced management costs in terms of manual meter reading and less significant debt handling costs; more efficient network operation and management; and reduced levels of fraud. With regard to the frequency of meter reading, it should be noted that consumers must be properly informed of actual energy consumption and costs frequently enough to enable them to regulate their own consumption (Annex I(1) (i) of the Electricity and Gas Directives). The Commission’s services consider that receiving information on a monthly basis would be sufficient to allow a consumer to regulate his consumption. When carrying out an economic assessment, Member States should have regard to appropriate pilot programmes that have already implemented smart meters. Where an economic assessment of the long-term costs and benefits has been made, at least 80% of those consumers who have been assessed positively, have to 1503

Appendix 12 SWP 2009/73/EC – Retail markets

be equipped with intelligent metering systems for electricity by 2020. In reply to a request for clarification on the scope of the 80% target for smart meters in Annex I to the Electricity Directive, the Commission issued a Declaration6 to the effect that it is understood that where no economic assessment of the long-term costs and benefits is made, at least 80% of all consumers have to be equipped with intelligent metering systems by 2020 (Annex I(2) of the Electricity Directive). With regard to gas, although there is no specific target date for the implementation of smart metering, it should be achieved within a reasonable period of time (Annex I(2) of the Gas Directive). Member States must have regard to the interoperability of smart meters in their jurisdiction when implementing these provisions. They must also apply appropriate standards and best practices and have due regard to the importance of developing the internal market for energy. When considering issues relating to the implementation of smart meters, Member States should have due regard to the confidentiality of consumer information as provided for in Article 16 of the Treaty of the Functioning of the European Union. 4.8. Smart grids The Commission’s services consider that the implementation of more active transmission and distribution systems in the form of smart grids is central to the development of the internal market for energy. The development of technology to deliver more efficient management of networks is more commonly known as smart grids. The new systems will improve efficiency, reliability, flexibility and accessibility and are the key next steps in the evolution of the internal market in energy. Member States are encouraged to modernise distribution networks, for example through the introduction of smart grids, which should be built in a way that encourages decentralised generation and energy efficiency. In order to promote energy efficiency, Member States or, where a Member State has so provided, the regulatory authority must strongly recommend that electricity and gas undertakings optimise the use of energy, for example by providing energy management services, developing innovative pricing formulas, or introducing intelligent metering systems or smart grids, where appropriate (Article 3(11) of the Electricity Directive, Article 3(8) of the Gas Directive).

1504

Appendix 12 SWP 2009/73/EC – Retail markets

Such encouragement is reinforced by the revised objectives and duties of national regulatory authorities, who are responsible for promoting a competitive, secure and environmentally sustainable internal market in electricity/gas within the European Union and effective market opening for all customers and suppliers in the European Union, and for ensuring appropriate conditions for the effective and reliable operation of electricity/gas networks, taking into account long-term objectives (Article 36(a) of the Electricity Directive, Article 40(a) of the Gas Directive). Relevant long-term objectives are European targets for the share of energy from renewable sources in final energy consumption, energy efficiency improvements and greenhouse gas emission reductions. When considering issues relating to the implementation of Smart Grids, Member States should have due regard to the confidentiality of consumer information as provided for in Article 16 of the Treaty of the Functioning of the European Union.

5. CLOSED DISTRIBUTION SYSTEMS 5.1. Background Following the judgment of the European Court of Justice in Citiworks (Case C-439/06) there was concern that undifferentiated application of rules relating to the obligations of distribution system operators (DSOs) could result in unnecessary administrative burdens where the nature of the relationship between the distribution system operator and the users of the system was very different to that which prevails on the ‘public’ grid. In recognition of these concerns, Article 28 of the Electricity and Gas Directives allow Member States to permit competent authorities to classify individual distribution systems as closed distribution systems when certain conditions are met. The decision as to whether it is necessary to do so remains a matter for each Member State, taking into account local circumstances. Where such a classification is provided for, the national regulatory authority may modify the regulatory regime applying to the DSO in a number of ways. These are discussed below.

1505

Appendix 12 SWP 2009/73/EC – Retail markets

5.2. What can constitute a closed distribution system? As noted, the rationale for modifying the regulatory regime applying to closed distribution systems has to do with the particular relationship between the DSO and the system users. This requires clear criteria to be applied to establish whether such a relationship exists before a system is classified as a closed distribution system. These criteria are set out in Article 28(1) of the Electricity and Gas Directives. The first point is that the closed distribution system must be located on a geographically confined site. This distinguishes it from the general public network. It also means that it would not be possible, in general, for users located outside the site to be connected to the closed distribution system. Secondly, the site should be an industrial, commercial or shared services site. In recitals 30 of the Electricity Directive and 28 of the Gas Directive a number of possible examples of such sites are given, including hospitals and chemical industry sites. It is not necessary for the site to have a commercial function — as indicated by the inclusion of hospitals among the examples — but the site cannot be for supplying household customers. Incidental use by a household is covered in Article 28(4). Only incidental use of the closed distribution system by households having an employment or similar relationship with the owner of the site is compatible with the classification of the system as a closed distribution system. In particular, the total number of households must be small. The definition of what constitutes a relationship similar to an employment relationship depends on the precise circumstances, in particular the historical relationship between the owner and the users of the system, for example where a company which has developed a distribution system solely for its own operations later splits into several separate companies. Finally, the site must meet one of two further criteria set out in Article 28(1) to be classified as a closed distribution system. These are either (1) for specific technical or safety reasons, the operations or the production process of the users of the system are integrated; or (2) the system distributes electricity primarily to the owner or operator of the system or their related undertakings. Criterion (1) captures situations where several companies jointly use a distribution system which optimises an integrated energy supply, or requires specific technical, safety or operational standards. This is particularly common in in1506

Appendix 12 SWP 2009/73/EC – Retail markets

dustrial sites where, for example, heat from electricity generation is used in the production process of other users of the system. Another reason could be where it is necessary for the users of the site to operate to different reliability standards than those applying on the public grid, for example in relation to frequency. The interrelationship between the operations of the users of such systems means that it should be possible for them to reach an agreement to ensure that externalities associated with their operations are properly taken into account. It is for Member States to define precisely the circumstances where this criterion would be met. Criterion (2) allows a modified regulatory regime to be put in place where an undertaking has allowed users to connect to a system which was developed for the undertaking’s own use. Generally, this should be understood as excluding, for example, commercial property developments such as office blocks or shopping centres which are not primarily used by the owner or operator of the distribution system (insofar as they can be considered as constituting a distribution system). 5.3. Not a separate category of systems An important point to note is that closed distribution systems are distribution systems and do not constitute a new and separate category of systems. Therefore the general obligations that apply to DSOs also cover closed DSOs. In particular, the obligation to grant third-party access to the system also applies to closed DSOs. By creating a sub-category of closed DSOs, the Electricity and Gas Directives recognise that the circumstances prevailing for such systems may differ from those pertaining to ‘public’ grids. It follows that where there is an obligation on Member States to develop rules applying to DSOs they may design targeted and proportionate rules for closed DSOs that take into account their particular circumstances. This is particularly important as the precise nature of many obligations on system operators is set by Member States and not directly laid down in the Electricity or Gas Directives. For example, Article 5 of the Electricity Directive requires Member States or national regulatory authorities to ensure that technical safety criteria are defined and that technical rules establishing the minimum technical design and operational requirements for the connection to the system are developed. 1507

Appendix 12 SWP 2009/73/EC – Retail markets

Closed distribution systems may require that such provisions are targeted to account for their particular circumstances, for example in relation to the interoperability requirements between a closed distribution system and DSOs or TSOs. Similarly, the considerations of efficiency and economic balance in relation to the designation of DSOs in Article 24 of the Electricity Directive may differ between closed DSOs and other systems. With the aim of facilitating customers’ and suppliers’ access to networks, and ensuring effective third-party access to closed distribution systems, it may also be necessary for Member States to clearly define particular roles and responsibilities in relation to closed distribution systems when implementing Article 41 of the Electricity Directive and Article 45 Gas Directive. Due to the fact that they operate on confined geographic sites serving only nonhousehold customers, closed DSOs will not have more than 100000 customers. It will therefore be open to Member States to apply the provisions of Article 26(4) of the Electricity and Gas Directives, which allow Member States not to require that such DSOs be unbundled. 5.4. Specific exemptions Where a Member State has provided for the classification of a closed distribution system, it may also allow the national regulatory authority to exempt the closed DSO from specific provisions of the Directive. The most important of these, applying to both electricity and gas, is the provision in Article 28(2) allowing exemption from the requirement that tariffs, or the methodologies underlying their calculation, are approved prior to their entry into force. This is an extremely important exemption as it allows the users and the owners or operators of closed distribution systems to reflect the particular nature of their relationship and take account of the impact of interdependencies in their operations. In relation to electricity, Article 28(2)(a) of the Electricity Directive allows the national regulatory authority to exempt the closed DSO from the obligations of Article 32(1) of the Electricity Directive to procure the energy it uses to cover energy losses and reserve capacity in its system according to transparent, nondiscriminatory and market-based procedures. 1508

Appendix 12 SWP 2009/73/EC – Retail markets

5.5. Review procedure for negotiated tariffs Access to an independent review of tariffs is essential if the normal regulated third-party access scheme is modified. This allows users to be confident that they will be fairly treated, and avoids the delays and uncertainty associated with legal proceedings. Such a review mechanism is provided for in Article 28(3). Regulators must have the appropriate range of powers and duties, and the associated expertise necessary to carry out this task efficiently and effectively. Article 28(3) requires that, upon request by a user of the closed distribution system, national regulatory authorities must review tariffs in line with their powers and duties set out in Article 37 of the Electricity Directive and Article 41 Gas Directive. This ensures that the interests of all parties, including the closed DSO, are properly taken into consideration when reviewing the closed DSO’s tariffs. This provides important safeguards both for the user of the closed distribution system and for the system operator. Without prejudice to the general requirement that the national regulatory authority take into account the specific facts of any dispute brought before it, it should be possible for national regulatory authorities to establish a general framework to apply when requested to review tariffs of closed DSOs. This could reduce what might otherwise become an onerous requirement on national regulatory authorities as it is possible that there will be a significant number of closed distribution systems in Member States.

Notes 1

Directive 2009/72/EC of the European Parliament and the Council of 13 July concerning common rules

2

Directive 2009/73/EC of the European Parliament and the Council of 13 July concerning common rules

3

Regulation (EC) No 713/2009 of the European Parliament and the Council of 13 July 2009 establishing an

4

See section 4.8 below.

5

The Commission’s Benchmarking Reports can be found at: http://ec.europa.eu/energy/gas_electricity/

6

Council document 10814/09 ADD 1 REV 1.

for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55). for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 221, 14.8.2009, p. 94). Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1).

benchmarking_reports_en.htm.

1509

Appendix 13 SWP 2009/72/EC – The regulatory authorities

Appendix 13 Commission staff working paper Interpretative note on Directive 2009/72/EC concerning common rules for the internal market in electricity and Directive 2009/73/EC concerning common rules for the internal market in natural gas The regulatory authorities Contents 1.

INTRODUCTION

2.

DESIGNATION AND INDEPENDENCE OF THE REGULATORY AUTHORITY

2.1. Designation of a single regulatory authority 2.2. Independence of the national regulatory authority (NRA) 3.

GENERAL OBJECTIVES OF THE REGULATORY AUTHORITY

4.

DUTIES AND POWERS OF THE REGULATORY AUTHORITY

4.1. Duties of the regulatory authority 4.1.1. Core duties 4.1.2. Monitoring duties 4.2. Powers of the regulatory authority 5.

ACCOUNTABILITY OF THE REGULATORY AUTHORITY — COMPLAINTS AND LEGAL ACTIONS 1511

Appendix 13 SWP 2009/72/EC – The regulatory authorities

THE REGULATORY AUTHORITIES 1. INTRODUCTION The new Electricity1 and Gas Directives2 have introduced a new set of rules with regard to the national regulatory authorities (NRAs). Article 35 of the Electricity Directive and Article 39 of the Gas Directive enhance the independence of regulatory authorities. In addition, Articles 36 and 37 of the Electricity Directive and Articles 40 and 41 of the Gas Directive provide for NRAs to be assigned new objectives, duties and powers. This note provides further information to guide the implementation of measures in the new Electricity and Gas Directives relating to the NRAs. It will outline the increased independence of NRAs as well as the new duties and powers of regulators. It will also touch upon complaints and legal actions against a decision by the regulator and the accountability of the regulator. The present note sheds light on the Commission’s services understanding of how these provisions of the Electricity and Gas Directives are to be interpreted. The note aims to enhance legal certainty but does not create any new legislative rules. In any event, giving binding interpretation of European Union law is ultimately the role of the European Court of Justice. The present note is not legally binding.

2. DESIGNATION AND INDEPENDENCE OF THE REGULATORY AUTHORITY 2.1. Designation of a single regulatory authority Article 35(1) of the Electricity Directive and Article 39(1) of the Gas Directive stipulate that: ‘Each Member State shall designate a single national regulatory authority at national level’. It is clear that under the new legislation all missions and duties listed in the Electricity and Gas Directives and Regulations3 have to be assigned to a single national regulatory authority. Whereas the wording of the second Electricity and Gas Directives allowed the designation of several regulatory authorities in one Member State, this is not possible anymore under the new Electricity and Gas Directives. It is therefore 1512

Appendix 13 SWP 2009/72/EC – The regulatory authorities

no longer possible for a Member State to designate at national level one regulatory authority to deal with one of the regulatory duties listed in the Electricity and Gas Directives (or Regulations), say network tariffs, and a different (regulatory or other) authority to deal with another duty of the regulatory authority. According to the text of the Electricity and Gas Directives, a single national regulatory authority at national level must be entrusted with all the regulatory duties provided for in the Electricity and Gas Directives. This means that the core duties of the NRA can no longer be split between the NRA and the Ministry. However, some monitoring duties can be carried out by another authority (as will be discussed below). The requirement of having a single national regulatory authority also implies that the same regulatory authority must have the powers to carry-out these duties. In some Member States, the single national regulatory authority is comprised of several bodies (e.g. board, secretariat or chamber). The new requirement of having a single national regulatory authority does not in principle prevent such a structure. The possibility remains to give certain decision-making powers to one body (e.g. director) and other decision-making powers to another body (e.g. board or chamber). However, such structures all need to be integrally part of the single national regulatory authority entrusted with the duties and powers listed in the Electricity and Gas Directives and Regulations and each of these bodies and structures must meet all the independence requirements of the Electricity and Gas Directives. Articles 35(2) of the Electricity Directive and 39(2) of the Gas Directive stipulate that: ‘Paragraph 1 … shall be without prejudice to the designation of other regulatory authorities at regional level within Member States, provided that there is one senior representative for representation and contact purposes at Community level within the Board of Regulators of the Agency in accordance with Article 14(1) of [the ACER Regulation]’. By regional level should be understood a specific region at infra-national level within a federal Member State or an autonomous region within a Member State. This provision acknowledges the fact that some Member States are federal or decentralised States with several regions. Articles 35(3) of the Electricity Directive and 39(3) of the Gas Directive provide for a derogation from Articles 35(1) and 39(1) respectively in the case of small systems on a geographically separate region: ‘a Member State may desig‑ nate regulatory authorities for small systems on a geographically separate region 1513

Appendix 13 SWP 2009/72/EC – The regulatory authorities

whose consumption, in 2008, accounted for less than 3% of the total consumption of the Member State of which it is part’. This could be a regulatory authority within the meaning of the Electricity and Gas Directives and to which appropriate powers and competences could be given. Important in this provision is that the small system must be part of a geographically separate region. The fact that a region has little interconnection with the rest of the country is not itself sufficient to qualify for the derogation. In practice, the requirement of having a small system on a geographically separate region is likely to be met only by islands. 2.2. Independence of the national regulatory authority (NRA) Articles 35(4) of the Electricity Directive and 39(4) of the Gas Directive provide for the following: ‘Member States shall guarantee the independence of the regula‑ tory authority and shall ensure that it exercises its powers impartially and trans‑ parently’. These Articles refer to ‘regulatory tasks conferred upon it by [these] Directive[s] and related legislation’. This phrase is to be understood as the duties and powers under Articles 37 of the Electricity Directive and 41 of the Gas Directive but also as any other duty of the NRA (e.g. for designation and certification of transmission system operators — TSOs — pursuant to Article 10 of the Electricity and Gas Directives and Article 3 of the Electricity and Gas Regulations). 2.2.1. Impartiality Member States must guarantee that the NRA exercises its powers and carries out its duties impartially. Impartiality is aimed at guaranteeing that the NRA acts and takes decisions in a neutral way, based on objective criteria and methodologies. In the view of the Commission’s services this requirement means that Member States must provide for dissuasive civil, administrative and/or criminal sanctions in case of violations of the provisions on impartiality. 2.2.2. Transparency The NRA must also carry out its tasks in a transparent manner. In the view of the Commission’s services this means first that the NRAs must adopt and publish their rules of procedure. These should include at least procedures for decision making. Compliance with the transparency requirement also means that the NRAs must have clear contact points for all stakeholders and publish information on their own organisation and structure. 1514

Appendix 13 SWP 2009/72/EC – The regulatory authorities

A second aspect of transparency, in the view of the Commission’s services, is that the NRAs should consult stakeholders before taking important decisions. This should at least include publishing documents ahead of public consultations and organising public hearings. Preferably this would also include the obligation, for the NRA, to publish a document after public consultation giving an overview of the comments received, of those that were taken into account and the reasons why other comments were not taken into account. Thirdly, decisions of the NRA must be made available to the public (cf. below point 5 on accountability). This will enable the parties affected by a decision and the public to be informed about the reasons why a decision was taken and, hence, become aware of the impartiality with which the NRA fulfils its duties and exercises its powers. 2.2.3. Independence Article 35(4) of the Electricity Directive and Article 39(4) of the Gas Directive spell out in more detail the independence requirements that need to be met by the NRA. Whereas subparagraph (a) refers to the independence of the NRA as an organisation, subparagraph (b) refers to the independence of the NRA staff and persons responsible for its management. Article 35(4)(a) of the Electricity Directive and Article 39(4)(a) of the Gas Directive Pursuant to Article 35(4)(a) of the Electricity Directive and Article 39(4)(a) of the Gas Directive, ‘the regulatory authority is legally distinct and functionally independent from any other public or private entity’ when carrying out the regulatory tasks conferred upon it by the Electricity and Gas Directives. This requirement goes beyond the requirement of independence laid down in the second Electricity and Gas Directives4, which was limited to the electricity and gas industry. Independence in the new legislation concerns not only the electricity and gas industry but also any other public body (including national, local or regional government, municipalities and political organisations or structures) or private body. Legally distinct means that the NRA must be created as a separate and distinct legal entity from any Ministry or other government body. This provision is closely linked to the requirement that the NRA should be able to take autonomous decisions. 1515

Appendix 13 SWP 2009/72/EC – The regulatory authorities

Obviously, the NRA will have to be created in accordance with the constitutional and administrative rules of each Member State insofar as they are consistent with European Union law. Notwithstanding national administrative rules, it is the sole responsibility of the NRA to determine how it operates and is managed, including staffing-related matters. These provisions thus seem to rule out any hierarchical link between the NRA and any other body or institution. Moreover, the NRA can no longer be part of a Ministry. The Commission’s services are of the opinion that e.g. sharing personnel and sharing offices between the NRA and any other (public or private) body is, in principle, not in line with Article 35(4)(a) of the Electricity Directive and Article 39(4)(a) of the Gas Directive. Article 35(4)(b) of the Electricity Directive and Article 39(4)(b) of the Gas Directive Article 35(4)(b) of the Electricity Directive and Article 39(4)(b) of the Gas Directive stipulate the following: Member States shall ensure that, when carrying out the regulatory tasks conferred upon it by this Directive and related legislation, the regulatory authority ensures that its staff and the persons responsible for its management: (i) act independently from any market interest; (ii) and do not seek or take direct instructions from any government or other public or private entity when carrying out the regulatory tasks. This requirement is without prejudice to close cooperation, as appropriate, with other relevant national authorities or to general policy guidelines issued by the government not related to the regulatory powers and duties […].

These provisions on the independence of the NRA’s staff and persons responsible for their management are key requirements because they are aimed at ensuring that regulatory decisions are not affected by political and specific economic interests, thereby creating a stable and predictable investment climate. The aim of the provision is indeed to guarantee that all staff and the persons responsible for the NRA’s management (directors, board members, members of the chamber, etc.) act independently from any market interest (covering both the private and the public sectors) and impartially in the exercise of their powers and the fulfilment of their duties. When taking a decision, NRA’s staff and management must not be inclined to take account of considerations other than the general interest. 1516

Appendix 13 SWP 2009/72/EC – The regulatory authorities

In the view of the Commission’s services, Articles 35(4)(b) of the Electricity Directive and 39(4)(b) of the Gas Directive require Member States to develop rules preventing all staff and the persons responsible for their management from pursuing any activity or holding any position or office with an electricity or gas undertaking, and from holding shares or having any other interests in an electricity or gas undertaking. In the view of the Commission’s services, this obligation does not, however, prevent the persons concerned from taking part in e.g. pension funds or similar investment schemes that might among other things hold shares in electricity or gas undertakings. Apart from the establishment of general rules on the independence of NRA’s staff and persons responsible for their management it is important that the assessment of compliance with the independence criteria is done on a case-by-case basis. For the NRA’s staff, it will be up to the NRA’s management or board to do so; for the NRA’s management or board, it will be up to the competent authorities of the Member State to do so. The new independence requirement applies to all staff and persons responsible for their management, independently of whether the staff and management hold full-time or part-time positions within the NRA, as the text of the Electricity and Gas Directives itself does not provide for such a distinction. In practice, the requirement of having to be independent from any private or public entity may make it impossible for NRA’s staff or management to work part-time for the regulator and part-time in the private or public sector. E.g. an academic could, at first sight, be qualified to act as an independent non-permanent staff or management or board member; however, if the academic also regularly undertakes studies for the energy sector, this could question whether the required independence from any market interest is met. The new legislation also prohibits the NRA’s staff and the persons responsible for its management from seeking or taking direct instructions from any government or other public or private entity. This provision aims to tackle the situation where someone working for the NRA is seeking or taking direct instructions. According to the Commission’s services, this provision also implies that it is forbidden for anyone to give such instructions. An instruction in this context is any action calling for compliance and/or trying to improperly influence an NRA decision and thus includes the use of pressure of any kind on NRA’s staff or on the persons responsible for its management. In the view of the Commission’s services this requires Member States to provide for dissuasive civil, administrative and/or criminal sanctions in case of violation of the provisions on 1517

Appendix 13 SWP 2009/72/EC – The regulatory authorities

independence as well as for any attempts by public and private entities to give an instruction or to improperly influence an NRA decision. The Electricity and Gas Directives do not deprive the government of the possibility of establishing and issuing its national energy policy. This means that, depending on the national constitution, it could be the government’s competency to determine the policy framework within which the NRA must operate, e.g. concerning security of supply, renewables or energy efficiency targets. However, general energy policy guidelines issued by the government must not encroach on the NRA’s independence and autonomy. The provisions on independence do not deprive the NRA of the possibility (and duty) to consult and cooperate with other relevant (national and European) authorities, such as regulatory authorities at regional level or competition authorities. This follows from the text of the Electricity and Gas Directives concerning cooperation at national and supranational level. First, Article 35(4)(b) of the Electricity Directive and Article 39(4)(b) of the Gas Directive state that the NRA’s independence is ‘without prejudice to close cooperation, as appropriate, with other relevant national authorities’. In practice this allows cooperation between the NRA and national competition authorities and, if the case may be, regional regulators. In order to prevent one authority encroaching on the competences of the other authority, Member States should provide for clear arrangements governing cooperation between the different authorities. These arrangements should ideally cover the possibility, as appropriate, to exchange confidential information and provide for the duty to consult the other authority or to ask the other authority for advice. Second, Article 37(2), second subparagraph of the Electricity Directive and Article 41(2), second subparagraph of the Gas Directive state that ‘while preserv‑ ing their independence, without prejudice to their own specific competencies and consistent with the principles of better regulation, the regulatory authority shall, as appropriate, consult transmission system operators and, as appropriate, closely cooperate with other relevant national authorities when carrying out the duties …’ Finally, the Electricity and Gas Directives provide for a duty to collaborate on cross-border issues. Pursuant to Article 38(1) of the Electricity Directive and Article 42(1) of the Gas Directive, NRAs have the duty to closely consult and cooperate with each other and with the Agency, especially on cross-border is1518

Appendix 13 SWP 2009/72/EC – The regulatory authorities

sues. This provision gives the NRA a broad mandate and clear duty to exchange ‘any information necessary for the fulfilment of their tasks’. The text of the Directive gives guidance on the exchange of confidential information in this context: the receiving authority must ensure the same level of confidentiality as that required of the originating authority. According to Article 38(2) of the Electricity Directive and Article 42(2) of the Gas Directive, NRAs shall at least cooperate at a regional level on a certain number of issues. These actions shall, under Article 38(4) of the Electricity Directive and Article 42(4) of the Gas Directive, be carried out in close consultation with other relevant national authorities and without prejudice to their specific competences. Therefore, the NRA must especially be able to exchange confidential information with other authorities, at both national and European level. The cross-border issues referred to in Article 38 of the Electricity Directive and Article 42 of the Gas Directive can extend to arrangements not related directly to interconnectors but that may affect the interaction of competitive markets. One of the general objectives of the NRA is furthermore to promote, in close cooperation with the Agency, regulatory authorities of other Member States and the Commission, a competitive, secure and environmentally sustainable internal market. Article 35(5) of the Electricity Directive and Article 39(5) of the Gas Directive Article 35(5) of the Electricity Directive and Article 39(5) of the Gas Directive provide for two specific sets of rules aimed at protecting the independence of the NRA. These sets of rules are not exhaustive and cannot in themselves guarantee compliance with the general principle of independence laid down in paragraph 4. They require Member States to ensure that: (a) the regulatory authority can take autonomous decisions, independently from any political body, and has separate annual budget allocations, with autonomy in the implementation of the allocated budget, and adequate human and financial resources to carry out its duties; and (b) the members of the board of the regulatory authority or, in the absence of a board, the regulatory authority’s top management are appointed for a fixed term of five up to seven years, renewable once.

1519

Appendix 13 SWP 2009/72/EC – The regulatory authorities

In regard to point (b) of the first subparagraph, Member States shall ensure an appropriate rotation scheme for the board or the top management. The members of the board or, in the absence of a board, members of the top management may be relieved from office during their term only if they no longer fulfil the conditions set out in this Article or have been guilty of misconduct under national law. In the view of the Commission’s services these provisions imply the following: –

The NRA must be able to take autonomous decisions, independently from any political, public or private body. This has consequences ex ante (before a decision is taken) and ex post (after a decision is taken). From an ex ante perspective, this requirement excludes any interference from the government or any other public or private entity prior to an NRA decision. It also implies that if the NRA is to draft a work programme for the coming year(s), it should be able do so autonomously, i.e. without the need for the approval or consent of public authorities or any other third parties. As already indicated, this does not discharge the NRA from complying with the Member State’s energy policy insofar as it is in accordance with European Union law.

–

The ex post aspect of the requirement of having an NRA being able to take independent decisions means that the decisions of the NRA are immediately binding and directly applicable without the need for any formal or other approval or consent of another public authority or any other third parties. Moreover, the decisions by the NRA cannot be subject to review, suspension or veto by the government or the Ministry. This, of course, precludes neither judicial review nor appeal mechanisms before any other bodies independent of the parties involved and of any government (see below point 5).

–

The NRA has separate annual budget allocations. In some Member States, the budget of the regulatory authority is paid directly by the electricity and gas consumers (in which case there is a clear separate annual budget allocation). In other Member States, the budget of the regulatory authority is part of the total State budget. The new legislation continues to allow the regulatory authority’s budget to be part of the State budget; however, there is now a clear need for separate annual budget allocations for the NRA.

1520

Appendix 13 SWP 2009/72/EC – The regulatory authorities

–

The NRA has autonomy in the implementation of the allocated budget. This means that the NRA, and only the NRA, can decide on how the allocated budget is spent. It may neither seek nor receive any instruction on its budget spending.



As stated in recital 34 of the Electricity Directive and recital 30 of the Gas Directive, the approval of the budget of the NRA by the national legislator does not constitute an obstacle to budgetary autonomy. The rules on autonomy in the implementation of the NRA’s allocated budget should be complied with in the framework established by national budgetary law and rules. The Commission’s services are of the opinion that the role of the national legislator, i.e. national parliament, in approving the NRA’s budget is to grant a global financial allocation to the NRA, which should enable the NRA to carry out its duties and exercise its powers in an efficient and effective manner. Criteria to assess this could be the budget of similar regulators or bodies (e.g. national banks) and the budget of NRAs in other Member States. In practice, the NRA will probably propose to the legislator a draft budget — based on a work programme or similar document. Nothing in the Electricity and Gas Directives prevents national parliaments from taking a decision on whether the draft budget proposed by the NRA is, in total, commensurate with the duties and powers of the NRA.



In the view of the Commission’s services it follows from the respective provisions of the Electricity and Gas Directives that the approval of the budget cannot in any way be used as a means of influencing the NRA’s priorities or to jeopardise its ability to carry out its duties and exercise its powers in an efficient and effective manner.



In accordance with the requirement that the NRA exercises its powers transparently, the NRAs must report on the way they spend their budget. Ideally, this reporting will go hand-in-hand with the reporting duty of the regulators under Article 37(1)(e) of the Electricity Directive and Article 41(1)(e) of the Gas Directive: an NRA must report annually on its activity and the fulfilment of its duties to the relevant authorities of the Member States, the Agency and the Commission.

–

The NRA has to have adequate human and financial resources to carry out its duties; as the new European Union rules assign considerably more duties and powers to the NRA, this will affect the human and financial 1521

Appendix 13 SWP 2009/72/EC – The regulatory authorities

resources to be put at the disposal of the NRA. Given the complexity of (energy) regulation, an NRA must be able to attract sufficiently qualified staff with various backgrounds (lawyers, economists, engineers, etc.). –

The members of the board of the NRA are appointed for a fixed term of five to seven years, renewable once. Appointments will have to be made in accordance with the constitutional and administrative rules of the Member State.

–

In principle, the maximum total term of members of the board of the NRA is two times seven years. However, Member States can opt against the possibility for renewal, in which case the maximum term of office is seven years.

–

In principle, those members of the board that have been appointed before the new Electricity and Gas Directives have to be transposed by the Member States finish their term of office provided it does not last longer than seven years. The Commission’s services are of the opinion that the maximum term of a regulator appointed under the independence requirements of the second Electricity and Gas Directives (i.e. before 3 March 2011) is 3 March 2018. Ideally, regulators appointed under the independence requirements of the second Electricity and Gas Directives should be the first ones to participate in the rotation scheme provided for under the new Electricity and Gas Directives. If those regulators meet the new independence requirements, there is nothing that prevents them from being appointed under the new Electricity and Gas Directives.

–

An appropriate rotation scheme for the board is to be put in place. This means that the end date of the term of office of the board members cannot be the same for all members. This could be achieved for instance when the term of office of half of the members of the board ends mid-way through the term of office of the remaining board members.

–

The members of the board may be removed from office during their term only if they no longer fulfil the conditions set out in the Electricity and Gas Directives as regards their independence or have been guilty of misconduct under national law. Although the Electricity and Gas Directives leave room for rules adopted at national or regional level as far as misconduct is concerned, it has to be stressed that the possibility to remove a member of the board during his or her term will apply in special cases 1522

Appendix 13 SWP 2009/72/EC – The regulatory authorities

only, such as fraud, bribery and breaches of the independence or impartiality of the NRA. Member States will organise appropriate rights of defence for the persons concerned. When referring to board members, the Electricity and Gas Directives also use the words ‘persons responsible for its management’ and ‘the regulatory authority top management’ i.e. the persons (typically a limited number of people) who, within the NRA, have the power to take decisions.. Therefore the independence requirements for board members apply to those persons within the NRA having the power to take binding decisions (i.e. probably the members of the board of directors or the members of the management board or, in absence of such a board, the top management). As stated in recital 34 of the Electricity Directive and recital 30 of the Gas Directive, the independence of the NRA precludes neither judicial review nor parliamentary supervision in accordance with the constitutional laws of the Member States. It is the view of the Commission’s services that the power of Member States to appoint members of the board of the NRA, the power to approve the budget and any measure of accountability set up by a Member State should not result in any instruction being given concerning the regulatory powers and duties of the NRA.

3. GENERAL OBJECTIVES OF THE REGULATORY AUTHORITY Articles 36 of the Electricity Directive and 40 of the Gas Directive list the general objectives of the NRA; the NRA must take all reasonable measures in pursuit of these objectives, within the framework of its duties and powers. The specific duties and powers that Member States must grant to the NRA are listed mainly in Articles 37 of the Electricity Directive and 41 of the Gas Directive. These two sets of provisions are complementary: whilst carrying out its duties and exercising its powers, the NRA must follow the general objectives assigned to NRAs. Articles 36 of the Electricity Directive and 40 of the Gas Directive refer to ‘the regulatory tasks specified in this Directive’. The Commission’s services are of the opinion that the general objectives need to be respected by the NRA, also when carrying out duties provided for in Articles other than Articles 37 of the Electricity Directive and 41 of the Gas Directive or duties laid down in the Electricity, Gas or ACER Regulation. 1523

Appendix 13 SWP 2009/72/EC – The regulatory authorities

The list set out in Articles 36 of the Electricity Directive and 40 of the Gas Directive has a clear normative value: in carrying out its regulatory duties and exercising its powers, the NRA has the obligation to take all reasonable measures to implement the list of objectives. The objectives should therefore provide general guidance as regards the performance of the duties and exercise of the powers granted to it. It is important to note that the Electricity and Gas Directives give the NRA a clear European mandate: the NRA must promote a competitive, secure and environmentally sustainable internal market for electricity and gas in the Community. This will require thoughtful consideration at national level. However, Article 36 of the Electricity Directive and Article 40 of the Gas Directive do not as such create general competences for the NRA. For example, point (b) on the development of competitive markets does not entail the competence to apply competition rules, which, as a matter of principle, remain the competence of competition authorities; the reference to energy efficiency in point (d) does not create a general competence as regards the promotion of energy efficiency. The objectives listed in Article 36 of the Electricity Directive and 40 of the Gas Directive can only be pursued by the NRA within the framework of its duties and powers under Articles 37 of the Electricity Directive and 41 of the Gas Directive, and without prejudice to the competences of other authorities.

4. DUTIES AND POWERS OF THE REGULATORY AUTHORITY 4.1. Duties of the regulatory authority Articles 37 of the Electricity Directive and 41 of the Gas Directive are the key Articles that provide for the duties of the NRA. As explained above, they should be understood in conjunction with the general objectives listed in Articles 36 of the Electricity Directive and 40 of the Gas Directive. Some of the duties are to be fulfilled solely by the NRA (core duty); other duties can be carried out by other authorities (see point 4.1.2 below). Article 37(1) of the Electricity Directive and Article 41(1) of the Gas Directive lay down the list of duties of the NRA, thereby giving it specific competences. These duties constitute a minimum set of competences and Member States may give the NRA additional powers to those specified. This list of duties is substantially longer than the list of issues for which the NRA was responsible under the second Electricity and Gas Directives.

1524

Appendix 13 SWP 2009/72/EC – The regulatory authorities

4.1.1. Core duties List of duties The list in Article 37(1) of the Electricity Directive and Article 41(1) of the Gas Directive contains a number of core duties of the NRA. These core duties include: –

duties in relation to tariffs for access to transmission and distribution networks: fixing or approving, in accordance with transparent criteria, transmission or distribution tariffs or their methodologies;

–

duties in relation to unbundling: ensuring that there are no cross-subsidies between transmission, distribution, liquefied natural gas, storage, and supply activities;

–

duties in relation to the general oversight of energy companies: ensuring compliance of transmission and distribution system operators, system owners (where relevant) and electricity or gas undertakings with their obligations under the Directive and other relevant European Union legislation, including as regards cross-border issues;

–

duties in relation to consumer protection: helping to ensure, together with other relevant authorities, that the consumer protection measures, including those set out in Annex I, are effective and enforced; publishing recommendations, at least annually, in relation to compliance of supply prices with Article 3; ensuring access to customer consumption data.

Paragraphs 3 and 5 list specific competences (core duties) of the NRA when, respectively, an independent system operator (ISO) or an independent transmission operator (ITO) has been designated. It is also important to draw attention to Articles 37(1)(d) of the Electricity Directive and 41(1)(d) of the Gas Directive, pursuant to which the NRA must comply with and implement any relevant legally binding decisions of the Agency and the Commission.

1525

Appendix 13 SWP 2009/72/EC – The regulatory authorities

Duties with regard to network tariffs The NRA’s core duty as regards tariffs is stipulated in Article 37(1)(a) of the Electricity Directive and Article 41(1)(a) of the Gas Directive: ‘fixing or ap‑ proving, in accordance with transparent criteria, transmission or distribution tar‑ iffs or their methodologies’. The core task of the NRA relating to the approval of network tariffs is, as in the second Electricity and Gas Directives, further specified in specific provisions, in particular paragraphs 6, 7, 8 and 10. Under Article 37(6)-(7) of the Electricity Directive and Article 41(6)-(7) of the Gas Directive, the NRA must be responsible for fixing or approving sufficiently in advance of their entry into force at least the methodologies used to calculate or establish the terms and conditions for connection and access to national networks, provision of balancing services and access to cross-border infrastructures. It follows from the text of the Electricity and Gas Directives that this provision gives the NRA the duty of fixing or approving not only network tariffs or their methodologies, but also methodologies used to calculate or establish the terms and conditions for connection and access to national networks, the provision of balancing services and access to cross-border infrastructures. Under the second Electricity and Gas Directives, it was possible for the NRA to submit the tariff or the methodology for formal approval to the relevant body of the Member State and for the relevant body to approve or reject the draft NRA decision. This is contrary to the provisions of the new Electricity and Gas Directives, which unequivocally establish that the NRA must be able to take decisions autonomously and that its decisions are directly binding. As a result, it is now up to the NRA alone to fix or approve either the network tariff or the network tariff methodology. These new provisions give Member States four options as regards the way tariffs for network access and balancing services are established: the NRA fixes the tariffs, the NRA fixes the methodology, the NRA approves the tariffs or the NRA approves the methodology. Recital 36 of the Electricity Directive and recital 32 of the Gas Directive mention that the NRA will fix or approve the tariff or the methodology on the basis of a proposal by the TSO or distribution system operator(s) or liquefied natural gas (LNG) system operator(s), or on the basis of a proposal agreed between those operator(s) and the users of the network. This means that the NRA also has the power to reject and amend such proposal. If the NRA is given the power over the methodology (fixing or approving), it is up to the TSOs to calculate the tariffs (which have to be in line with the methodology approved by the NRA). 1526

Appendix 13 SWP 2009/72/EC – The regulatory authorities

The core duties of the NRA as regards network tariffs do not deprive the Member State of the possibility to issue general policy guidelines which ultimately will have to be translated by the NRA into the tariff structure and methodology. However, these guidelines should not encroach on the NRA’s competences or infringe any of the requirements of the Electricity and Gas Directives and Regulations. Although a Member State could e.g. issue a general policy guideline with regard to attracting investments in renewables, the Commission’s services would consider a rule setting the profit margin in the cost-plus tariff as a prohibited direct instruction to the NRA. Article 32(1) of the Electricity and Gas Directives require Member States to ensure that the network tariffs, or the methodologies underlying their calculation, are approved prior to their entry into force and that those tariffs, and the methodologies — where only methodologies are approved — are published prior to their entry into force. It would also make sense for TSOs to have to publish the network tariffs. The new Electricity and Gas Directives also explicitly stipulate that the NRA has the power to fix or approve provisional transmission and distribution tariffs and methodologies (Article 37(10) of the Electricity Directive and Article 41(10) of the Gas Directive). Another new provision on the NRA’s powers regarding tariffs is set out in Article 37(8) of the Electricity Directive and Article 41(8) of the Gas Directive: ‘In fix‑ ing or approving the tariffs or methodologies and the balancing services, the regu‑ latory authorities shall ensure that transmission and distribution system operators are granted appropriate incentive, over both the short and long term, to increase efficiencies, foster market integration and security of supply and support the re‑ lated research activities’. These provisions need to be read in conjunction with the provisions of the Regulations. E.g. on research activities, Article 8(5) of the Electricity and Gas Regulations provide that the annual work programmes of the European Networks of Transmission System Operators (ENTSOs) must contain inter alia research and development activities and that the ENTSOs must adopt research plans on which the Agency provides an opinion. It is therefore important that the duties of the NRA should be coordinated with the Agency. Duty to ensure compliance with European Union law Article 37(1)(b) of the Electricity Directive and Article 41(1)(b) of the Gas Directive state that the NRA has the duty of ‘ensuring compliance of transmission and 1527

Appendix 13 SWP 2009/72/EC – The regulatory authorities

distribution system operators, and where relevant, system owners, as well as of any electricity and natural gas undertakings, with their obligations under this Directive and other relevant Community legislation, including as regards cross border issues’. It follows from this provision that, without prejudice to the rights of the European Commission as guardian of the Treaty on the functioning of the European Union, the NRA is granted a general competence — and the resulting obligation — as regards ensuring general compliance with European Union law. The Commission’s services are of the opinion that Article 37(1)(b) of the Electricity Directive, and Article 41(1)(b) of the Gas Directive, are to be seen as a provision guaranteeing that the NRA has the power to ensure compliance with the entire sector specific regulatory ‘acquis communautaire’ relevant to the energy market, and this vis-à-vis not only the TSOs but any electricity or gas undertaking. 4.1.2. Monitoring duties Article 37(1) of the Electricity Directive and Article 41(1) of the Gas Directive lay down a long list of monitoring duties. These duties broadly relate to monitoring access to networks and infrastructure, monitoring markets and the development of competition, and monitoring consumer protection measures. However, Article 37(2) of the Electricity Directive and Article 41(2) of the Gas Directive read: ‘Where a Member State has so provided, the monitoring duties set out in paragraph 1 may be carried out by other authorities than the regulatory authority. In such a case, the information resulting from such monitoring shall be made available to the regulatory authority as soon as possible.’ This paragraph thus allows a Member State to decide that the monitoring duties set out in paragraph 1 are to be carried out by authorities other than the NRA. If a Member State chooses to do so, it must guarantee that the information resulting from this monitoring will, as soon as possible, be made available to the NRA. This provision should apply to all information that has been collected during the monitoring performed by that other body: the text of the Electricity and Gas Directives does not limit the obligation to the report or the result of the monitoring exercise. This implies that also confidential information that was collected as part of the monitoring should be given to the NRA; that not only the results of the monitoring (e.g. monitoring report) but also the underlying data and other information should be given to the NRA. According to the Commission’s services, a Member State has to guarantee that the NRA has specific access to all data resulting from the monitoring exercise. 1528

Appendix 13 SWP 2009/72/EC – The regulatory authorities

It has to be stressed that on many subjects there is a close link between the core duties of the NRA and the monitoring duties (which can be executed by another body) listed in Article 37(1) of the Electricity Directive and Article 41(1) of the Gas Directive. This is first of all clear from the wording of the Electricity and Gas Directives: in principle the NRA must be responsible for the different monitoring items, unless a Member State has provided otherwise. But secondly, this is clear from what has to be monitored. It is for example hard to imagine how the NRA will be able to fulfil effectively its core duty to ensure that there are no cross­subsidies (Article 37(1)(f ) of the Electricity Directive and Article 41(1)(f ) of the Gas Directive) without having access to all data resulting from monitoring wholesale and retail prices (Article 37(1)(i)-(j) of the Electricity Directive and Article 41(1)(i)-(j) of the Gas Directive). Finally, it is also important to note that, irrespective of the monitoring duties that can be carried out by a body other than the NRA, the NRA, while performing one of its core duties, has the freedom to engage in monitoring activities. This is first of all the case for those issues for which no specific monitoring activities are listed in paragraph 1. An example here is compliance monitoring: the core duty of the NRA to ensure compliance of electricity and gas undertakings with their obligations under the Electricity and Gas Directives and relevant European Union legislation (pursuant to Article 37(1)(b) of the Electricity Directive and Article 41(1)(b) of the Gas Directive) include the possibility for the NRA to monitor these undertakings’ compliance with the relevant legislation. But this is also the case for the monitoring issues listed in paragraph 1. If the monitoring duties have been conferred on another body and if the issues that are monitored are closely linked to the core duties of the NRA, then the latter is by no means bound by the monitoring activities of that other body or limited in performing its own monitoring activities. In any case, it would seem prudent for a Member State, if it chooses to assign (some of ) the monitoring duties to an authority other than the NRA, to provide for the possibility of having structural collaboration and data exchange between the NRA and the other authority — although of course such collaboration must not affect the independence of the NRA. 4.2. Powers of the regulatory authority A new key element of the Electricity and Gas Directives is that the NRA is not only given quite extensive duties but also the necessary powers to be able to carry out its duties. Article 37(4) of the Electricity Directive and Article 41(4) of the Gas Directive provide as follows: 1529

Appendix 13 SWP 2009/72/EC – The regulatory authorities

Member States shall ensure that regulatory authorities are granted the powers enabling them to carry out the duties referred to in paragraph 1, 3 and 6 in an efficient and expeditious manner. For this purpose, the regulatory authority shall have at least the following powers: (a) to issue binding decisions on [electricity and natural gas] undertakings; (b) to carry out investigations into the functioning of the [electricity and gas] markets, and to decide upon and impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market. Where appropriate, the regulatory authority shall also have the power to cooperate with the national competition authority and the financial market regulators or the Commission in conducting an investigation relating to competition law; (c) to require any information from [electricity and natural gas] undertakings relevant for the fulfilment of its tasks, including the justification for any refusal to grant third-party access, and any information on measures necessary to reinforce the network; (d) to impose effective, proportionate and dissuasive penalties on [electricity and natural gas] undertakings not complying with their obligations under this Directive or any relevant legally binding decisions of the regulatory authority or of the Agency, or to propose to a competent court to impose such penalties. This shall include the power to impose or propose the imposition of penalties of up to 10% of the annual turnover of the transmission system operator or of up to 10% of the annual turnover of the vertically integrated undertaking on the transmission system operator or on the vertically integrated undertaking, as the case may be, for non-compliance with their respective obligations pursuant to this Directive; and (e) appropriate rights of investigations and relevant powers of instructions for dispute settlement under paragraphs 11 and 12.

The powers listed in paragraph 4 are not exhaustive. Member States must generally grant the NRAs the powers enabling them to carry out their tasks in an efficient and expeditious manner. Under recital 37 of the Electricity of the Directive and recital 33 of the Gas Directive, the NRA should also be granted the power to contribute to ensuring high standards of universal and public service in compliance with market opening, the protection of vulnerable customers, and the full effectiveness of consumer protection measures. 1530

Appendix 13 SWP 2009/72/EC – The regulatory authorities

Subparagraph 4(b) empowers the NRA to carry out investigations into the functioning of the electricity and gas markets. The recitals of the Electricity and Gas Directives clarify that the establishment of virtual power plants or gas release programmes is one of the possible measures that can be used by the NRA to implement this power. A virtual power plant or gas release programme is defined as a release programme whereby an undertaking is obliged either to sell or make available a certain volume of electricity or gas or to grant access to part of its generation capacity to interested suppliers for a certain period of time (recital 37 of the Electricity Directive and recital 33 of the Gas Directive). The Commission’s services are of the opinion that the reference to virtual power plants or gas release programmes, in the recitals of the Electricity and Gas Directives, is not exhaustive. Also gas capacity release programmes and storage capacity release programmes could in certain circumstances be considered as necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market. The NRA’s investigations might lead it to impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market. These powers are indeed very important for the NRA in order to be able to fulfil its duties. E.g. the NRA must ensure that TSOs and undertakings comply with their obligations under the Electricity and Gas Directives and other relevant European Union legislation; the tools given to the NRA to verify such compliance are listed in paragraph 4(b). Therefore, it appears that the power to carry out investigations is to be seen as a law enforcement power, with all its correlations, such as carrying out inspections on the premises of the TSOs and electricity and gas undertakings. Moreover, there seems to be a clear link with the NRA’s powers to obtain all necessary information. Under subparagraph (c), the NRA can indeed require any information from electricity and gas undertakings relevant for the fulfilment of its tasks. In some cases, the only way for an NRA to verify whether it has all the information it needs for the fulfilment of its tasks (i.e. to make certain that no information is withheld) is to carry out inspections on the premises of the entities concerned. The Commission’s services are of the opinion that the powers that Article 37(4) of the Electricity Directive and Article 41(4) of the Gas Directive grant to the NRA are very similar to those granted to competition authorities. The possibility of imposing a penalty of up to 10% of a company’s turnover supports this view.

1531

Appendix 13 SWP 2009/72/EC – The regulatory authorities

Article 37(4)(c) of the Electricity Directive and Article 41(4)(c) of the Gas Directive also imply that it is up to the NRA alone to judge whether the information it asks from the undertaking is relevant for the fulfilment of its duties and powers. In any case, decisions by the NRA are subject to judicial review or appeal mechanisms before any other bodies independent of the parties involved and of any government (see point 5 below). The powers of the NRA are formulated in a general manner and are thus not limited to or dependent on any of the unbundling options. The Commission’s services are therefore of the opinion that the power to impose any necessary and proportionate measures to promote effective competition and ensure the proper functioning of the market can also include the power to require that a TSO makes certain investments. Article 37(4)(d) of the Electricity Directive and Article 41(4)(d) of the Gas Directive give the NRA the power to impose effective, proportionate and dissuasive penalties on electricity and gas undertakings. Member States have the choice to assign the power to impose penalties to the regulatory authority or to give the NRA the power to propose to a competent court (and not to any other public or private body) that it impose such penalties. This choice made by the European Union legislator has to do with the constitutional system of some Member States where independent bodies cannot impose sanctions themselves. The text of the Electricity and Gas Directives gives the NRA the power, as the case may be, to: impose a penalty on electricity and gas undertakings; impose on the TSO a penalty of up to 10% of its annual turnover (in case of ownership unbundling and ISO); and impose a penalty of up to 10% of annual turnover on the vertically integrated undertaking and/or the ITO. Since all decisions of the NRA have to be subject to judicial review or appeal mechanisms before any other bodies independent of the parties involved and of any government (see point 5 below), the same holds true for the powers given to the NRA under Article 37(4) of the Electricity Directive and Article 41(4) of the Gas Directive. By the same token, the NRA will have to apply stringent procedures respecting the rights of defence of the companies concerned. It is also important to draw attention to the relevance of these general enforcement powers of the NRA for ensuring compliance of the network codes that will be adopted pursuant to the Electricity and Gas Regulations. In accordance with Article 37(1)(b) of the Electricity Directive and Article 41(1)(b) of the Gas Directive, the NRA must ensure that TSOs and other undertakings comply 1532

Appendix 13 SWP 2009/72/EC – The regulatory authorities

with their obligations under the Directive and other relevant European Union legislation, including as regards cross-border issues. Where the codes are adopted through the comitology procedure, they will become part of the acquis com‑ munautaire and, as a consequence, the NRA will be empowered to engage in investigations and to impose fines in case of violations of the codes. Also, the Agency has the task of monitoring and analysing the implementation of the network codes and guidelines adopted by the Commission (Article 6(6) of the ACER Regulation). This should in principle allow for consistent application and enforcement of the codes by NRAs in the different Member States. Given the fact that both the Agency and the NRAs have specific duties in this respect, appropriate collaboration between the Agency and the NRAs will be needed. Moreover, the Agency has no enforcement powers of its own and it will therefore have to refer to the NRAs when it comes to enforcing correct and consistent application of the codes.

5.

ACCOUNTABILITY OF THE REGULATORY AUTHORITY — COMPLAINTS AND LEGAL ACTIONS

On several occasions, the new Electricity and Gas Directives expressly touch upon the accountability of the NRA. Firstly, Article 35(4) of the Electricity Directive and Article 39(4) of the Gas Directive require Member States to ensure that the NRA exercises its powers transparently. As already indicated above, this means that the NRA needs to be transparent on the way it takes decisions as well as on the way it spends the budget allocated to it. This includes the need to consult stakeholders (e.g. by organising public hearings) before taking important decisions. Secondly, the NRA must report ‘annually on its activity and the fulfilment of its duties to the relevant authorities of the Member States, the Agency and the Commission. Such reports shall cover the steps taken and the results obtained as regards each of the tasks listed in this Article’ (Article 37(1)(e) of the Electricity Directive and Article 41(1)(e) of the Gas Directive). Although the wording of the Electricity and Gas Directives does not explicitly require the publication of this report, the Commission’s services are of the opinion that it would be contrary to the requirement of being transparent in the execution of its powers if the report was not published.

1533

Appendix 13 SWP 2009/72/EC – The regulatory authorities

A third aspect of the NRA’s accountability is legal accountability, i.e. it must be possible to introduce legal actions against NRA decisions. Already the second Electricity and Gas Directives contained provisions on complaints and legal actions. New elements in the new Electricity and Gas Directives are Article 37(16) and (17) of the Electricity Directive and Article 41(16) and (17) of the Gas Directive. Under these new provisions, decisions taken by the NRA must be fully reasoned and justified to allow judicial review. It is recommended that all acts by the NRA (including advice, studies etc.) be published (e.g. the result of monitoring activities). The decisions must be made available to the public while preserving the confidentiality of commercially sensitive information. It is up to the NRA to decide, case by case, what information is commercially sensitive. The combination, in Article 37(16) of the Electricity Directive and Article 41(16) of the Gas Directive, of having reasoned and justified decisions and of having decisions made public seems to suggest that not only the decision itself but also the reasons for and grounds of the decision need to be made public. This will allow any party affected to assess whether or not there are sufficient reasons to introduce a legal action against an NRA decision. Article 37(17) of the Electricity Directive and Article 40(17) of the Gas Directive provide as follows: ‘Member States shall ensure that suitable mechanisms exist at national level under which a party affected by a decision of a regulatory authority has a right of appeal to a body independent of the parties involved and of any government’. This means that an appeal or review procedure before the government or a ministry would not be in line with the provisions of the new Electricity and Gas Directives. This provision should in the view of the Commission’s services not only apply to decisions of the NRA when exercising its powers and carrying out its duties, but also e.g. to decisions of the NRA related to the confidentiality of information. According to the Commission’s services, the word ‘suitable’ implies that for certain types of NRA decisions, Member States should establish specific procedures where the court (or equivalent bodies independent of the parties involved and of any government) will rule at short notice. Similarly, in urgent cases, the court can be given the power to suspend an NRA decision (typically via summary proceedings). However, given the NRA’s autonomy in decision making 1534

Appendix 13 SWP 2009/72/EC – The regulatory authorities

and given the NRA’s independence from any public entity, the power to suspend NRA decisions belongs only to courts and judges or appeal mechanisms before any other bodies independent of the parties involved and of any government. Where a government does not agree with an NRA decision, it can make use of these legal actions as well. Apart from these provisions it is important to recognise the clear link, in the new Electricity and Gas Directives, between increased NRA independence and NRA accountability. Indeed, independence of the NRA precludes neither judicial review nor parliamentary supervision in accordance with the constitutional laws of the Member States (recital 34 of the Electricity Directive and recital 30 of the Gas Directive). Although the Electricity and Gas Directives do not require Member States to organise accountability before national parliaments, the Commission’s services are of the opinion that this could be an appropriate means of ensuring increased NRA accountability. Especially when discussing the NRA budget, national parliaments may ask to organise a hearing with the NRA. Similarly, the accountability of the NRA board could be enhanced by organising a parliamentary hearing prior to the appointment of the board members. The accountability of the NRA can also be enhanced if Member States require the NRA, while submitting its draft budget for approval by the national parliament, to present a draft work programme as well. While accountability is very important under the new legislative framework, it cannot be used as an excuse to infringe the requirements on independence of the NRA.

1535

Appendix 13 SWP 2009/72/EC – The regulatory authorities

Notes 1

Directive 2009/72/EC of the European Parliament and the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC (OJ L 211, 14.8.2009, p. 55).

2

Directive 2009/73/EC of the European Parliament and the Council of 13 July 2009 concerning common rules for the internal market in natural gas and repealing Directive 2003/55/EC (OJ L 211, 14.8.2009, p. 94).

3

Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ L 211, 14.8.2009, p. 15) (‘Electricity Regulation’); Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ L 211, 14.8.2009, p. 36) (‘Gas Regulation’); Regulation (EC) No 713/2009 of the European Parliament and the Council of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators (OJ L 211, 14.8.2009, p. 1) (‘the Agency’ and ‘the ACER Regulation’).

4

Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in electricity and repealing Directive 96/92/EC (OJ L 176, 15.7.2003, p. 37) and Directive 2003/55/EC of the European Parliament and of the Council of 26 June 2003 concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC (OJ L 176, 15.7.2003, p. 57).

1536

Appendix 14 Energy Community Treaty

Appendix 14 Energy Community Treaty Preamble The European Community on the one hand, and The following Contracting Parties on the other hand: The Republic of Albania, the Republic of Bulgaria, Bosnia and Herzegovina, the Republic of Croatia, the former Yugoslav Republic of Macedonia, the Republic of Montenegro, Romania, the Republic of Serbia (hereafter referred to as the Adhering Parties), and The United Nations Interim Administration Mission in Kosovo pursuant to the United Nations Security Council Resolution 1244, Consolidating on the Athens Process and the 2002 and 2003 Athens Memoranda of Understanding, Noting that the Republic of Bulgaria, Romania and the Republic of Croatia are Candidate Countries for accession to the European Union, and that the former Yugoslav Republic of Macedonia has also applied for membership, Noting that the European Council in Copenhagen in December 2002 confirmed the European perspective of the Republic of Albania, Bosnia and Herzegovina, and Serbia and Montenegro, as potential candidates for accession of the European Union, and underlined the determination to support their efforts to move closer to the European Union,

1537

Appendix 14 Energy Community Treaty

Recalling that the European Council in Thessaloniki in June 2003 endorsed “The Thessaloniki Agenda for the Western Balkans: moving towards European integration”, which aims to further strengthen the privileged relations between the European Union and the Western Balkans and in which the European Union encouraged the countries of the region to adopt a legally binding South-East Europe energy market agreement, Recalling the Euro-Mediterranean Partnership Process and the European Neighbourhood Policy, Recalling the contribution of the Stability Pact for South East Europe that has as its core the need to strengthen co-operation amongst the states and nations of South East Europe and to foster the conditions for peace, stability and economic growth, Resolved to establish among the Parties an integrated market in natural gas and electricity, based on common interest and solidarity, Considering that this integrated market may involve at a later stage other energy products and carriers, such as liquefied natural gas, petrol, hydrogen, or other essential network infrastructures. Determined to create a stable regulatory and market framework capable of attracting investment in gas networks, power generation and transmission networks, so that all Parties have access to the stable and continuous gas and electricity supply that is essential for economic development and social stability, Determined to create a single regulatory space for trade in gas and electricity that is necessary to match the geographic extent of the concerned product markets, Recognising that the territories of the Republic of Austria, of the Hellenic Republic, of the Republic of Hungary, of the Italian Republic, and of the Republic of Slovenia are naturally integrated or directly affected by the functioning of the gas and electricity markets of the Contracting Parties, Determined to promote high levels of gas and electricity provision to all citizens based on public service obligations, and to achieve economic and social progress and a high level of employment as well as a balanced and sustainable development through the creation of an area without internal frontiers for gas and electricity,

1538

Appendix 14 Energy Community Treaty

Desiring to enhance the security of supply of the single regulatory space by providing the stable regulatory framework necessary for the region in which connections to Caspian, North African and Middle East gas reserves can be developed and indigenous reserves of natural gas, coal and hydropower can be exploited, Committed to improving the environmental situation in relation to gas and electricity, related energy efficiency and renewable energy sources, Determined to develop gas and electricity market competition on a broader scale and exploit economies of scale, Considering that, to achieve these aims, a broad ranging and integrated market regulatory structure needs to be put in place supported by strong institutions and effective supervision, and with the adequate involvement of the private sector, Considering that in order to reduce stress on the state level gas and electricity systems and contribute to resolving local gas and electricity shortages, specific rules should be put in place to facilitate gas and electricity trade; and that such rules are needed to create a single regulatory space for the geographic extent of the concerned product markets, Have decided to create an Energy Community.

Title 1 - Principles Article 1 1.

By this Treaty, the Parties establish among themselves an Energy Community.

2.

Member States of the European Community may become Participants in the Energy Community pursuant to Article 95 of this Treaty.

1539

Appendix 14 Energy Community Treaty

Article 2 1.

The task of the Energy Community shall be to organise the relations between the Parties and create a legal and economic framework in relation to Network Energy, as defined in paragraph 2, in order to: (a) create a stable regulatory and market framework capable of attracting investment in gas networks, power generation, and transmission and distribution networks, so that all Parties have access to the stable and continuous energy supply that is essential for economic development and social stability, (b) create a single regulatory space for trade in Network Energy that is necessary to match the geographic extent of the concerned product markets, (c)

enhance the security of supply of the single regulatory space by providing a stable investment climate in which connections to Caspian, North African and Middle East gas reserves can be developed, and indigenous sources of energy such as natural gas, coal and hydropower can be exploited,

(d) improve the environmental situation in relation to Network Energy and related energy efficiency, foster the use of renewable energy, and set out the conditions for energy trade in the single regulatory space, (e) 2.

1

develop Network Energy market competition on a broader geographic scale and exploit economies of scale.

“Network Energy” shall include the electricity and gas sectors falling within the scope of the European Community Directives 2003/54/EC and 2003/55/EC.1

1 According to Article 1 of Decision 2008/03/MC-EnC of 1 December 2008 concerning the implementation to the oil sector of certain provisions of the Treaty and the creation of an Energy Community Oil Forum, “1. The Treaty is extended to oil under the conditions set by this Article. 2. ‘Network Energy’ as men‑ tioned in Article 2 paragraph 2 of the Treaty shall be understood as to include the oil sector, i.e. sup‑ ply, trade, processing and transmission of crude oil and petroleum products falling within the scope of the Directive 2006/67/EC and the related pipelines, storage, refineries and import/export facilities 4. Paragraphs 1 and 2 of this Article do not apply to Articles 21 to 23 and to Articles 43 to 46 of the Treaty.”

1540

Appendix 14 Energy Community Treaty

Article 3

For the purposes of Article 2, the activities of the Energy Community shall include: (a) the implementation by the Contracting Parties of the acquis communautaire on energy, environment, competition and renewables, as described in Title II below, adapted to both the institutional framework of the Energy Community and the specific situation of each of the Contracting Parties (hereinafter referred to as “the extension of the acquis communautaire”), as further described in Title II; (b) the setting up of a specific regulatory framework permitting the efficient operation of NetworkEnergy markets across the territories of the Contracting Parties and part of the territory of the European Community, and including the creation of a single mechanism for the cross-border transmission and/or transportation of Network Energy, and the supervision of unilateral safeguard measures (hereinafter referred to as “the mechanism for operation of Network Energy markets”), as further described in Title III; (c)

the creation for the Parties of a market in Network Energy without internal frontiers, including the coordination of mutual assistance in case of serious disturbance to the energy networks or external disruptions, and which may include the achievement of a common external energy trade policy (hereinafter referred to as “the creation of a single energy market”), as further described in Title IV. Article 4

The Commission of the European Communities (hereinafter referred to as “the European Commission”) shall act as co-ordinator of the three activities described in Article 3.

1541

Appendix 14 Energy Community Treaty

Article 5 The Energy Community shall follow the acquis communautaire described in Title II, adapted to both the institutional framework of this Treaty and the specific situation of each of the Contracting Parties, with a view to ensuring high levels of investment security and optimal investments. Article 6 The Parties shall take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of this Treaty. The Parties shall facilitate the achievement of the Energy Community’s tasks. The Parties shall abstain from any measure which could jeopardise the attainment of the objectives of this Treaty. Article 7 Any discrimination within the scope of this Treaty shall be prohibited. Article 8 Nothing in this Treaty shall affect the rights of a Party to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply. Title 2 – The extension of the Acquis Communautaire CHAPTER I – GEOGRAPHIC SCOPE Article 9 The provisions of and the Measures taken under this Title shall apply to the territories of the Adhering Parties, and to the territory under the jurisdiction of the United Nations Interim Administration Mission in Kosovo.

1542

Appendix 14 Energy Community Treaty

CHAPTER II – THE ACQUIS ON ENERGY Article 10 Each Contracting Party shall implement the acquis communautaire on energy in compliance with the timetable for the implementation of those measures set out in Annex I. Article 11 The “acquis communautaire on energy”, for the purpose of this Treaty, shall mean the acts listed in Annex I of this Treaty.2  

CHAPTER III – THE ACQUIS ON ENVIRONMENT Article 12

Each Contracting Party shall implement the acquis communautaire on environment in compliance with the timetable for the implementation of those measures set out in Annex II. Article 13 The Parties recognise the importance of the Kyoto Protocol. Each Contracting Party shall endeavour to accede to it. Article 14 The Parties recognise the importance of the rules set out in Council Directive 96/61/EC of 24 September 1996 concerning integrated pollution prevention and control. Each Contracting Party shall endeavour to implement that Directive.

2

Amended by Article 1 of Ministerial Council Decision 2011/02/MC-EnC of 6 October 2011 on the implementation of Directive 2009/72/EC, Directive 2009/73/EC, Regulation (EC) 714/2009 and Regulation (EC) 715/2009 and amending Articles 11 and 59 of the Energy Community Treaty.

1543

Appendix 14 Energy Community Treaty

Article 15 After the entry into force of this Treaty, the construction and operation of new generating plants shall comply with the acquis communautaire on environment. Article 16 The “acquis communautaire on environment”, for the purpose of this Treaty, shall mean: (i)

Directive 2011/92/EU of the European Parliament and of the Council of 13 December 2011 on the assessment of the effects of certain public and private projects on the environment as amended by Directive 2014/52/EU,3

(ii) Directive (EU) 2016/802 of the European Parliament and of the Council of 11 May 2016 relating to a reduction in the sulphur content of certain liquid fuels and Commission Implementing Decision (EU) 2015/253 of 16 February 2015 laying down the rules concerning the sampling and reporting under Council Directive 1999/32/EC as regards the sulphur content of marine fuels,4 (iii) Directive 2001/80/EC of the European Parliament and of the Council of 23 October 2001 on the limitation of emissions of certain pollutants into the air from large combustion plants,5 (iv) Article 4(2) of Directive 79/409/EEC of the Council of 2 April 1979 on the conservation of wild birds,

3 4 5

Amended by the Ministerial Council Decision 2016/12/MC-EnC of 14 October 2016 on amending the Treaty establishing the Energy Community and adapting and implementing Directive (EU) 2016/802 of the European Parliament and of the Council and Commission Implementing Decision (EU) 2015/253. Amended by the Ministerial Council Decision 2016/15/MC-EnC of 14 October 2016 on amending the Treaty establishing the Energy Community and adapting and implementing Directive (EU) 2016/802 of the European Parliament and of the Council and Commission Implementing Decision (EU) 2015/253. Amended by the Ministerial Council Decision 2013/05/MC-EnC of 24 October 2013 on the implementation of Directive 2001/80/EC of 23 October 2001 on the limitation of emissions of certain pollutants into the air from large combustion plants and Decision 2015/07/MC-EnC on amending 2013/05/MC on implementation of Directive 2001/80/(EC) on limitation of certain emissions.

1544

Appendix 14 Energy Community Treaty

(v) Chapter III, Annex V, and Article 72(3)-(4) of Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions (integrated pollution prevention and control,6 (vi) Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage, as amended by Directive 2006/21/EC, Directive 2009/31/EC and Directive 2013/30/EU,7 7, and, (vii) Directive 2001/42/EC of the European Parliament and of the Council of 27 June 2001 on the assessment of the effects of certain plans and programmes on the environment.8 Article 17 The provisions of and the Measures taken under this Chapter shall only apply to Network Energy.  

CHAPTER IV – THE ACQUIS ON COMPETITION Article 18

1.

The following shall be incompatible with the proper functioning of the Treaty, insofar as they may affect trade of Network Energy between the Contracting Parties: (a) all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition,

6

7 8

Amended by the Ministerial Council Decision 2013/06/MC-EnC of 24 October 2013 on the implementation of Chapter III Annex V, and Article 72(3)-(4) of Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions (integrated pollution prevention and control) and amending Article 16 and Annex II of the Energy Community Treaty. Amended by the Ministerial Council Decision 2016/14/MC-EnC of 14 October 2016 on amending the Treaty establishing the Energy Community and adapting and implementing Directive 2004/35/EC of the European Parliament and of the Council. Amended by the Ministerial Council Decision 2016/13/MC-EnC of 14 October 2016 on amending the Treaty establishing the Energy Community and adapting and implementing Directive 2001/42/EC of the European Parliament and of the Council.

1545

Appendix 14 Energy Community Treaty

2.

(b)

abuse by one or more undertakings of a dominant position in the market between the Contracting Parties as a whole or in a substantial part thereof,

(c)

any public aid which distorts or threatens to distort competition by favouring certain undertakings or certain energy resources.

Any practices contrary to this Article shall be assessed on the basis of criteria arising from the application of the rules of Articles 81, 82 and 87 of the Treaty establishing the European Community (attached in Annex III). Article 19

With regard to public undertakings and undertakings to which special or exclusive rights have been granted, each Contracting Party shall ensure that as from 6 months following the date of entry force of this Treaty, the principles of the Treaty establishing the European Community, in particular Article 86 (1) and (2) thereof (attached in Annex III), are upheld. CHAPTER V – THE ACQUIS FOR RENEWABLES Article 20 9 Each Contracting Party shall implement Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC.

9

Amended by Ministerial Council Decision 2012/04/MC-EnC of 18 October 2012 on the implementation of Directive 2009/28/EC and amending Article 20 of the Energy Community Treaty.

1546

Appendix 14 Energy Community Treaty

CHAPTER VI – COMPLIANCE WITH GENERALLY APPLICABLE STANDARDS OF THE EUROPEAN COMMUNITY Article 21 Within one year of the date of entry into force of this Treaty, the Secretariat shall draw up a list of the Generally Applicable Standards of the European Community, to be submitted to the Ministerial Council for adoption. Article 22 The Contracting Parties shall, within one year of the adoption of the list, adopt development plans to bring their Network Energy sectors into line with these Generally Applicable Standards of the European Community. Article 23 “Generally Applicable Standards of the European Community” shall refer to any technical system standard that is applied within the European Community, and is necessary for operating network systems safely and efficiently, including aspects of transmission, cross-border connections, modulation and general technical system security standards issued where applicable via the European Committee for Standardization (CEN), the European Committee for Electrotechnical Standardization (CENELEC) and similar normation bodies or as issued by the Union for the Co-ordination of Transmission of Electricity (UCTE) and the European Association for the Streamlining of Energy Exchanges (Easeegas) for common rule setting and business practices. CHAPTER VII – THE ADAPTATION AND EVOLUTION OF THE ACQUIS Article 24 For the implementation of this Title, the Energy Community shall adopt Measures adapting the acquis communautaire described in this Title, taking into account both the institutional framework of this Treaty and the specific situation of each of the Contracting Parties. 1547

Appendix 14 Energy Community Treaty

Article 25 The Energy Community may take Measures to implement amendments to the acquis communautaire described in this Title, in line with the evolution of European Community law. Title 3 - Mechanism for operation of network energy markets CHAPTER I – GEOGRAPHIC SCOPE Article 26 The provisions of and the Measures taken under this Title shall apply to the territories of the Adhering Parties, to the territory under the jurisdiction of the United Nations Interim Administration Mission in Kosovo, and to the territories of the European Community referred to in Article 27.  Article 27 As regard the European Community, the provisions of and the Measures taken under this Title shall apply to the territories of the Hellenic Republic, of Hungary, of the Republic of Bulgaria, of the Republic of Croatia, of the Republic of Italy, of the Republic of Poland, of the Republic of Romania and of the Republic of Slovakia.10 Upon accession to the European Union of an Adhering Party, the provisions of and the Measures taken under this Title shall, without any further formalities, also apply to the territory of that new Member State.

10

Amended by Ministerial Council Decision 2015/09/MC-EnC on the implementation of Regulation (EU) 347/2013 of the European Parliament and the Council on guidelines for trans-European energy infrastructure.

1548

Appendix 14 Energy Community Treaty

CHAPTER II – MECHANISM FOR LONG-DISTANCE TRANSPORTATION OF NETWORK ENERGY Article 28 The Energy Community shall take additional Measures establishing a single mechanism for the cross-border transmission and/or transportation of Network Energy. CHAPTER III – SECURITY OF SUPPLY Article 29 The Parties shall, within one year of the date of entry into force of this Treaty, adopt security of supply statements describing in particular diversity of supply, technological security, and geographic origin of imported fuels. The statements shall be communicated to the Secretariat, and shall be available to any Party to this Treaty. They shall be updated every two years. The Secretariat shall give guidance and assistance with respect to such statements. Article 30 Article 29 does not imply a necessity to change energy policies or purchasing practices. CHAPTER IV – PROVISION OF ENERGY TO CITIZENS Article 31 The Energy Community shall promote high levels of provision of Network Energy to all its citizens within the limits of the public service obligations contained in the relevant acquis communautaire on energy.

1549

Appendix 14 Energy Community Treaty

Article 32 For this purpose, the Energy Community may take Measures to: (a)

allow for the universal provision of electricity;

(b)

foster effective demand management policies;

(c)

ensure fair competition. Article 33

The Energy Community may also make Recommendations to support effective reform of the Network Energy sectors of the Parties, including inter alia to increase the level of payment for energy by all customers, and to foster the affordability of Network Energy prices to consumers. CHAPTER V – HARMONISATION Article 34 The Energy Community may take Measures concerning compatibility of market designs for the operation of Network Energy markets, as well as mutual recognition of licenses and Measures fostering free establishment of Network Energy companies. CHAPTER VI – RENEWABLE ENERGY SOURCES AND ENERGY EFFICIENCY Article 35 The Energy Community may adopt Measures to foster development in the areas of renewable energy sources and energy efficiency, taking account of their advantages for security of supply, environment protection, social cohesion and regional development.

1550

Appendix 14 Energy Community Treaty

CHAPTER VII – SAFEGUARD MEASURES Article 36 In the event of a sudden crisis on the Network Energy market in the territory of an Adhering Party, the territory under the jurisdiction of the United Nations Interim Administration Mission in Kosovo, or a territory of the European Community referred to in Article 27, where the physical safety or security of persons, or Network Energy apparatus or installations or system integrity is threatened in this territory, the concerned Party may temporarily take necessary safeguard measures. Article 37 Such safeguard measures shall cause the least possible disturbance in the functioning of the Network Energy market of the Parties, and not be wider in scope than is strictly necessary to remedy the sudden difficulties which have arisen. They shall not distort competition or adversely affect trade in a manner which is at variance with the common interest. Article 38 The Party concerned shall without delay notify these safeguard measures to the Secretariat, which shall immediately inform the other Parties. Article 39 The Energy Community may decide that the safeguard measures taken by the Party concerned do not comply with the provisions of this Chapter, and request that Party to put an end to, or modify, those safeguard measures.

1551

Appendix 14 Energy Community Treaty

Title 4 – The creation of a single energy market CHAPTER I – GEOGRAPHIC SCOPE Article 40 The provisions of and the Measures taken under this Title shall apply to the territories to which the Treaty establishing the European Community applies under the conditions laid down in that Treaty, to the territories of the Adhering Parties and to the territory under the jurisdiction of the United Nations Interim Mission in Kosovo. CHAPTER II – INTERNAL ENERGY MARKET Article 41 1.

Customs duties and quantitative restrictions on the import and export of Network Energy and all measures having equivalent effect, shall be prohibited between the Parties. This prohibition shall also apply to customs duties of a fiscal nature.

2.

Paragraph 1 shall not preclude quantitative restrictions or measures having equivalent effect, justified on grounds of public policy or public security; the protection of health and life of humans, animals or plants, or the protection of industrial and commercial property. Such restrictions or measures shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between the Parties. Article 42

1.

The Energy Community may take Measures with the aim of creating a single market without internal frontiers for Network Energy.

2.

Paragraph 1 shall not apply to fiscal measures, to those relating to the free movement of persons nor to those relating to the rights and interests of employed persons.

1552

Appendix 14 Energy Community Treaty

CHAPTER III – EXTERNAL ENERGY TRADE POLICY Article 43 The Energy Community may take Measures necessary for the regulation of imports and exports of Network Energy to and from third countries with a view to ensuring equivalent access to and from third country markets in respect of basic environmental standards or to ensure the safe operation of the internal energy market. CHAPTER IV – MUTUAL ASSISTANCE IN THE EVENT OF DISRUPTION Article 44 In the event of disruption of Network Energy supply affecting a Party and involving another Party or a third country, the Parties shall seek an expeditious resolution in accordance with the provisions of this Chapter. Article 45 Upon request of the Party directly affected by the disruption, the Ministerial Council shall meet. The Ministerial Council may take the necessary Measures in response to the disruption. Article 46 Within one year of the date of entry into force of this Treaty, the Ministerial Council shall adopt a Procedural Act for the operation of the mutual assistance obligation under this Chapter, which may include the conferral of powers to take interim Measures to the Permanent High Level Group.

1553

Appendix 14 Energy Community Treaty

Title 5 – Institutions of the energy community CHAPTER I - THE MINISTERIAL COUNCIL   Article 47 The Ministerial Council shall ensure that the objectives set out in this Treaty are attained. It shall: (a) provide general policy guidelines; (b) take Measures; (c)

adopt Procedural Acts, which may include the conferral, under precise conditions, of specific tasks, powers and obligations to carry out the policy of the Energy Community on the Permanent High Level Group, the Regulatory Board or the Secretariat. Article 48

The Ministerial Council shall consist of one representative of each Contracting Party and two representatives of the European Community. One non-voting representative of each Participant may participate in its meetings. Article 49 The Ministerial Council shall adopt its internal rules of procedure by Procedural Act. Article 5011 The Presidency shall be held in turn by each Contracting Party for a term of one year in the order decided by a Procedural Act of the Ministerial Council. The Presidency shall convene the Ministerial Council in a place decided upon by the Presidency. The Ministerial Council shall meet at least once every year. The meetings shall be prepared by the Secretariat. 11

Amended by Ministerial Council Decision 2009/02/MC-EnC of 18 December 2009 amending the Treaty establishing the Energy Community with regard to the frequency of Ministerial Council meetings.

1554

Appendix 14 Energy Community Treaty

Article 52 The Ministerial Council shall submit an annual report on the activities of the Energy Community to the European Parliament and to the Parliaments of the Adhering Parties and of the Participants. CHAPTER II - THE PERMANENT HIGH LEVEL GROUP Article 53 The Permanent High Level Group shall: (a) prepare the work of the Ministerial Council; (b) give assent to technical assistance requests made by international donor organisations, international financial institutions and bilateral donors; (c)

report to the Ministerial Council on progress made toward achievement of the objectives of this Treaty;

(d) take Measures, if so empowered by the Ministerial Council; (e)

adopt Procedural Acts, not involving the conferral of tasks, powers or obligations on other institutions of the Energy Community;

(f )

discuss the development of the acquis communautaire described in Title II on the basis of a report that the European Commission shall submit on a regular basis. Article 54

The Permanent High Level Group shall consist of one representative of each Contracting Party and two representatives of the European Community. One non-voting representative of each Participant may participate in its meetings.

1555

Appendix 14 Energy Community Treaty

Article 55 The Permanent High Level Group shall adopt its internal rules of procedure as a Procedural Act. Article 56 The Presidency shall convene the Permanent High Level Group at a place to be determined by the Presidency. The meetings shall be prepared by the Secretariat. Article 57 The Presidency shall chair the Permanent High Level Group and be assisted by one representative of the European Community and one representative of the incoming Presidency as Vice-Presidents. The Presidency and the Vice-Presidents shall prepare the draft Agenda. CHAPTER III – THE REGULATORY BOARD Article 58 The Regulatory Board shall: (a) advise the Ministerial Council or the Permanent High Level Group on the details of statutory, technical and regulatory rules; (b) issue Recommendations on cross-border disputes involving two or more Regulators, upon request of any of them; (c)

take Measures, if so empowered by the Ministerial Council;

(d) adopt Procedural Acts.

1556

Appendix 14 Energy Community Treaty

Article 5912 The Regulatory Board shall be composed of one representative of the energy regulator of each Contracting Party, pursuant to the relevant parts of the acquis communautaire on energy. The European Union shall be represented by the European Commission, assisted by one regulator of each Participant, and one representative of the Agency for the Cooperation of Energy Regulators.12 Article 60 The Regulatory Board shall adopt its internal rules of procedure by Procedural Act.   Article 61 The Regulatory Board shall elect a President for a term determined by the Regulatory Board. The European Commission shall act as Vice-President. The President and the Vice-President shall prepare the draft Agenda. Article 62 The Regulatory Board shall meet in Athens. CHAPTER IV - THE FORA Article 63 Two Fora, composed of representatives of all interested stakeholders, including industry, regulators, industry representative groups and consumers, shall advise the Energy Community.13

12 13

Amended by Ministerial Council Decision 2011/02/MC-EnC of 6 October 2011 on the implementation of Directive 2009/72/EC, Directive 2009/73/EC, Regulation (EC) 714/2009 and Regulation (EC) 715/2009 and amending Articles 11 and 59 of the Energy Community Treaty. Pursuant to Decision 2008/03/MC-EnC concerning the implementation to the oil sector of certain provisions of the Treaty and the creation of an Energy Community Oil Forum, the Ministerial Council established the third forum on oil on 18 December 2008.

1557

Appendix 14 Energy Community Treaty

Article 64 The Fora shall be chaired by a representative of the European Community. Article 65 The conclusions of the Fora shall be adopted by consensus. They shall be forwarded to the Permanent High Level Group.  

Article 66

The Electricity Forum shall meet in Athens. The Gas Forum shall meet at a place to be determined by a Procedural Act of the Ministerial Council.14 CHAPTER V – THE SECRETARIAT Article 67 The Secretariat shall: (a) provide administrative support to the Ministerial Council, the Permanent High Level Group, the Regulatory Board and the Fora; (b) review the proper implementation by the Parties of their obligations under this Treaty, and submit yearly progress reports to the Ministerial Council; (c)

14

review and assist in the coordination by the European Commission of the donors’ activity in the territories of the Adhering Parties and the territory under the jurisdiction of the United Nations Interim Administration Mission in Kosovo, and provide administrative support to the donors;

According to Article 1 of Procedural Act 2007/03/2/PHLG-EnC of 17 October 2007 on the seat of the Gas Forum, the Gas Forum is to be set up in cooperation with the competent Slovenian authorities. According to Article 2 of the Decision 2008/03/MC-EnC of 18 December 2008 Oil Forum shall meet in Belgrade, Serbia.

1558

Appendix 14 Energy Community Treaty

(d) carry out other tasks conferred on it under this Treaty or by a Procedural Act of the Ministerial Council, excluding the power to take Measures; and (e)

adopt Procedural Acts. Article 68

The Secretariat shall comprise a Director and such staff as the Energy Community may require. Article 69 The Director of the Secretariat shall be appointed by a Procedural Act of the Ministerial Council. The Ministerial Council shall lay down, by Procedural Act, rules for the recruitment, working conditions and geographic equilibrium of the Secretariat’s staff. The Director shall select and appoint the staff. Article 70 In the performance of their duties the Director and the staff shall not seek or receive instructions from any Party to this Treaty. They shall act impartially and promote the interests of the Energy Community. Article 71 The Director of the Secretariat or a nominated alternate shall assist at the Ministerial Council, the Permanent High Level Group, the Regulatory Board and the Fora. Article 72 The seat of the Secretariat shall be in Vienna.   1559

Appendix 14 Energy Community Treaty

CHAPTER VI – BUDGET Article 73 Each Party shall contribute to the budget of the Energy Community as set out in Annex IV. The level of contributions may be reviewed every five years, on request of any Party, by a Procedural Act of the Ministerial Council. Article 74 The Ministerial Council shall adopt the budget of the Energy Community by Procedural Act every two years. The budget shall cover the operational expenses of the Energy Community necessary for the functioning of its institutions. The expenditure of each institution shall be set out in a different part of the budget. The Ministerial Council shall adopt a Procedural Act specifying the procedure for the implementation of the budget, and for presenting and auditing accounts and inspection. Article 75 The Director of the Secretariat shall implement the budget in accordance with the Procedural Act adopted pursuant to Article 74, and shall report annually to the Ministerial Council on the execution of the budget. The Ministerial Council may decide by Procedural Act, if appropriate, to entrust independent auditors with verifying the proper execution of the budget. Title 6 - Decision making process CHAPTER I – GENERAL PROVISIONS Article 76 Measures may take the form of a Decision or a Recommendation. A Decision is legally binding in its entirety upon those to whom it is addressed. A Recommendation has no binding force. Parties shall use their best endeavours to carry out Recommendations.

1560

Appendix 14 Energy Community Treaty

Article 77 Save as provided in Article 80, each Party shall have one vote. Article 78 The Ministerial Council, the Permanent High Level Group or the Regulatory Board may act only if two third of the Parties are represented. Abstentions in a vote from Parties present shall not count as votes cast. CHAPTER II – MEASURES UNDER TITLE II   Article 79 The Ministerial Council, the Permanent High Level Group or the Regulatory Board shall take Measures under Title II on a proposal from the European Commission. The European Commission may alter or withdraw its proposal at any time during the procedure leading to adoption of the Measures. Article 80 Each Contracting Party shall have one vote. Article 81 The Ministerial Council, the Permanent High Level Group or the Regulatory Board shall act by a majority of the votes cast. CHAPTER III – MEASURES UNDER TITLE III Article 82 The Ministerial Council, the Permanent High Level Group or the Regulatory Board shall take Measures under Title III on a proposal from a Party or the Secretariat. 1561

Appendix 14 Energy Community Treaty

Article 83 The Ministerial Council, the Permanent High Level Group or the Regulatory Board shall act by a two third majority of the votes cast, including a positive vote of the European Community. CHAPTER IV – MEASURES UNDER TITLE IV Article 84 The Ministerial Council, the Permanent High Level Group or the Regulatory Board shall take Measures under Title IV on a proposal from a Party. Article 85 The Ministerial Council, the Permanent High Level Group or the Regulatory Board shall take Measures by unanimity. CHAPTER V – PROCEDURAL ACTS Article 86 A Procedural Act shall regulate organizational, budgetary and transparency issues of the Energy Community, including the delegation of power from the Ministerial Council to the Permanent High Level Group, the Regulatory Board or the Secretariat, and shall have binding force on the institutions of the Energy Community, and, if the Procedural Act so provides, on the Parties. Article 87 Save as provided in Article 88, Procedural Acts shall be adopted in compliance with the Decision Making Process set out in Chapter III of this Title.

1562

Appendix 14 Energy Community Treaty

Article 88 The Procedural Act appointing the Director of the Secretariat provided for in Article 69 shall be adopted by simple majority on a proposal from the European Commission. The Procedural Acts on budgetary matters provided for in Articles 73 and 74 shall be adopted by unanimity on a proposal from the European Commission. The Procedural Acts conferring powers on the Regulatory Board provided for in Article 47(c) shall be taken by unanimity on a proposal from a Party or the Secretariat. Title 7 – Implementation of decisions and dispute settlement Article 89 The Parties shall implement Decisions addressed to them in their domestic legal system within the period specified in the Decision. Article 90 1.

Failure by a Party to comply with a Treaty obligation or to implement a Decision addressed to it within the required period may be brought to the attention of the Ministerial Council by a reasoned request of any Party, the Secretariat or the Regulatory Board. Private bodies may approach the Secretariat with complaints.

2.

The Party concerned may make observations in response to the request or complaint. Article 91

1.

The Ministerial Council may determine the existence of a breach by a Party of its obligations. The Ministerial Council shall decide: (a)

by a simple majority, if the breach relates to Title II;

(b)

by a two-third majority, if the breach relates to Title III;

(c)

by unanimity, if the breach relates to Title IV. 1563

Appendix 14 Energy Community Treaty

2.

The Ministerial Council may subsequently decide by simple majority to revoke any decisions adopted under this Article. Article 92

1.

At the request of a Party, the Secretariat or the Regulatory Board, the Ministerial Council, acting by unanimity, may determine the existence of a serious and persistent breach by a Party of its obligations under this Treaty and may suspend certain of the rights deriving from application of this Treaty to the Party concerned, including the suspension of voting rights and exclusion from meetings or mechanisms provided for in this Treaty.

2.

The Ministerial Council may subsequently decide by simple majority to revoke any decisions taken under this Article. Article 93

When adopting the decisions referred to in Articles 91 and 92, the Ministerial Council shall act without taking into account the vote of the representative of the Party concerned. Title 8 - Interpretation Article 94 The institutions shall interpret any term or other concept used in this Treaty that is derived from European Community law in conformity with the case law of the Court of Justice or the Court of First Instance of the European Communities. Where no interpretation from those Courts is available, the Ministerial Council shall give guidance in interpreting this Treaty. It may delegate that task to the Permanent High Level Group. Such guidance shall not prejudge any interpretation of the acquis communautaire by the Court of Justice or the Court of First Instance at a later stage.

1564

Appendix 14 Energy Community Treaty

Title 9 – Participants and observers Article 95 Upon a request to the Ministerial Council, any Member State of the European Community may be represented in the Ministerial Council, the Permanent High Level Group and the Regulatory Board under the conditions laid down in Articles 48, 54 and 59 as a Participant, and shall be permitted to participate in the discussions of the Ministerial Council, the Permanent High Level Group, the Regulatory Board and the Fora. Article 96 1.

Upon a reasoned request of a neighbouring third country, the Ministerial Council may, by unanimity, accept that country as an Observer. Upon a request presented to the Ministerial Council within six months of the date of entry into force of this Treaty, Moldova shall be accepted as an Observer.

2.

Observers may attend the meetings of the Ministerial Council, the Permanent High Level Group, the Regulatory Board and the Fora, without participating in the discussions. Title 10 – Duration Article 97

This Treaty is concluded for a period of 10 years from the date of entry into force.15The Ministerial Council, acting by unanimity, may decide to extend its duration. If no such decision is taken, the Treaty may continue to apply between those Parties who voted in favour of extension, provided that their number amounted to at least two thirds of the Parties to the Energy Community.

  15

According to Ministerial Council Decision 2013/03/MC-EnC on extending the duration of the Energy Community Treaty, the duration of the Treaty is extended for a period of 10 years.

1565

Appendix 14 Energy Community Treaty

Article 98 Any party may withdraw from this Treaty by giving six months notice, addressed to the Secretariat. Article 99 Upon accession to the European Community of an Adhering Party, that party shall become a Participant as provided for in Article 95. Title 11 – Revision and accession Article 100 The Ministerial Council may, by unanimity of its Members: (i)

amend the provisions of Title I to VII;

(ii) decide to implement other parts of the acquis communautaire related to Network Energy; (iii) extend this Treaty to other energy products and carriers or other essential network infrastructures; (iv) agree on the accession to the Energy Community of a new Party. Title 12 – Final and transitional provisions Article 101 Without prejudice to Articles 102 and 103, the rights and obligations arising from agreements concluded by a Contracting Party before the signature of this Treaty shall not be affected by the provisions of this Treaty. To the extent that such agreements are not compatible with this Treaty, the Contracting Party concerned shall take all appropriate measures to eliminate the incompatibilities established, no later than one year after the date of entry into force of this Treaty.

1566

Appendix 14 Energy Community Treaty

Article 102 All obligations under this Treaty are without prejudice to existing legal obligations of the Parties under the Treaty establishing the World Trade Organisation. Article 103 Any obligations under an agreement between the European Community and its Member States on the one hand, and a Contracting Party on the other hand shall not be affected by this Treaty. Any commitment taken in the context of negotiations for accession to the European Union shall not be affected by this Treaty. Article 104 Until the adoption of the Procedural Act referred to in Article 50, the 2003 Athens Memorandum of Understanding16 shall define the order for holding the Presidency.17 Article 105 This Treaty shall be approved by the Parties in accordance with their internal procedures. This Treaty shall enter into force on the first day of the month following the date on which the European Community and six Contracting Parties have notified the completion of the procedures necessary for this purpose. Notification shall be sent to the Secretary-General of the Council of the European Union who shall be the depositary for this Treaty. In witness thereof the duly authorised representatives have signed this Treaty. Done in Athens, on the twenty-fifth day of October two thousand and five. 16 17

Memorandum of Understanding on the Regional Energy Market in South East Europe and its Integration into the European Community Internal Energy Market, signed in Athens on 8 December 2003. According to Annex point III(1) of Procedural Act 2006/01/MC-EnC of 17 November 2006 on adoption of internal Rules of Procedures of Ministerial Council of Energy Community, the Presidency of the Council shall be held in turn by each Contracting Party in alphabetical order, following the names of the Parties as indicated in the Treaty.

1567

Appendix 14 Energy Community Treaty

Annex 1 LIST OF ACTS INCLUDED IN THE “ACQUIS COMMUNAUTAIRE ON ENERGY” (1)

Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity, as adopted by Ministerial Council Decision 2011/02/MC-EnC of 6 October 2011.

(2) Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas, as adopted by Ministerial Council Decision 2011/02/MC-EnC of 6 October 2011. (3) Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for crossborder exchanges in electricity, as adopted by Ministerial Council Decision 2011/02/MC-EnC of 6 October 2011. (4) Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks, as amended by Commission Decision 2010/685/ EU of 10 November 2010, as adopted by Ministerial Council Decision 2011/02/MC-EnC of 6 October 2011. (5) Directive 2005/89/ of the European Parliament and of the Council of 18 January 2006 concerning measures to safeguard security of electricity supply and infrastructure investment, as adopted by Ministerial Council Decision 2007/06/MC-EnC of 18 December 2007. (6) Directive 2004/67/EC of 26 April 2004 concerning measures to safeguard security of natural gas supply, as adopted by Ministerial Council Decision 2007/06/MC-EnC of 18 December 2007. (7) Regulation (EU) No 347/2013 of the European Parliament and of the Councile of 17 April 2013 on guidelines for trans-European energy infrastructure, as adopted by Ministerial Council Decision 2015/09/MCEnC of of 16 October 2015. 1568

Appendix 14 Energy Community Treaty

Annex 2 TIMETABLE FOR THE IMPLEMENTATION OF THE ACQUIS ON ENVIRONMENT 1.

Each Contracting Party shall implement Directive 2011/92/EU of the European Parliament and of the Council of 13 December 2011 on the assessment of the effects of certain public and private projects on the environment by 14 October 2016. Each Contracting Party shall implement Directive 2014/52/EU by 1 January 2019, with the exception of the provisions referring to Directives not covered by Article 16 of this Treaty.

2.

Each Contracting Party shall implement Council Directive 1999/32/EC of 26 April 1999 relating to a reduction in the sulphur content of certain liquid fuels and amending Directive 93/12/EEC by 31 December 2011.

2a. Each Contracting Party shall implement Directive (EU) 2016/802 of the European Parliament and of the Council of 11 May 2016 relating to a reduction in the sulphur content of certain liquid fuels and Commission Implementing Decision (EU) 2015/253 of 16 February 2015 laying down the rules concerning the sampling and reporting under Council Directive 1999/32/EC as regards the sulphur content of marine fuels by 30 June 2018. 3.

Each Contracting Party shall implement Directive 2001/80/EC of the European Parliament and of the Council of 23 October 2001 on the limitation of emissions of certain pollutants into the air from large combustion plants by 31 December 2017.

4.

Each Contracting Party shall implement Article 4(2) of Directive 79/409/EEC of the Council of 2 April 1979 on the conservation of wild birds on the entry into force of this Treaty.

5.

Each Contracting Party shall implement Chapter III, Annex V, and Article 72(3)-(4) of Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions (integrated pollution prevention and control) from 1 January 2018 for new plants. For existing plants, Contracting Parties shall implement those provisions by 1 January 2028 at the latest. Prior to that date, they shall endeavour to 1569

Appendix 14 Energy Community Treaty

implement the provisions of Chapter III and Annex V within the shortest possible timeframe, in particular in the cases of retrofitting existing plants. Ukraine shall implement those provisions by 1 January 2029 at the latest for SO2 and dust and by 1 January 2034 at the latest for NOx. 6.

Each Contracting Party shall implement Directive 2004/35/EU of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage, as amended by Directive 2006/21/EC, Directive 2009/31/EC and Directive 2013/30/EU by 1 January 2021.

7.

Each Contracting Party shall transpose Directive 2001/42/EC of the European Parliament and of the Council of 27 June 2001 on the assessment of the effects of certain plans and programmes on the environment by 1 January 2018 and implement those provisions by 31 March 2018.

1570

Appendix 14 Energy Community Treaty

Annex 3 EC COMPETITION RULES Article 81 of the EC Treaty 1.

The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a)

directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment; (c)

share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e)

make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

2.

Any agreements or decisions prohibited pursuant to this article shall be automatically void.

3.

The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

–

any agreement or category of agreements between undertakings,

–

any decision or category of decisions by associations of undertakings, 1571

Appendix 14 Energy Community Treaty

–

any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(a)

impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. Article 82 of the EC Treaty Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c)

applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

1572

Appendix 14 Energy Community Treaty

Article 86(1) and (2) of the EC Treaty 1.

In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in this Treaty, in particular to those rules provided for in Article 12 and Articles 81 to 89.

2.

Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Treaty, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community.

Article 87 of the EC Treaty 1.

Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.

2.

The following shall be compatible with the common market: (a) aid having a social character, granted to individual consumers, provided that such aid is granted without discrimination related to the origin of the products concerned; (b) aid to make good the damage caused by natural disasters or exceptional occurrences; (c)

aid granted to the economy of certain areas of the Federal Republic of Germany affected by the division of Germany, in so far as such aid is required in order to compensate for the economic disadvantages caused by that division.

1573

Appendix 14 Energy Community Treaty

3.

The following may be considered to be compatible with the common market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; (b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State; (c)

aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest;

(d)

aid to promote culture and heritage conservation where such aid does not affect trading conditions and competition in the Community to an extent that is contrary to the common interest;

(e)

such other categories of aid as may be specified by decision of the Council acting by a qualified majority on a proposal from the Commission.

1574

Appendix 14 Energy Community Treaty

Annex 4

Contributions for the budget 2016-2017 by the Parties18 Parties

Contribution in %

European Community

94.94%

Republic of Albania

0.09%

Bosnia and Herzegovina

0.20%

former Yugoslav Republic of Macedonia

0.10%

Republic of Montenegro

0.04%

Moldova

0.10%

Republic of Serbia

0.54%

Ukraine

3.92%

United Nations Interim Administration Mission in Kosovo

0.07%

18

According to the Attachment 1 of the Procedural Act PA/2015/01/MC-EnC on the adoption of the Energy Community Budget for the years 2016-2017.

1575

Index

Index Accounting Unbundling.................4.6, 5.73–5.82, 5.073–5.105, 5.106–5.127 Agency for the Cooperation of Energy Regulators (ACER)... 7.001–7.400 Acts, types of...............................................................................................7.17–7.23 Competences Advice to EU institutions..................................................................7.33–7.36 Request for information.....................................................................7.37–7.43 Cooperation of TSOs and DSOs Certification of TSOs.........................................................................7.80–7.84 ENTSOs and EU DSO......................................................................7.44–7.60 Methodology for congestion income..............................................7.72–7.79 Regulatory oversight of European and regional entities..............7.61–7.71 Cross-border infrastructure and cooperation................................. 7.116–7.133 Decisions on technical issues.............................................................. 7.113–7.115 Exemption decisions..............................................7.252–7.257, 11.171–11.172 Generation adequacy European resource adequacy........................................................ 7.229–7.234 National resource adequacy.......................................................... 7.235–7.236 Risk preparedness........................................................................... 7.237–7.242 Security of gas supply..................................................................... 7.243–7.249 Technical guidance on calculation of CO2 emission values... 7.250–7.251 Infrastructure Energy system wide cost-benefit analysis................................... 7.274–7.276 Investment requests........................................................................ 7.279–7.282 Monitoring implementation of PCIs......................................... 7.272–7.273 Monitoring interconnector capacity projects........................... 7.259–7.263 Participating in identification of PCIs....................................... 7.264–7.271 Sharing good practices for PCIs.................................................. 7.277–7.278 Legal basis of...............................................................................................7.05–7.13 Monitoring Electricity and natural gas sectors............................................... 7.307–7.315 Implementation of PCIs................................................................ 7.272–7.273 1577

Index

Interconnector capacity projects................................................. 7.259–7.263 NEMOs......................................................................................................... 7.156 Network Codes and Guidelines.................................................. 7.190–7.197 Regional coordination centres..................................................... 7.146–7.148 Wholesale markets.......................................................................... 7.287–7.291 Network Codes and Guidelines Amendments of network codes................................................... 7.184–7.189 Approval of terms and conditions............................................... 7.198–7.222 Delegated acts............................................................................ 7.215–7.222 Procedure.................................................................................... 7.211–7.214 Regional................................................................................................... 7.207 Union-wide................................................................................ 7.207–7.210 Bidding zone review....................................................................... 7.223–7.226 Framework guidelines.................................................................... 7.163–7.169 Monitoring....................................................................................... 7.190–7.197 Proposals for binding network codes......................................... 7.170–7.177 Proposals for non-binding network rules.................................. 7.178–7.183 Nominated Electricity Market Operators (NEMOs) Monitoring.................................................................................................... 7.156 Recommendations....................................................................................... 7.159 Request for information................................................................ 7.157–7.158 Organisation Administrative board..................................................................... 7.347–7.359 Board of Appeal.............................................................................. 7.380–7.393 Board of Regulators........................................................................ 7.360–7.371 Director............................................................................................. 7.372–7.379 Staff.................................................................................................... 7.399–7.400 Working groups............................................................................... 7.394–7.398 Procedural requirements Consultation and transparency.................................................... 7.318–7.326 Internal workflow........................................................................... 7.333–7.343 Safeguards for decisions................................................................. 7.327–7.332 Purpose of....................................................................................................7.14–7.16 Regional coordination centres Approval of tasks............................................................................. 7.144–7.145 Decision on geographical scope................................................... 7.138–7.143 Monitoring....................................................................................... 7.146–7.148 Opinions and recommendations................................................. 7.151–7.152 Request for information................................................................ 7.149–7.150 1578

Index

Regulatory authorities Application of guidelines.............................................................. 7.098–7.102 Assistance in REMIT investigations........................................... 7.103–7.107 Cooperation and Coordination.......................................................7.85–7.89 Reduction of cross-zonal capacities............................................ 7.108–7.112 Review of Decisions............................................................................7.90–7.97 Reporting................................................................................................ 14.13–14.14 Tasks ...................................................................................................... 7.024–7.315 Wholesale market integrity Collection of data........................................................................... 7.292–7.295 Coordination and cooperation.................................................... 7.300–7.306 Monitoring of markets................................................................... 7.287–7.291 Registration of participants.......................................................... 7.296–7.297 Sharing of information.................................................................. 7.298–7.299 ANODE ................................................................................................. 15.112–15.118 Arnoldstein/Tarvisio interconnector.......................................... 11.206–11.208 Azores ...................................................................................................... 11.91–11.92 Balancing.................................................................................... 3.31–3.33, 9.66–9.77 Balgarska energiyna borsa AD (BEB)........................................ 15.119–15.123 BBL pipeline......................................................................................... 11.221–11.222 Belgium ...................................................................................................... 15.46–15.48 BritNed undersea HVDC cable.................................................... 11.201–11.202 Bulgaria ...................................................................................................... 15.73–15.79 Calculation methods, flow-based...........................................................8.75–8.77 Capacity allocation and congestion management (CACM) Cross-border electricity exchange General considerations.......................................................................8.33–8.36 Calculation methods, flow-based.....................................................8.75–8.77 Congestion rents..................................................................................8.67–8.69 Constraints on available capacity................................................................8.37 Implicit allocations.........................................................................................8.80 Long-term capacity reservation agreements...................................8.38–8.41 Matching of bids and offers...............................................................8.78–8.79 Methods.................................................................................................8.43–8.57 Network Codes and Guidelines.......................................................8.70–8.73 Public service obligations..............................................................................8.42 Regional level cooperation.................................................................8.81–8.82

1579

Index

Gas Regulation Allocation of available capacity.........................................................9.30–9.45 LNG.......................................................................................................9.46–9.50 Clean Energy Package General considerations.............................................................................4.31–4.34 Unbundling.................................................................................................4.48–4.95 Closed distribution systems................................................................. 5.115–5.127 Competition distortion..............................................................................5.70–5.72 Compliance programme/officer DSOs ...........................................................................................................5.65–5.69 ITOs ...................................................................................................... 4.235–4.241 Confidentiality, System operators.............................................................3.27–3.30 Congestion, types of...............................................................................................8.74 Congestion management. see Capacity allocation and congestion management (CACM) Control, Definition.............................................................. 4.155–4.158, 5.20–5.22 Cost reflectivity, Tariffs.......................................................................... 3.123–3.150 Cross-border electricity exchange General considerations..................................................................................8.1–8.7 Background......................................................................................................8.8–8.9 CACM General considerations.......................................................................8.33–8.36 Calculation methods, flow-based.....................................................8.75–8.77 Congestion rents..................................................................................8.67–8.69 Constraints on available capacity................................................................8.37 Implicit allocations.........................................................................................8.80 Long-term capacity reservation agreements...................................8.38–8.41 Matching of bids and offers...............................................................8.78–8.79 Methods.................................................................................................8.43–8.57 Network Codes and Guidelines.......................................................8.70–8.73 Public service obligations..............................................................................8.42 Regional level cooperation.................................................................8.81–8.82 Requirements of the Regulation.......................................................8.58–8.69 Locational signals General considerations.......................................................................8.83–8.90 Requirements of the Regulation.......................................................8.91–8.96 Network security and available capacity.......................................... 8.109–8.112 Substantive rules.................................................................................... 8.001–8.112 Tariffs, Harmonisation of.................................................................... 8.097–8.102

1580

Index

Tarification Cross-border Electricity Regulation................................................8.20–8.23 inter-TSO compensation mechanism.............................................8.16–8.19 ITC guidelines.....................................................................................8.24–8.30 Principles underlying...........................................................................8.10–8.15 Transparency.......................................................................................... 8.103–8.108 Cross-border Electricity Regulation............ 8.20–8.23, 8.58–8.69, 8.91–8.96 Cross-border issues, Regulatory regime for....................................... 6.126–6.133 Cross-border Regulations..................................................................... 12.05–12.13 Customers, Protected, Definition...................................................................... 13.86 Cyprus ..........................................................................................11.41, 11.94–11.97 Data management.........................................................................................3.87–3.89 Definitions Closed distribution systems................................................................ 5.120–5.122 Control............................................................................... 4.155–4.158, 5.20–5.22 Legal unbundling.......................................................................................5.23–5.26 Protected customer............................................................................................ 13.86 Vertically integrated company.................................................................5.14–5.19 Derogations and exemptions............................................................... 11.1–11.279 General considerations.............................................................................11.1–11.8 Commission Decisions................................................................... 11.058–11.279 Emergent gas markets............................................................... 11.104–11.113 Already adopted...................................................................................11.114 Assessment criteria and procedure................................... 11.105–11.113 Isolated electricity systems....................................................... 11.061–11.103 Already adopted........................................................................ 11.88–11.99 Assessment criteria.................................................................... 11.76–11.82 Derogation procedure.............................................................. 11.83–11.87 New infrastructure.................................................................... 11.127–11.279 General considerations....................................................... 11.127–11.135 Already adopted...................................................................................11.197 Procedure............................................................................... 11.168–11.196 Substantive issues................................................................. 11.136–11.167 Take-or-pay contracts................................................................ 11.115–11.126 Article 32............................................................................... 11.117–11.118 Procedure............................................................................... 11.119–11.123 Substantive issues................................................................. 11.124–11.126 DSO unbundling.................................................................................. 11.22–11.24 Electricity Directive.............................................................................. 11.52–11.54 1581

Index

Electricity regulation............................................................................ 11.46–11.48 Emergent gas markets.......................................................................... 11.34–11.45 Gas LNG facilities............................................................................. 11.262–11.274 Storage facilities......................................................................... 11.275–11.279 Gas Regulation...................................................................................... 11.49–11.50 Granted during accession process...................................................... 11.55–11.57 Isolated gas markets.............................................................................. 11.25–11.33 Secondary Law...................................................................................... 11.09–11.57 Third Directives.........................................................................................4.80–4.91 TSO unbundling................................................................................... 11.15–11.21 Dispatching.....................................................................................................3.73–3.86 Distribution System Operators (DSOs) General considerations.............................................................................5.01–5.13 Accounting Unbundling Exemptions....................................................................................... 5.106–5.127 Requirements................................................................................... 5.073–5.105 ACER’s role in............................................................................................7.44–7.84 Autonomy and control over assets.........................................................5.51–5.64 Competition distortion............................................................................5.70–5.72 Compliance programme and officer......................................................5.65–5.69 EU DSO Entity Establishment of...................................................................................7.46–7.51 Network Codes and Guidelines.................................................. 12.88–12.89 Performance of.....................................................................................7.52–7.60 Specific duties..................................................................................................6.84 Independent management.......................................................................5.39–5.50 Legal unbundling.......................................................................................5.23–5.28 Management unbundling.........................................................................5.29–5.72 Unbundling............................................................................................ 11.22–11.24 Unbundling for electricity DSOs Aggregation and flexibility services............................................ 5.102–5.105 Citizen Energy Communities...........................................................5.86–5.89 Electro-mobility-related services......................................................5.90–5.96 Storage services................................................................................ 5.097–5.101 Eastern Partnership................................................................................ 16.45–16.46 East-West-Interconnectors............................................................... 11.203–11.205 ElecLink interconnector.................................................................. 11.2o9–11.213 Electricity. see also Cross-border electricity exchange 1582

Index

Codes and Guidelines adopted since 2009................................ 12.110–12.117 Derogations and exemptions, Commission Decisions............ 11.198–11.219 ENTSO tasks for.................................................................................. 12.67–12.73 Supply, security of General considerations.................................................................. 13.15–13.20 Investment in competitive market............................................... 13.50–13.58 Key principles............................................................................. 13.098–13.103 Management of crisis situations.............................................. 13.110–13.112 Operational security....................................................................... 13.37–13.49 Risk assessment and scenario modelling............................... 13.104–13.106 Risk preparedness plans............................................................ 13.107–13.109 Tendering.......................................................................................... 13.50–13.58 TSOs, role of.................................................................................... 13.26–13.33 Wholesale markets, role of............................................................ 13.21–13.25 Third party access Capacity allocation and congestion management................... 3.161–3.174 Direct lines....................................................................................... 3.258–3.270 Transmission system operators Confidentiality...............................................................................3.27–3.30 General duties.................................................................................3.17–3.26 Specific duties.................................................................................3.34–3.89 Electricity Directive................................................................................ 11.52–11.54 Electricity markets.......................................................................................2.01–2.35 Authorisation procedure..........................................................................2.15–2.35 Competition...............................................................................................2.01–2.14 Isolated electricity systems............................................................. 11.061–11.103 Electricity Regulation Comitology procedure........................................................................ 12.54–12.60 Cooperation between TSOs.............................................................. 12.61–12.89 Derogations and exemptions.............................................................. 11.46–11.48 Implementation..................................................................................... 12.50–12.53 Electromobility......................................................................... 3.64–3.67, 5.90–5.96 Emergency Coordination and Safeguards Gas General considerations.................................................................. 13.68–13.75 Common infrastructure standard............................................... 13.76–13.80 Emergent markets, Gas............................................11.34–11.45, 11.104–11.113 Enel Produzione....................................................................................... 15.86–15.89 Energy Charter Treaty........................................................................... 16.28–16.35 Energy Community Treaty.................................................................. 16.11–16.20 1583

Index

Energy storage...............................................................................................3.68–3.72 E.ON Földgáz Trade Zrt.................................................................. 15.103–15.111 Essent ...................................................................................................... 15.90–15.95 Estlink undersea HVDC cable...................................................... 11.119–11.200 Estonia 11.44, 11.56 EU accession, Internal Energy Market (IEM)................................... 16.04–16.10 EU Commission Connections between Member States and................................................... 15.84 Gas Directive......................................................................................... 17.14–17.16 Reporting................................................................................................ 14.06–14.12 European Economic Area Norway.................................................................................................... 16.21–16.23 Switzerland............................................................................................. 16.24–16.27 European Network of Transmission System Operators (ENTSOs) ACER’s role in............................................................................................7.44–7.84 Establishment of.................................................................................... 12.63–12.64 Network Codes and Guidelines. see Network Codes and Guidelines Reporting................................................................................................ 14.15–14.17 Tasks 12.67–12.73 FENS spol. s r.o................................................................................... 15.127–15.131 Flexibility incentives...................................................................................3.57–3.63 Gas Capacity allocation and congestion management......................... 3.158–3.160 Codes and Guidelines adopted since 2009................................ 12.097–12.109 Derogations and exemptions LNG facilities............................................................................. 11.262–11.274 Storage facilities......................................................................... 11.275–11.279 Emergency Coordination and Safeguards General considerations.................................................................. 13.68–13.75 Common infrastructure standard............................................... 13.76–13.80 ENTSO tasks for.................................................................................. 12.67–12.73 Supply, security of General considerations............................................................................... 13.18 Crisis Resolution............................................................................. 13.96–13.97 Gas security of supply Regulation............................................... 13.81–13.97 Infrastructure and storage............................................................. 13.59–13.67 Preparations for disruptions......................................................... 13.89–13.95 TSOs, role of.................................................................................... 13.34–13.36 1584

Index

Third party access, Direct lines.......................................................... 3.271–3.275 Gas Directive Analysis of amendments...................................................................... 17.24–17.78 Exemption for investment purposes........................................... 17.65–17.71 Exemption for prior completion................................................. 17.72–17.78 Extension of ISO and ITO options............................................ 17.48–17.50 Import gas pipelines....................................................................... 17.27–17.37 Transmission lines........................................................................... 17.51–17.63 Upstream networks to and from third countries..................... 17.38–17.47 Commission’s proposal........................................................................ 17.14–17.16 Consequences in practice Compliance paths........................................................................... 17.85–17.90 EU entry points............................................................................... 17.80–17.84 Tariffs, regulated........................................................................ 17.101–17.104 Third party access....................................................................... 17.098–17.100 Unbundling rules............................................................................ 17.91–17.97 Gas importation landscape....................................................................17.5–17.13 Negotiations and compromise........................................................... 17.17–17.19 Reactions against................................................................................... 17.20–17.23 Gas markets Competition...............................................................................................2.36–2.42 Emergent..................................................................11.34–11.45, 11.104–11.113 Isolated.................................................................................................... 11.25–11.33 Gas Regulation......................................................................................... 9.001–9.177 General considerations..................................................................................9.1–9.4 Access rules.......................................................................................................9.5–9.7 Balancing.....................................................................................................9.66–9.77 CACM Allocation of available capacity.........................................................9.30–9.45 LNG.......................................................................................................9.46–9.50 Charges for access......................................................................................9.08–9.18 Comitology procedure........................................................................ 12.54–12.60 Cooperation between TSOs.............................................................. 12.61–12.89 Derogations and exemptions.............................................................. 11.49–11.50 Implementation..................................................................................... 12.50–12.53 Key principles........................................................................................ 12.44–12.49 Publication..................................................................................................9.60–9.62 Third party access.......................................................................................9.19–9.27 Storage and LNG facilities.................................................................9.28–9.29 Transparency...............................................................................................9.51–9.65 1585

Index

LNG.......................................................................................................9.63–9.65 Gas storage facilities.......................................................................... 11.275–11.279 Gazelle pipeline................................................................................... 11.244–11.248 Greece .........................................................................11.40, 11.43, 11.100–11.103 HVDC cables, undersea................................................................... 11.201–11.202 Import gas pipelines, Third Internal Energy Market Package. 17.001–17.104 Independent management DSOs 5.39–5.50 ITOs 4.227–4.231 Independent System Operators (ISO) Appointment of..................................................................................... 4.187–4.193 Import gas pipelines............................................................................. 17.48–17.50 National regulatory authority and.........................................................6.82–6.83 Task of..................................................................................................... 4.194–4.202 Third Directives.........................................................................................4.54–4.56 TSOs 4.194–4.202 Unbundling............................................................................ 4.54–4.56, 4.63–4.66 Independent Transmission Operators (ITO)................................ 4.213–4.219 Compliance programme and officer................................................. 4.235–4.241 Decision making powers..................................................................... 4.249–4.251 Import gas pipelines............................................................................. 17.48–17.50 Independence......................................................................................... 4.220–4.226 Independent management.................................................................. 4.227–4.231 Investment decisions............................................................................ 4.245–4.248 National regulatory authority and.........................................................6.82–6.83 Network development......................................................................... 4.242–4.244 Supervisory body.................................................................................. 4.232–4.234 Unbundling.................................................................................................4.57–4.62 “Unbundling à la Carte”...........................................................................4.67–4.70 Infrastructure ACER’s role in....................................................................................... 7.259–7.282 Gas storage............................................................................................. 13.59–13.67 New 11.127–11.279 Infringement actions Second Internal Energy Market Packet............................................ 15.39–15.79 General considerations............................................................................... 15.36 Incorrect transposition, Jurisprudence....................................... 15.46–15.54 Non-transposition.......................................................................... 15.37–15.38 1586

Index

Third Internal Energy Market Package............................................ 15.08–15.35 Confidentiality obligations........................................................................ 15.13 Incorrect transposition.................................................................. 15.29–15.35 Non-transposition.......................................................................... 15.14–15.28 Procedure.......................................................................................... 15.08–15.12 Interconnector Greece-Bulgaria (IGB)...................................... 11.260–11.261 Interconnectors.................................................................................... 11.203–11.205 Internal Energy Market (IEM) General considerations.............................................................................1.01–1.19 Bilateral agreements.......................................................................................... 16.47 Member States with third countries............................................ 16.63–16.70 Eastern Partnership.............................................................................. 16.45–16.46 Energy Charter Treaty......................................................................... 16.28–16.35 Energy Community Treaty................................................................. 16.11–16.20 EU accession.......................................................................................... 16.04–16.10 European Economic Area................................................................... 16.21–16.27 Mediterranean Area............................................................................. 16.36–16.44 Neighbouring countries....................................................................... 16.01–16.70 Russia 16.48–16.54 Ukraine................................................................................................... 16.55–16.62 Isolated markets Electricity........................................................................................... 11.061–11.103 Gas ...................................................................................................... 11.25–11.33 Jurisprudence Infringement cases................................................................................ 15.39–15.58 Public service obligations (PSOs)..................................................... 10.20–10.28 Third Internal Energy Market Package..........................................15.85–15.131 Third party access Citiworks.................................................................3.228–3.236, 5.115–5.116 DE/DK Interconnector................................................................ 3.249–3.255 Sabatauskas....................................................................................... 3.237–3.243 Swedish Interconnectors............................................................... 3.244–3.248 VEMW and others......................................................................... 3.202–3.227 Unbundling Dambo[rv]ice..................................................................................................4.82 ElecLink............................................................................................................4.86 Porto Empedocle............................................................................................4.83 Toscana LNG Terminal......................................................................4.87–4.90 Trans-Adriatic Pipeline.......................................................................4.84–4.85 1587

Index

Latvia ................................................................................................................... 11.44 Legal unbundling....................................................................................... 4.6, 11.158 Combined network operator..................................................................5.27–5.28 Definition....................................................................................................5.23–5.26 DSOs ...........................................................................................................5.23–5.28 Liquefied natural gas (LNG) Gas Regulation CACM...................................................................................................9.46–9.50 Transparency.........................................................................................9.63–9.65 LNG facilities Derogations and exemptions......................................................... 11.262–11.274 Third party access.......................................................................................9.28–9.29 Madeira ................................................................................................................... 11.93 Malta ................................................................ 11.40, 11.52–11.54, 11.98–11.99 Management Unbundling...................................................................................... 4.6 General considerations........................................................................................5.29 Definition....................................................................................................5.30–5.38 DSOs ...........................................................................................................5.29–5.72 Mediterranean Area................................................................................ 16.36–16.44 Member States Bilateral Agreements, Third countries.............................................. 16.63–16.70 Contacts between Commission and.............................................................. 15.84 PSOs. see Public service obligations (PSOs) Third Directives, Implementation..........................................................4.71–4.79 Monitoring, National regulatory authority’s role in..............................6.77–6.78 Nabucco pipeline................................................................................ 11.227–11.234 National regulatory authority........6.001–6.149. see also Regional regulatory authority; Regulatory authorities Agency (ACER) reviews..................................................................... 6.134–6.149 Application of guidelines.................................................................... 7.098–7.102 Certification procedure of TSOs........................................................4.108, 4.147 Cooperation and Coordination.............................................................7.85–7.89 Cross border issues, Regulatory regime for..................................... 6.126–6.133 Designation of single.................................................................................6.13–6.18 General objectives......................................................................................6.51–6.58 Independence......................................................................... 6.24–6.29, 6.41–6.50 ISO and ITO..............................................................................................6.82–6.83 Management...............................................................................................6.33–6.40 1588

Index

Need for.......................................................................................................6.01–6.12 Powers..........................................................................................................6.93–6.97 Binding decisions.................................................................................6.98–6.99 Information provision.................................................................... 6.104–6.106 Investigations................................................................................... 6.111–6.113 Penalties............................................................................................ 6.107–6.110 Promoting effective competition................................................. 6.100–6.103 Procedural issues Complaints against tariffs and methodologies......................... 6.119–6.121 Dispute settlements........................................................................ 6.114–6.118 Judicial review.................................................................................. 6.122–6.125 Reporting................................................................................................ 14.18–14.25 Requirements..............................................................................................6.30–6.32 Review of Decisions..................................................................................7.90–7.97 Tasks ........................................................4.203–4.207, 4.252–4.259, 6.59–6.68 Compliance and enforcement...........................................................6.72–6.73 Consumer protection..........................................................................6.80–6.81 Cooperation..........................................................................................6.74–6.76 Monitoring............................................................................................6.77–6.78 Prevention of cross-subsidies........................................................................6.71 Reporting and Publication............................................................................6.79 Tariffs......................................................................................................6.69–6.70 Network Codes and Guidelines.................................................... 12.001–12.125 General considerations.............................................................................12.1–12.4 ACER’s role in....................................................................................... 7.184–7.226 Codes and Guidelines adopted since 2009 Electricity..................................................................................... 12.110–12.117 Gas................................................................................................ 12.097–12.109 Cross-border Regulations Florence and Madrid Fora............................................................. 12.05–12.13 Third package.................................................................................. 12.14–12.22 Establishment of.................................................................................... 12.90–12.96 European Network of DSOs.............................................................. 12.88–12.89 Modification of................................................................................ 12.118–12.125 Recasting of Electricity Regulation................................................... 12.23–12.43 Regional cooperation and coordination centres............................ 12.74–12.87 Nominated Electricity Market Operators (NEMOs)................. 7.153–7.158 Non-conformity check.................................................................................4.76, 4.78 Non-transposition check.......................................................................................4.77 Northern Ireland.................................................................................................11.114 1589

Index

Norway ...................................................................................................... 16.21–16.23 OPAL (Ostsee-Pipeline-Anbindungsleitung).......................... 11.235–11.243 Ownership unbundling...................................................................... 4.6, 4.50–4.53 Acquisition of rights............................................................................. 4.098–4.101 Application of rules........................................................................................... 4.162 Board Members............................................................................................ 4.174 Gas and electricity sectors............................................................. 4.181–4.186 Holding company situation.......................................................... 4.164–4.166 Non-controlling companies.......................................................... 4.171–4.173 Public entities.................................................................................. 4.175–4.180 TSO and supplier as parent and subsidiary............................... 4.167–4.173 EU competition rules................................................................................4.35–4.47 Third Directives.........................................................................................4.27–4.30 Control, concept of........................................................................ 4.155–4.158 Rights, concept of........................................................................... 4.159–4.161 Transmission system operator as a TSO.......................................... 4.148–4.161 Piemonte Savoia.................................................................................. 11.218–11.219 Poland ...................................................................................................... 15.68–15.71 Portugal ................................................................................................................... 11.40 Poseidon pipeline................................................................................ 11.223–11.226 Procurement of energy, For losses and reserve capacity......................3.34–3.56 Public service obligations (PSOs)..................................................... 10.01–10.44 General considerations.............................................................................10.1–10.7 CACM....................................................................................................................8.42 Jurisprudence......................................................................................... 10.20–10.28 Security of Supply Regulation and Clean Energy Package.......... 10.29–10.40 Services of General Interest (SIG).................................................... 10.08–10.13 State aid................................................................................................... 10.41–10.44 Third Energy Package Directives....................................................... 10.14–10.19 Publication, Standard tariffs................................................................... 3.106–3.118 Regional coordination centres ACER’s role in....................................................................................... 7.138–7.152 Network Codes and Guidelines........................................................ 12.74–12.87 Regional regulatory authority............................................ 6.19–6.22, 6.85–6.86

1590

Index

Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) ACER’s role in Assistance in REMIT investigations........................................... 7.103–7.107 Collection of data........................................................................... 7.292–7.295 Coordination and cooperation.................................................... 7.300–7.306 Registration of participants.......................................................... 7.296–7.297 Sharing of information.................................................................. 7.298–7.299 Regulatory authorities, Small and separate systems........................................6.23 Reporting ACER...................................................................................................... 14.13–14.14 ENTSOs................................................................................................. 14.15–14.17 EU Commission.................................................................................... 14.06–14.12 National regulatory authority............................................................ 14.18–14.25 Purpose.........................................................................................................14.1–14.5 TSOs ...................................................................................................... 14.26–14.29 Review provisions.................................................................................... 14.30–14.40 Rights, concept of.................................................................................... 4.159–4.161 Russia ...................................................................................................... 16.48–16.54 RWE Vertrieb AG.................................................................................... 15.96–15.99 Schulz & Egbringhoff....................................................................... 15.100–15.102 Second Internal Energy Market Packet Infringement actions............................................................................ 15.39–15.79 General considerations............................................................................... 15.36 Non-transposition.......................................................................... 15.37–15.38 Non-compliance with, Jurisprudence............................................... 15.61–15.82 Service of General Interest (SGI), Public service obligations (PSOs) ...................................................................................................... 10.08–10.13 SK-HU Interconnector..................................................................... 11.257–11.259 Slovak Republic........................................................................................ 15.51–15.54 Slovenia ................................................................................................................... 11.57 Slovenian-Italian Interconnectors................................................ 11.214–11.217 Solvay Chemica Italia........................................................................ 15.124–15.126 Storage facilities, Third party access.........................................................9.28–9.29 Supply, security of.............................................................................. 13.001–13.116 General considerations........................................................................ 13.01–13.14 Electricity General considerations.................................................................. 13.15–13.20 Investment in competitive market............................................... 13.50–13.58 1591

Index

Operational security....................................................................... 13.37–13.49 Tendering.......................................................................................... 13.50–13.58 TSOs, role of.................................................................................... 13.26–13.33 Wholesale markets, role of............................................................ 13.21–13.25 Gas General considerations............................................................................... 13.18 Crisis Resolution............................................................................. 13.96–13.97 Gas security of supply Regulation............................................... 13.81–13.97 Infrastructure and storage............................................................. 13.59–13.67 Preparations for disruptions......................................................... 13.89–13.95 TSOs, role of.................................................................................... 13.34–13.36 Sweden ...................................................................................................... 15.49–15.50 Switzerland................................................................................................. 16.24–16.27 Take-or-pay contracts........................................................................ 11.115–11.123 TAP (Trans-Adriatic Pipeline)...................................................... 11.249–11.256 Tariffs Cost reflectivity..................................................................................... 3.123–3.150 Cross-border electricity exchange................................. 8.10–8.15, 8.097–8.102 Gas Directive.................................................................................... 17.101–17.104 Methodology......................................................................................... 3.151–3.156 National transmission and distribution................................................8.31–8.32 Publication of........................................................................................ 3.106–3.118 Regulation of......................................................................................... 3.119–3.122 Tarification......................................................................................................8.10–8.32 Third Directives Public service obligations (PSOs)..................................................... 10.14–10.19 Unbundling.........................4.27–4.30, 4.50–4.95, 4.155–4.158, 4.159–4.161 Third Internal Energy Market Package.................................... 15.001–15.131 General considerations.............................................................................15.1–15.4 Guidance by Court, Jurisprudence..................................................15.85–15.131 Implementation..........................................................................................15.5–15.7 Import gas pipelines under............................................................ 17.001–17.104 Infringement actions............................................................................ 15.08–15.35 Confidentiality obligations........................................................................ 15.13 Incorrect transposition.................................................................. 15.29–15.35 Non-transposition.......................................................................... 15.14–15.28 Procedure.......................................................................................... 15.08–15.12 Non-compliance with.......................................................................... 15.59–15.60 Technical contacts between Commission and Member States................ 15.84 1592

Index

Third party access................................................................................... 3.001–3.275 General considerations.............................................................................3.01–3.16 Electricity Capacity allocation and congestion management................... 3.161–3.174 Direct lines....................................................................................... 3.258–3.270 System operators Confidentiality...............................................................................3.27–3.30 General duties.................................................................................3.17–3.26 Specific duties.................................................................................3.34–3.89 Gas Capacity allocation and congestion management................... 3.158–3.160 Direct lines....................................................................................... 3.271–3.275 Gas Directive.............................................................................. 17.098–17.100 Gas Regulation...........................................................................................9.19–9.27 Storage and LNG facilities.................................................................9.28–9.29 Jurisprudence Citiworks.......................................................................................... 3.228–3.236 DE/DK Interconnector................................................................ 3.249–3.255 Sabatauskas....................................................................................... 3.237–3.243 Swedish Interconnectors............................................................... 3.244–3.248 VEMW and others......................................................................... 3.202–3.227 Negotiated.............................................................................................. 3.175–3.193 Regulated................................................................................................ 3.090–3.174 Transit..................................................................................................... 3.194–3.201 Trans-Adriatic Pipeline (TAP)...................................................... 11.249–11.256 Transit, Third party access and............................................................... 3.194–3.201 Transmission system operators (TSOs) Certification procedure....................................................................... 4.108–4.146 Approval and designation of TSO........................................................... 4.112 Certification in relation to third countries................................ 4.124–4.146 Control by National regulatory authorities........................................... 4.147 General rules................................................................................................. 4.113 Launch, Procedure and timing of procedure............................ 4.114–4.123 Cooperation between.......................................................................... 12.61–12.89 Co-ordination between............................................................................8.65–8.66 Electricity Confidentiality.....................................................................................3.27–3.30 General duties.......................................................................................3.17–3.26 Specific duties.......................................................................................3.34–3.89 inter-TSO compensation mechanism...................................................8.16–8.19 1593

Index

ISOs 4.194–4.202 Maximisation of capacity use..................................................................8.63–8.64 Ownership unbundling, Acquisition of rights............................... 4.098–4.101 Reporting................................................................................................ 14.26–14.29 Supply, security of................................................................................. 13.26–13.33 As a TSO................................................................................................ 4.148–4.161 Unbundling............................................................................................ 4.001–4.259 Transmission System Operators (TSOs), Unbundling............. 4.208–4.213 Transmission system operators (TSOs), Unbundling............... 11.15–11.21 Transparency Cross-border electricity exchange...................................................... 8.103–8.108 Gas Regulation...........................................................................................9.51–9.65 LNG.......................................................................................................9.63–9.65 Ukraine ...................................................................................................... 16.55–16.62 Unbundling 2005 Sector Inquiry..................................................................................4.14–4.26 DSOs 5.001–5.127 Aggregation and flexibility services............................................ 5.102–5.105 Citizen Energy Communities...........................................................5.86–5.89 Electro-mobility-related services......................................................5.90–5.96 Storage services................................................................................ 5.097–5.101 First and Second Directives.....................................................................4.07–4.13 Gas and electricity sectors........................................................................4.92–4.95 Gas Directive......................................................................................... 17.91–17.97 Intra EU Acquisitions, Level playing field....................................... 4.096–4.107 ISOs ...................................................................................... 4.54–4.56, 4.63–4.66 ITOs ...........................................................................................................4.57–4.62 Jurisprudence Dambo[rv]ice..................................................................................................4.82 ElecLink............................................................................................................4.86 Porto Empedocle............................................................................................4.83 Toscana LNG Terminal......................................................................4.87–4.90 Trans-Adriatic Pipeline.......................................................................4.84–4.85 Third Directives.........................................................................................4.54–4.56 Derogations......................................................................................................4.91 Exemptions............................................................................................4.80–4.90 General Principles................................................................................4.63–4.66 Implementation....................................................................................4.71–4.79 “Unbundling à la Carte”.....................................................................4.67–4.70 1594

Index

TSOs 4.001–4.259, 4.208–4.213 EU competition rules..........................................................................4.35–4.47 Need for......................................................................................................4.1–4.5 Second Directives...........................................................................................4.48 Third Directives.............................................................. 4.27–4.30, 4.50–4.95 Types of............................................................................................................... 4.6 United Kingdom...................................................................................... 15.80–15.82 Vertically integrated company, Definition...........................................5.14–5.19 Wholesale markets, role of, Supply, security of............................... 13.21–13.25

1595