Explanatory Memorandum to COM(2001)125-2 - Amendment of Directives 96/92/EC and 98/30/EC concerning common rules for the internal market in electricity and natural gas - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2001)125-2 - Amendment of Directives 96/92/EC and 98/30/EC concerning common rules for the internal market in electricity and natural ... |
|---|---|
| source | COM(2001)125  |
| date | 13-03-2001 |
Contents
The European Council in Lisbon of 23-24 March 2000 called for 'rapid work' to complete the internal market and asked "the Commission, the Council and the Member States, each in accordance with their respective powers ... to speed up liberalisation in areas such as gas, electricity ... The aim is to achieve a fully functional operational internal market in these areas; the European Council will assess progress achieved when it meets next Spring on the basis of a Commission report and appropriate proposals". The European Parliament equally requested the Commission to adopt a detailed timetable for the achievement of accurately defined objectives with a view to gradually by completely liberalising the energy markets i.
The Energy Council of 30 May 2000 stressed 'the importance and urgency of the conclusions reached at the Lisbon European Council' and invited the Commission 'to present timely proposals for further action'.
In the Commission Communication 'Completing the Internal Energy Market' i, the conclusion is reached that proposals aimed at completing the internal gas and electricity markets can now be made to the Parliament and Council, which would not only achieve this primary objective but also be compatible with, and contribute to, the Community's other relevant policies in this area.
The attached proposal to amend Directives 96/92/EC and 98/30/EC therefore meets the request of the European Council and the Energy Council; it follows the recent Green Paper on Security of Supply i which highlighted the links between the acceleration of the integration of energy markets within Europe and the need to ensure security of supply.
As explained in the abovementioned Communication, if the Community is to create a real and effective internal market for electricity and gas, any proposal must contain both quantitative and qualitative elements:
-The progressive freeing of all electricity and gas consumers to choose their supplier ("quantitative proposal"). There are three reasons for pursuing an ambitious program in this respect. First, to ensure that all EU companies receive the benefits of competition in terms of increased efficiency and lower prices, leading to increased EU competitiveness and employment. Secondly, to ensure that EU consumers receive the full benefits of market opening in terms of lower domestic bills for electricity and gas. Thirdly, to ensure a level playing field between Member States in terms of market opening and hence to fully integrate the 15 national markets into one true and fully operational single market.
-Improving, in structural terms, the Community electricity and gas markets ("qualitative proposals"). Experience in market opening, not only in the Community but also in other countries, has clearly demonstrated that certain approaches to market opening are far more likely to bring about the development of effective competition. The clear majority of Member States have adopted such an approach for electricity and a large number of Member States have also done so for gas.
As the internal market develops, particularly in terms of the abovementioned quantitative acceleration, it is therefore essential that methods by which market opening is implemented gradually converge between Member States if a real internal market is to develop on the basis of undistorted competition. This is equally necessary if all the possible benefits from the creation of the internal markets for electricity and gas are to be exploited and passed on to consumers.
It is generally acknowledged that third party access based on published and non-discriminatory tariffs, and a high level of unbundling, are not only conducive but necessary to ensure effective competition. To complete the internal market, it is not sufficient therefore to fully liberalise demand, but effective market structures must also exist. In addition to the need to ensure that the maximum benefits of competition develop to the profit of Community citizens, such measures are necessary to guarantee a level playing field between Member States and to ensure non-discrimination, notably in relation to vertically integrated companies enjoying a dominant position. Indeed, it has become increasingly clear that this issue is just as, if not more, important as the level of quantitative market opening if real reciprocity is to be attained between Member States.
In addition, it is appropriate that this proposal updates the Directives: certain provisions and options in the Directives have either become redundant, or have not been selected by Member States. This concerns the tendering procedure for liberalising generation (except as a back-up measure that can be taken for reasons of security of supply) and the single buyer model for network access. These can therefore be deleted from the Directive. This clarification is particularly important in terms of providing for a level playing field in terms of market structures of the gas and electricity markets in the countries that are candidates for accession to the Community. In addition, a number of administrative issues have been simplified in order to reduce red tape. This concerns obligations in the Directives that, in the light of experience, can be alleviated. Furthermore, a clarification has been made with respect to the provisions of both Directives with respect to the accounting unbundling requirements.
It also appears appropriate to repeal Council Directives 90/547/EEC and 91/296/EEC on the transit of electricity and natural gas in order to ensure homogeneous and non-discriminatory access regimes for transmission including when this involves cross-border transport in the Community. In order to ensure consistency and avoid confusion related to access regimes and terms, it is proposed to incorporate and streamline the rules of the transit directives into the proposal for a new directive on the completion of the internal energy market thereby allowing transmission system operators access, if necessary, to the grid of other transmission system operators on conditions that are non-discriminatory.
Finally, it is appropriate to improve the existing provisions regarding public service objectives, to permit an effective and continual benchmarking exercise, and to ensure that all citizens enjoy the right to be supplied with electricity at affordable and reasonable prices (universal service) and that they enjoy a minimum set of consumer protection rights.
These improvements to the Directives and the removal of redundant provisions will also provide more clarity and guidance to the candidate countries in the adoption of reforms of their electricity and gas sectors.
It is proposed that Member States make all non-domestic electricity customers (i.e. all industrial and commercial properties) free to choose their electricity supplier by 1 January 2003, and that this be extended to all customers (i.e. 100% market opening) by 1 January 2005.
As the opening of gas markets is still behind electricity (Member States had to implement the Gas Directive 18 months after the Electricity Directive), and gas companies have had less time to prepare, it is proposed that all non-domestic gas customers be eligible by 1 January 2004, i.e. one year later than for electricity. The same deadline is however proposed as that for electricity for the introduction of full market opening: 1 January 2005, as this period is sufficiently long to permit the EU gas industry to fully prepare for full competition, and will then ensure that both internal markets are operating in parallel. This is particularly important due to the increasing convergence between the two sectors.
These proposals are made taking into account the experience of those countries that have already successfully introduced full competition, and the time that has been necessary to make all the necessary preparations, both administrative, technical and legal/regulatory, to ensure consumer protection and the respect of necessary public service objectives. In particular, it takes account of the fact that the eligibility of domestic consumers, unlike the industrial and commercial sector, often requires important preparation in terms of billing arrangements and the development of customer load profiling i. It also takes into account the intentions of a majority of Member States to introduce full competition under a timetable similar to the one proposed. The Commission Communication on completing the internal energy market clearly demonstrates that the main objectives of the Community in this area, notably high standards of public service and consumer protection, environmental protection, security of supply and socially consensual market opening, can be fully met in the context of such progress.
Two proposals are made in this respect, concerning unbundling and network access methodology. Almost all those that have commented in the context of the public hearing on the completion of the internal energy market, which the Commission organised in September 2000, stressed that high standards and clear measures with respect to both these issues are essential if effective competition is to be ensured throughout the internal market, and effective reciprocity is to exist between Member States and companies.
Unbundling: In order to ensure a common minimum standard of unbundling throughout the internal market for electricity and gas, it is proposed that Member States ensure, as a minimum, that transmission be carried out via a subsidiary company that is legally and functionally separate vis-à-vis its day to day operations from generation and sales activities of its parent company (an independent transmission system operator - TSO). A number of measures are specified that must be respected to ensure that the transmission subsidiary company is able to operate in functional terms independently of the other commercial interests of the group to which it belongs. The minimum requirements in terms of functional separation are the following:
-those responsible for the management of the transmission system may not participate in company structures responsible, directly or indirectly, for the day-to-day running of the generation/production, and supply functions of the integrated group;
-appropriate measures must be taken to ensure that the personal interests of the management of the transmission system company are taken into account in a manner that ensures that they are capable of acting independently;
-the transmission system operator must exercise full control over all assets necessary to operate, maintain and develop the network;
-the transmission system operator must establish a compliance programme, which sets out measures taken to ensure that discriminatory conduct is excluded. The programme must set out the specific obligations of employees to meet this objective. It must be drawn up and its respect monitored by a compliance officer appointed by and reporting to the President/Chief Executive of the integrated company to which the transmission system operator belongs. An annual report, setting out the measures taken, must be submitted by the compliance officer to the national regulatory authority and published.
Many respondents at the public hearing further argued that distribution should also be unbundled in a similar manner, requiring legal separation i, and stressed the importance of non-discriminatory access to distribution as vital i.
Further opening of the market will render independent distribution system operation as important as independent transmission system operation. For this reason, the Commission proposes a legal separation of electricity distribution system operators by 2003 and of gas distribution system operators by 2004 on largely the same conditions as those described above for the transmission system operator. However, Member States may decide to introduce a de minimis threshold, because it might not be proportional to impose this unbundling obligation on small local distribution companies.
It should be noted that this modification represents a greater development with respect to gas than to electricity. In the Gas Directive, only internal accounting unbundling of transmission, together with measures to ensure the non-disclosure of commercially sensitive information is required. However, six Member States have in fact moved to ownership, legal, or management unbundling, or are preparing to do so. In addition, it is worth noting that several integrated gas undertakings are pursuing similar policies of separating management and operation of transportation functions from the gas supply function. It is generally accepted that such a development will lead to a more effective and equivalent competitive structure throughout the internal market and will permit more market entry, as potential entrants will be confident of non-discriminatory access. Moreover, within integrated companies it will provide clearer cost signals and incentives to the different business functions. The adoption of this measure will thus lead to a more rapid and equitable development of an effective internal market for gas.
These provisions were the ones underlined as important by an overwhelming majority of those commenting during the hearing. In the light of experience in implementing the existing Directives, they have also proven to be the most important in ensuring effective functional independence.
Many respondents at the hearing argued that storage and LNG facilities for gas should be further unbundled and subject to regulated access. Many also argued that full ownership unbundling for transmission should take place. It is clear that measures such as these would result in more effective guarantees of non-discriminatory access. Furthermore, the Commission fully recognises the fundamental role that access to gas storage and other key ancillary facilities must play if a competitive market is to develop i. In this light, the Commission has decided to propose a clarification of the importance of access to storage, other ancillary services and flexibility instruments; strengthening the method of third party access regarding distribution and LNG facilities (see below); and to require that gas companies be obliged to identify and create separate operators responsible for storage and LNG activities (storage and LNG operators); thus increasing transparency for those requesting access to these key facilities. The Commission expects that these measures will be sufficient to ensure effective and non-discriminatory access to the gas and electricity systems. It has decided not to require, at least at present, unbundling requirements additional to this with respect to storage and LNG (i.e. not to require separate legal entities for these activities). Furthermore it is proposed to include a provision on non-discriminatory provision of balancing services for both gas and electricity.
However, the Commission will continue to monitor carefully whether effective and non-discriminatory access develops for transmission (including upstream pipelines), distribution, LNG, storage and other key ancillary facilities. In order to ensure continued examination of these issues by all Community institutions, it is proposed that the Directives be revised to require the Commission to submit a report to the European Parliament and Council, inter alia on these issues before the end of the second and fourth years following the entry into force of this revision (Articles 1 and 2), together, if necessary, with appropriate proposals for further action.
Third party access: As mentioned above, effective third party access was also identified by all respondents at the hearing as vital to ensure the development of effective competition. It is almost universally considered that the minimum system necessary to ensure non-discrimination and the necessary transparency and predictability to create effective competition to develop is published and regulated tariffs, which are applied under non-discriminatory terms and conditions to all system users, be they customers or companies, including those belonging to the group to which the TSO belongs. Such tariffs may be divided into objective classes of customers, providing that this does not result in discrimination. This system has been adopted by almost all Member States with respect to electricity, but not concerning gas i. It is therefore proposed that a published and regulated tariff structure be the minimum norm for transmission and distribution tariffs in both markets. It is important to ensure that future accession countries also implement structures compatible with the approach pursued by Member States.
In order to ensure that non-discrimination is effective in practice, Member States and national regulatory authorities will have to carefully monitor the behaviour of the legally separated transmission and distribution system operators. Thus, Member States and national regulatory authorities will need, inter alia, to ensure that transmission and distribution operators reply to access requests within a reasonable period of time. In the Commission's view a period of two weeks should, in principle, not be exceeded. They will equally need to ensure that transmission and distribution system operators do not ask questions to companies requesting access to the network, which relate to the source of the energy, the destination or the onward transport route that are not necessary for the carrying out of their responsibilities in relation to the operation of the network.
Regulation: Independent national regulatory authorities play a pivotal role in ensuring non-discriminatory access to the network, as they have the power to fix or approve transmission and distribution tariffs prior to their entry into force. Competition authorities can only act on competition distortions ex-post, while regulators have an active ex-ante function. These authorities also play a major role in issues relating to cross border trade, in the creation of a truly internal market. They also bring about regulatory continuity and transparency to the market. The proposed Directive therefore requires Member States to establish independent regulatory authorities with the competence, inter alia, to set and/or approve tariffs and conditions for access to gas and electricity transmission and distribution networks. Thus, the regulatory authority must approve the transmission and distribution tariffs prior to their entry into force. This approval may be on the basis of a proposal by thetransmission/distribution system operator(s), or on the basis of a proposal agreed between the transmission/distribution system operator(s) and the users of the network. Indeed, it is in any event appropriate for transmission/distribution system operators to consult closely with all categories of their network users prior to proposingtariffs to their regulatory authority. Although independent, these organisations will need to work closely with other government bodies such as competition authorities where these still retain the responsibility for settling other types of disputes relating to TPA, for example, questions of discrimination in individual cases.
Trade with non-EU countries: In a liberalised market there may be increased opportunities for EU businesses to trade with suppliers and customers outside the EU. Significant benefits could arise from such trade as in other industries. However, there must be agreement between the EU and third countries on reciprocal access to markets and on environmental and safety standards to prevent potential danger to the environment in the Community, particularly for the electricity market. A framework for bilateral or regional agreements could be envisaged to cover these matters. However, some Member States may already have separate arrangements with non-EU countries to exchange electricity. These agreements need to be monitored so that they are compatible with the Community objectives on, for example, nuclear power safety. Hence, the Directive requires Member States to inform the Commission of the imports of electricity from those countries to which the Electricity Directive does not apply.
To reflect the fact that a number of options in the present Electricity Directive are implemented by no Member State, and are generally accepted to be less likely to lead to the development of competitive markets than those actually implemented, it is proposed that these are deleted from the Directive. This is important in ensuring a continued level playing field with potential accession countries. Thus, it is proposed that the tendering procedure with respect to generation be deleted. However, Member States are required to make provision for the launch of tenders for new capacity that might be used as an exceptional measure for reasons of security of supply. The 'Single buyer' option with respect to TPA for electricity is also deleted.
An administrative improvement is also proposed to remove a procedural requirement that, in the light of experience, has been shown to be unnecessary, and can be deleted without reducing the effectiveness of the Directive. This concerns the requirement that in the event of a refusal to grant authorisation to construct new generating capacity, a copy of the relevant decision is forwarded to the Commission. It has become evident that this procedure is unnecessarily onerous as many such refusals take place for small facilities on simple planning grounds (Article 5 i of Directive 96/92/EC). The benefits of this procedure are therefore outweighed by the administrative burdens it imposes, particularly on local authorities. This requirement is therefore dropped. Companies that are refused authorisations retain the right, however, to refer any case they may wish to the Commission.
Article 14 i of the Electricity Directive and 13 i of the Gas Directive require that integrated undertakings maintain separate accounts for their different activities. According to the definitions contained in Article 2 i and i of the Electricity Directive and 2 i and i of the Gas Directive both transmission and distribution mean the transport of electricity/gas 'with a view to its delivery to final consumers'. Certain companies have argued that this means that it is unnecessary to maintain separate accounts for distribution and supply activities. The Commission believes this to be incorrect and incompatible with the wording and objective of this provision, notably to create transparency and effective regulation. Nonetheless to ensure full clarity on this issue, the draft Directive proposes a modification of Article 14 i of the Electricity Directive and 13 i of the Gas Directive.
With respect to the reciprocity provision, contained in Article 19 of both Directives, it is now possible to fix a final date at which this provision shall cease to be valid. As it is proposed that all Member States must designate all consumers to be eligible by 1 January 2005, the clause becomes invalid on that date.
Finally, it is proposed to repeal the Gas and Electricity Transit Directives (Council Directives 90/547/EEC and 91/296/EEC) to avoid different regimes, publication requirements, dispute settlement systems, etc. for access to the network. Transmission system operators shall, if necessary and for the purpose of carrying out their functions including in relation to transit, have access to the network of other transmission system operators based on non-discriminatory terms and conditions.
As mentioned in the Communication on completing the internal market, the attainment of public service objectives is one of the most fundamental objectives of the Commission in this area. Whilst existing provisions of the Gas and Electricity Directives have operated well to date, room for improvement exists, in particular in the context of full market opening. First, in order to ensure that universal service in electricity is ensured as market opening progresses, the Commission feels it is important to include a provision in the proposal stating that Member States should ensure universal service, meaning supply of high quality electricity to all customers in their territory (Article 3(3)). Equally, and as a complement to this, requirements (Article 3 i and (4)) are introduced upon Member States, both for electricity and gas, to introduce appropriate provisions to ensure the attainment of the public service objectives and notably:
*The protection of vulnerable customers: Member States will, for example, need to ensure appropriate protection from unjustified disconnection of, inter alia, the elderly, the unemployed, the handicapped, etc.;
*The protection of final customers' basic rights: Member States will, for example, need to ensure a minimum set of conditions for contracts, transparency of information, and the availability of low-cost and transparent dispute settlement mechanisms i;
*Social and economic cohesion: beyond universal service, where necessary, Member States will need to take appropriate measures to ensure supplies at appropriate prices to, for example, peripheral areas;
*Environmental protection; and
*Security of supply; notably through ensuring appropriate levels of maintenance and development of infrastructure, and in particular interconnections.
Furthermore, and again as a complement to the above, in order to ensure that it is clear that Member States have available all necessary instruments to guarantee network maintenance and development, it is proposed that a new Article be inserted in the Gas and Electricity Directives (Article 8 i of the Electricity Directive and Article 7 i of the Gas Directive), which states that 'Member States may require Transmission System Operators to meet minimum levels of investment for the maintenance and development of the transmission system, including interconnection capacity'.
Finally, given the vital importance of continued secure supplies of electricity as highlighted in the Green Paper of Energy Supply - probably the most important public service objective - it is necessary to take a number of additional complementary measures to reinforce the existing safeguards contained in the Electricity and Gas Directives on this point. In particular, and in addition to the requirements on Member States to provide for the possibility of launching tenders for new capacity when necessary, it would be appropriate for Member States to be required to carefully monitor the state of the domestic electricity and gas markets, and in particular the existing demand/supply balance, the level of expected future demand, envisaged additional capacity under planning or construction, and the level of competition existing on the market. On an annual basis, the Member States should be required to publish a report outlining their findings, and indicating any measures envisaged to ensure supply security. Furthermore, given that due to the highly interconnected nature of the EU electricity and gas network, the relationship between demand and supply at the Community level is of vital importance for overall system security, the Commission, on the basis of the national reports and its own monitoring work, should publish a similar Communication covering the Community as a whole. For this reason, it is proposed to include these provisions in Article 6 i of the revised Electricity Directive and in Article 4a of the revised Gas Directive.
Article 3 i of the existing Directives requires Member States to notify public service objectives to the Commission. However, as no Member State has adopted such objectives, which require a derogation from either Directive, no such notifications have been made. In order to permit an effective benchmarking exercise by the Commission, enabling Member States to ensure that they maintain the highest levels of public service, it is appropriate to amend this provision to ensure that Member States notify, every two years, all measures taken to achieve public service objectives, irrespective of whether they require a derogation from the Directive and notably the new requirements mentioned above. On this basis, the Commission should be obliged to publish a report every two years analysing the different measures adopted, and, if necessary, make recommendations as to measures to be taken to achieve high public service standards.
Finally, a fully opened market needs an internalisation of external costs to ensure a true level playing field. The Commission will therefore promote initiatives in this sense, e.g. an EU-wide energy/CO2 tax, strict rules on State aid, demand-side management measures, measures to promote cogeneration and renewables which have a competitive disadvantage as long as external costs are not fully integrated.
All the evidence available to the Commission on the basis of the operation of the gas and Electricity Directives demonstrates that all the basic objectives pursued by the internal market; lower prices, increased competitiveness, high standards of public service, security of supply, and environmental protection, are being achieved; and in a socially consensual context. Experience in countries that have moved to full market opening demonstrates that these objectives can be and are met under conditions of full competition, and can indeed be better pursued under such circumstances. The overwhelming view of those commenting in the context of the public hearing on completing the internal gas and electricity markets, and comments received in writing, support this approach.
The rapid completion of the internal market in this area represents, therefore, an important step in meeting the Community's objectives set out at the European Council at Lisbon in spring 2000. The adoption of these proposals can be expected to bring important benefits in terms of competitiveness and employment, and provide competitive prices and higher standards of service to Community citizens for gas and electricity.