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MEMO/09/176

Brussels, 21 April 2009

Q&A on the European Parliament's vote on the Third Internal Energy Market Legislative Package

Legislative procedure of the Third Internal Energy Market Legislative Package ("Third Legislative Package")

The European Commission adopted on 19 September 2007 a third package of legislative proposals to ensure a real and effective choice of supplier and benefits to every single EU citizen. The Third Legislative Package included a Regulation establishing the EU Agency for the cooperation of National Energy Regulators, an Electricity Directive amending and completing the existing Electricity Directive 2003/54, a Gas Directive amending and completing the existing Gas Directive 2003/55, an Electricity Regulation amending and completing the existing Electricity Regulation 1228/03 and a Gas Regulation amending and completing the existing Gas Regulation 1775/05 (IP/07/1361).

On 9 January 2009 the Council adopted by unanimity common positions on the five texts which make up the Third Legislative Package. The common positions contained all the essential components of the Commission's proposals that are needed to ensure the proper functioning of the internal gas and electricity market and, more generally, to achieve the essential objectives set out above. They were therefore generally supported by the Commission.

On 23 March 2009 the responsible "rapporteurs" of the European Parliament and the Czech Presidency reached a compromise which was the object of the European Parliament's vote on 21 April 2009. The Council is expected to formally endorse the Directives and Regulations forming the Third Legislative Package shortly before or after the summer break.

Twenty days after the publication of the texts in the Official Journal of the EU the Directives and Regulations will enter into force. As regards the Directives, Member States will have 18 months counted from their entry into force to transpose them into national law. Likewise, the Agency will have to be set up 18 months after entry into force of the Agency Regulation, hence early 2011.

Energy policy

What are currently the problems of the energy market? Why do we need a Third Legislative Package on the Internal Energy Market? Since 1 July 2007 European legislation has enabled all European consumers to benefit from the liberalised electricity and gas market and to enjoy the right to choose their energy supplier. However, this is not yet the reality everywhere. We therefore need new rules to solve some structural failings that are present in the electricity and gas market today. The current rules on the separation of network activities from supply and production of energy do not ensure proper market functioning. Quite a large number of network operators may still discriminate against new users of the network in favour of incumbent supply and production companies. Therefore, new companies wishing to enter the gas and electricity markets and having no choice but to use the existing networks, have difficulties when trying to enter them. Furthermore, national regulators do not have sufficient independence to carry out their duties.

What is wrong with the status quo?

The Second Legislative Package on the Internal Energy Market was adopted in 2003 and implemented at national level. There are therefore several years of experience with the second package. Together with energy regulators and other stakeholders, the European Commission has undertaken comprehensive studies, investigations and enquiries on the current electricity and gas market situation. A number of shortcomings were identified and these need to be addressed by the Third Legislative Package. The potential benefits from earlier legislation will not materialize if these new measures are not taken. There are only some provisions in the second package concerning distribution and market opening which entered into force on 1 July 2007. In these areas, the Commission does not propose any fundamental changes.

What will be the advantages for private and industrial consumers?

Consumers will benefit from the competitive energy market in many ways. The first one is freedom of choice. Europe's citizens have very different expectations on the energy market. Some focus only on prices. Others want to choose green electricity. Others want a more personalised service. Some may even wish to generate their own power and feed it to the grid. Whatever the expectations, consumers should have a choice. We have seen in other sectors that a competitive market has created more choice and innovation, specialised services, better offers, and in most cases, lower prices.

But consumers will also benefit in other ways. A competitive market with correct price signals will increase investments in new infrastructures. This will improve security of supply and reduce risks of blackouts or gas supply interruptions. And last but not least, a competitive market will help to fight climate change. Energy efficiency will improve in all parts of the supply-consumption chain. Finally, the Emissions Trading Scheme, an important measure for cutting emissions, will only function in a competitive market environment.

Consumer issues

Key issues for consumers introduced by the Third Legislative Package

Strengthening consumer rights

  • Where consumers wish to change their electricity and gas supplier, such change will have to be effected by their present and future operators concerned within three weeks from the receipt of their request by the present operator.
  • Consumers are entitled to receive all relevant consumption data.
  • Vulnerable customers[1], such as pensioners or disabled people, will be entitled to have access to the necessary electricity or natural gas supply.
  • Dispute settlement: Provision of information to customers concerning their rights as regards the means of dispute settlement. Setting up of single points of contact to provide consumers with all necessary information concerning their rights and dispute settlement mechanisms. Establishment of an energy ombudsman or a consumer body for an efficient treatment of complaints and out-of-court dispute settlements.
  • The Commission will set up a clear a concise Energy Consumer Checklist of practical information relating to energy consumer rights.

Compulsory implementation of Smart Meters

A Smart Meter could be described as 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. Above all, Smart Meters provide meaningful and timely consumption information to the relevant actors and their systems, including the energy consumer, and support services that improve the energy efficiency of the energy consumption and the energy system (generation, transmission, distribution and especially end-use).

The implementation of Smart Meters is provided for with a target of 80 % of the population to be covered by 2020[2]. The installation of Smart Meters allows for consumers to be informed precisely about their consumption and promotes energy efficiency.

How can consumers use their freedom of choice? To what end?

In principle gas and electricity markets have been open for all consumers since 1 July 2007. However, in reality many consumers have no choice, as Member States implement the rules too late or insufficiently, or they are not strict enough. Therefore the Commission proposes to strengthen them.

Consumers can already choose between different suppliers of electricity and gas in countries where the measures have been implemented correctly. They can also choose to buy both electricity and gas from the same supplier or from two different ones. They can choose between competing suppliers who will try to make sure that their clients have the lowest prices and the best possible service, for example dealing with customers’ complaints in a professional manner, making sure that switching to them as the new supplier is as easy as possible, etc. Consumers can also choose to fix their price for a few years or not, depending on their own estimates of market developments.

Consumers will still be connected to the same network, operated by a company that is regulated by the national regulatory authority. They will also still need to pay taxes on their energy bills. These rights are a result of the Second Package.

Will prices be lower?

The Commission cannot guarantee that energy prices will go down. However, studies indicate that in liberalised energy markets the difference between production- and end-consumer prices is smaller than in non-liberalised markets.[3] This demonstrates that consumers pay less for energy in liberalised markets than what they would pay in markets where there is no competition.

One of the reasons why market-opening is so urgent is that many factors may raise energy prices. The cost of energy is a combination of the cost of production, transport, service and taxes. Many power plants, transmission cables and pipelines will soon reach the end of their lifetime and will have to be either updated or replaced. This will demand huge investments. Market conditions make investors choose the most cost-effective plants, provided the price signals are right. Competition between suppliers ensures that they have the lowest production and service costs. For electricity this means that its generation should become increasingly efficient, this is also beneficial for the environment.

However, the liberalised energy market cannot influence two important price components: energy source and taxes. The price of energy is very much related to the global price of fuels, mainly oil. The oil price is determined by many factors on which European suppliers have no or only limited influence. Taxes are also part of the energy price, and governments are becoming more and more aware of the fact that energy users need to pay for the costs of the negative effects of energy consumption on the environment, most prominently climate change.

What will happen to a "vulnerable" consumer (an unemployed, handicapped or retired person) who does not have enough income to pay market prices?

Vulnerable customers already have a high degree of protection in the current legislation since the entry into force of Electricity Directive 2003/54/EC of 26 June 2003 to ensure that they have access to the energy they need to lead a decent life. This is for example guaranteed through the possibility of governments to have a supplier of last resort, or measures to avoid disconnection. The Commission is now defining more detailed binding guidelines to strengthen this protection.

How will the liberalised energy market increase security of supply? Will it help prevent blackouts or gas supply interruptions?

The dispute between Russia and Ukraine in January 2009 showed that many Member States, in particular in Eastern Europe, were severely affected by supply disruption due to the lack of an integrated and liberalised European gas market. In fact, isolated markets with only one source of gas have proven to be more vulnerable to supply disruptions than well integrated markets with gas supply from different sources. Competition between various suppliers naturally leads to diversification of sources and routes. The Third Legislative Package's provisions on Unbundling are expected to trigger new investments in networks necessary to enable diversification of routes and sources.

Both for electricity and gas, the Third Legislative Package creates a new structure of cooperation between network operators, the so called European Networks of Transmission System Operators (ENTSOs). The ENTSOs will, together with the new EU Agency for the Cooperation of Energy Regulators, create detailed network access rules. These rules will apply all over the EU to ensure that gas and electricity can flow freely within the EU. This will prove to be essential in situations of crisis, as it will enable the market to bring electricity and gas to places where it is most needed.

Moreover, the Third Legislative Package greatly enhances transparency in the gas market, in particular by providing equal access to information on the availability of gas. Further to the supply disruption in January 2009 the Council of the EU acknowledged that at EU level essential information on gas availability and gas flows is lacking. Against this background, the Council called on the Commission to ensure greater transparency in this respect. The Third Legislative Package already addressed some of these concerns, as it requires daily publication of the available gas in all storages and Liquefied Natural Gas (LNG) terminals in the EU. Such information will enable suppliers to know where gas is available and where it is needed, and it will allow regulators and governments to analyse how markets are able to cope with supply disruptions.

Also, the operators of the main gas and electricity transportation networks will have an obligation to cooperate to make the operation of the network less vulnerable to interruptions and emergency situations. The ENTSOs are required to cooperate and coordinate the operation of their networks, through the exchange of operational information and the development of common safety and emergency standards and procedures. Cooperation in emergency situations is more pertinent in electricity since it travels faster than gas, but coordination is needed for both. This should ensure that small local accidents as seen in the North East German electricity network in November 2006 do not create a major European supply interruption. The ENTSOs will also have the task of making a 10-year investment plan every two years. This will bring the infrastructure planning to a new level – from the national approach followed until now to a true European approach – and will target the investments where they are needed from the European security of supply perspective

Climate change

How will the new measures help in the fight against climate change?

On the one hand, a real internal energy market stimulates fair and competitive energy prices and energy savings, as well as higher investments. Boosting investment promotes innovation, in particular in energy efficiency and renewable energy, which are important factors in the fight against climate change. Nevertheless, neither the internal market nor the introduction of competition alone will help in the fight against climate change (see below).

How will the internal energy market help in the development of Renewable Energy Sources?

The EU’s use of renewable energy should be 20% of its energy mix by 2020. This target cannot be met without a properly functioning energy market. Without effective unbundling integrated network operators have no reason to develop the network in the overall interest of the market. With effective unbundling though, the generators, the network operators, owners and the suppliers have an incentive to invest in the generation of renewable energy and to diversify energy generation methods. Secondly, the Third Legislative Package gives access to smaller companies – for instance those that invest in renewable energy – to the networks and thus to the energy market. Third, the national regulators together with the Agency for the Cooperation of Energy Regulators should foster environmentally sustainable energy markets. They shall promote research and innovation to meet demand and the development of renewable and low carbon technologies, in both the short and the long term. The European Network of Transmission System Operators will be tasked to make a European 10-year investment plan every two years which will be a cornerstone to face the important network investment challenge in particular to accommodate the offshore wind production to the electricity system.

What is the connection between a fully functioning internal energy market and the emissions trading scheme?

Without a competitive and European-wide electricity market, the Emissions Trading Mechanism is hampered in its effectiveness. The present lack of effective competition goes a long way to explain why European electricity companies have increased their prices which include the carbon price, whilst at the same time gratefully accepting free emissions permits. On the contrary, in a competitive market with adequate carbon prices, low emissions will become a real competitive advantage and demand for efficient power plants, renewables energies, or Carbon Capture and Storage will increase, creating a market for these technologies.

How will the new measures stimulate energy efficiency?

One possibility for suppliers to be competitive in a functioning internal market is by ensuring that they have lower production costs than others. The fewer natural resources such as oil and gas are used in the production of electricity for example, the cheaper the electricity will be. Therefore fair competition in a functioning internal market stimulates investments in energy efficiency, especially in times when natural resources are becoming more expensive and the share in production costs is increasing in comparison to investment or operation costs, for example.

The other possibility for suppliers to be competitive in a functioning internal market is by providing better and/or cheaper services. These are for example services to make sure that consumers optimise their energy use, or supply contracts that are tailor-made to consumer needs. This would for example mean that if consumers stick with energy consumption in a predictive manner so that the supplier reduces his uncertainties, they can negotiate rebates on the energy price. Less uncertainty for suppliers means more efficient use of natural resources.

There are also significant gains in energy efficiency to be made in houses, for example in the light bulbs used. Energy efficiency starts with energy awareness. The Third Legislative Package therefore ensures that customers are entitled to receive all relevant consumption data, including costs, so that they are more aware of the impact of their behaviour on their bill. This will make energy-saving services more interesting for consumers. It will also enable suppliers to create tailor-made contracts for different types of customers.

Another key measure of the Third Legislative Package to stimulate energy efficiency is the compulsory roll-out of Smart Meters (see above "Key issues for consumers introduced by the Third Legislative Package").

National Regulatory Authority (NRA)

What is a National Regulatory Authority (NRA)? Why is it necessary?

A NRA may be best compared to a “watchdog”, independent from industry and political influence. Since it does not make economic sense to create an alternative gas or electricity network, the NRA will need to ensure effective and non-discriminatory access to the transmission and distribution networks for electricity and gas. The NRA controls tariffs in order to prevent unduly high tariffs. NRAs often also have other tasks which relate to the efficient functioning of the market and ensuring competition, as well as the protection of consumer interests.

Do you have other examples of markets where a regulator is necessary?

Most sectors of the economy only have a regulator in the form of the competition authority. For some sectors however competition authorities alone would not have the right tools and procedures to deal with the specificities of the sector, which means that a separate regulator is necessary in those cases. This is often seen in network industries, where competition for network services is usually not possible. This is why for example the telecom or railway sectors have specific regulators.

Member States already have National Regulatory Authorities (NRAs). What will the Third Legislative Package change?

The current rules already require Member States to have an NRA. The Third Legislative Package will make a number of significant changes, however. First of all, all NRAs should be truly independent, not only from industry interests but – with respect to their day-to-day operational decisions – also from governments. Secondly, their statutory powers and duties will be strengthened. For example, NRAs will be able to issue binding decisions on national gas undertakings and adopt the necessary measures to promote effective competition. Thirdly, NRAs will be required to cooperate with regulators from other Member States. All NRAs will have the same clear objective of promoting competition, effective market opening and an efficient and secure network.

National Regulatory Authorities (NRAs)must be independent to guarantee competition. What are you going to do to make sure they are independent?

In order to guarantee the true independence of the NRAs, each Member State must ensure that the regulator is an independent legal entity, which has authority over its own budget and which has sufficient human and financial resources to carry out its tasks. Furthermore, the NRA must have a management which is appointed for a term of five up to seven years, renewable only once, and we are introducing strict rules on the conditions under which management may be removed from office.

What are the powers of National Regulatory Authorities (NRAs)? Can they fine companies if they do not respect their rules?

The Third Legislative Package gives stronger and better defined powers to NRAs. They will be able to issue binding decisions on companies, take appropriate measures in cases where the functioning of the gas and electricity markets is insufficient and impose penalties on companies that do not comply with their legal obligations or with decisions from the NRA.

Agency for the Cooperation of European Regulators (ACER)

Is the Agency going to replace National Regulatory Authorities (NRAs)?

No, the work of ACER will complement that of the existing NRAs. ACER should act as the responsible regulator especially in situations where there is a European-wide interest. For example, where cross-border pipelines are concerned and the concerned NRAs cannot agree on a common solution, ACER will take the necessary regulatory decisions rather than the NRAs.

Why is ACER necessary if the European Group of Regulators for Electricity and Gas (ERGEG) already exists?

ERGEG has delivered a very positive contribution to the development of the internal market since the second package in 2003. Nevertheless, as ERGEG itself has stated, the powers need to be formalised, in order to take decisions in cases where national regulators cannot agree. Since only an Agency could be entrusted with binding decision-making powers, an Agency has been created to complement the work done by ERGEG.

What exactly are the tasks of ACER?

ACER will complement and coordinate the work of national regulatory authorities (NRAs). Its competences will include the participation in the creation of European network rules, taking binding individual decisions on terms and conditions for access and operational security for cross border infrastructure if NRAs cannot agree, giving advice on various energy related issues to the European institutions and monitoring and reporting. In order to take advantage of the technical expertise available, the Commission may ask ACER to provide advice on a range of technical issues, but ACER will also advise the Commission upon its own initiative within its competence.

What will be the structure of ACER?

ACER will have an Administrative Board, a Regulatory Board and a Board of appeal. A Director, who is appointed by the Administrative Board after favourable opinion by the Regulatory Board, will represent ACER. In substance, most decisions of ACER will have to be prepared and agreed to by the Regulatory Board consisting of senior representatives of the NRAs.

How much will the new Agency cost? Who is going to pay for it?

It is foreseen that ACER will have a staff of about 40-50 people. The annual budget is around €6-7 million per year. This budget will be paid from the Communities' budget.

Do the benefits of ACER compensate its cost?

The benefits of a well functioning European energy market are important. ACER is essential to addressing one of the main problems of the existing situation, i.e. the regulatory gap in cross-border trade. Although it is difficult to assess the advantages of ACER in financial terms, ACER will solve the problems that prevent the existing internal market for energy from becoming a real internal market.

Unbundling

Why is the separation between energy production and supply on the one hand and energy network activities ("Unbundling") on the other hand important?

The energy transmission network, the high voltage or high pressure main network lines, should work like highways, permitting all travellers (in the energy context: all suppliers of electricity or natural gas) to pass, thereby enabling them to access markets as it is usually too expensive to build parallel networks (the energy transmission network is considered to be a natural monopoly).

Unbundling prevents companies involved with both the generation and transmission of energy from using their privileged position on transmission to block access to energy networks to their competitors as regards the supply of energy. This will serve to eliminate conflict of interests, promote network investment and prevent any discriminatory behaviour.

Companies are currently legally unbundled. Why is this not enough?

The experience in many Member States has shown that the current unbundling requirements do not guarantee independent network operation to the benefit of all market participants. Instead, a network operator who is part of a supply company group will often be influenced by the interests of the related supply company. Competition authorities across the EU have observed this problem[4]. This means that other companies not related to the network operator, are at a disadvantage. Fair competition can only exist with a neutral and independent network operation.

What does Ownership Unbundling mean?

Ownership Unbundling means basically that the same person is not entitled to control an undertaking active in generation or supply, and at the same time to influence a transmission system operator, or vice versa. The holding of a minority share of an undertaking is allowed provided the holding of the minority share does not involve decision making rights such as voting rights in the assembly of shareholders of that undertaking.

Why does the Third Legislative Package foresee Ownership Unbundling as the primary Unbundling option?

If a network operator is in the same group as a company that produces or supplies energy, it will naturally defend the interests of the group, and its decisions will take into consideration the commercial advantage of its sister companies. In such circumstances there is little incentive to build an infrastructure that will allow new producers to enter. On the other hand, if the network belongs to a completely independent company, the main driver for the network operator will be the maximization of profit. Therefore, the more companies use its network, the higher the benefit. It will be in its own interest to allow as many companies to use the network and to build as many interconnections as possible.

Have some Member States already applied Ownership Unbundling? If so, what are their experiences?

There are numerous Member States in the EU which have, in recent years, introduced Ownership Unbundling for their electricity and gas networks. In electricity, about half of the Member States have ownership unbundled network operators; in gas there are seven Member States. The Commission has investigated the experience of these Member States in a detailed impact assessment. It appears that Ownership Unbundling has a favourable influence on investment incentives, energy prices and the degree of market concentration. At the same time, there was no indication that Ownership Unbundling would harm the companies concerned. Neither their share prices nor their credit ratings were negatively affected on average.

How can a State owned company achieve ownership unbundling?

The objective is to strictly apply the same ownership unbundling rules for both privately and publicly owned companies. In practice, this means that the same person, whether public or private, cannot have influence on a network operator and influence on supply activities at the same time. Where the State is the owner of an integrated company a possible solution is to transfer the shares and/or rights of either the network operator or the supply company to a foundation which is a separate legal person. In any case, where state-owned companies are concerned, the outcome must be that the decision processes of network operators and supply companies are entirely separate.

Which alternatives to Ownership Unbundling does the Third Legislative Package permit?

The Third Legislative Package includes two alternatives to Ownership Unbundling: the so-called Independent System Operator (ISO) and the Independent Transmission Operator (ITO).

According to the ISO option, the supply company can still own the physical network assets, but it has to leave the entire operation, maintenance and investment in the network to an independent company. This option may be considered by companies that are reluctant to sell their network assets.

According to the ITO option, Transmission System Operators (TSOs) are allowed to remain part of integrated undertakings provided they comply with detailed rules on autonomy, independence and investment.

Why would an Independent System Operator (ISO) be as effective as "ownership unbundling"?

To ensure that the ISO solution is as effective as ownership unbundling, the Third Legislative Package foresees detailed conditions with which the ISO has to comply. In particular, the independence of the ISO has to be guaranteed and the ISO has to have wide-ranging powers to operate the network and to decide on necessary investments. Moreover, the regulators have to be able to closely monitor the tasks and obligations of both the ISO and the network owner to ensure that the network functions properly and that all customers have fair access.

Are there any examples of an Independent System Operator (ISO) model in Europe?

The best known example of an ISO in the EU is the Scottish ISO for electricity. Since 2005 National Grid operates the networks of the two vertically integrated electricity companies Scottish Power and Scottish & Southern Energy. Very recently, Poland and Switzerland have established an organisational structure in the electricity sector which also resembles the ISO model.

How can the Independent Transmission Operator (ITO) model achieve the objectives of Unbundling?

The ITO model allows Transmission System Operators to remain part of integrated undertakings but provides for detailed rules ensuring their independence and thereby effective Unbundling. These rules include:

  • As in the case of the Independent System Operator (ISO) model, the ITO option can only chosen by undertakings that are vertically integrated when the Third Legislative enters into force Package (so-called grand-fathering approach), and governments cannot prevent vertically integrated undertakings from implementing ownership unbundling if they wish so.
  • The Transmission Operator has to have all the financial, technical, physical and human resources to run the grid autonomously and independently from the parent company.
  • The Transmission Operator has to have effective decision-making rights, independent from the vertically integrated undertaking, with respect to assets necessary to operate, maintain or develop the transmission system.
  • An independent management of the ITO is to be in charge of the day to day operation of the grid. It cannot be directly appointed by the parent company but is appointed by the ITO Supervisory Board. Its appointment and revocation is subject to regulatory oversight. The management of the ITO should comply with "deontology" rules prohibiting it to be involved in other areas of the vertically integrated undertaking than transmission for a period of less than three years before the appointment and a period of less than four years after the termination of its term of office.
  • A supervisory body is in charge of preserving the financial interest of the (vertically integrated) mother company in the ITO without, however, being involved in the day to day management of the ITO.
  • A compliance programme setting out the measures taken in order to ensure that discriminatory conduct of the ITO vis-à-vis suppliers using the transmission network is excluded needs to be set up;
  • A compliance officer, with wide-ranging powers has to be appointed to ensure non-discrimination in practice.
  • If the vertically integrated company refuses to invest in network projects that the National Regulatory Authority considers necessary, the National Regulatory Authority 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.
  • The National Regulatory Authority has the powers 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.
  • A specific revision clause provides for an assessment of the ITO option as regards effective unbundling within two years after implementation of the Electricity Directive, followed if appropriate, by a legislative proposal within three years after implementation of the Directive.
  • As for the other options, the ITO Transmission System Operator has to be certified by the national regulator taking utmost account of the Commission's position.

Many energy companies are large corporations that have made huge profits even at times of high energy prices. What impact will the Third Legislative Package have on such companies?

Several measures in the Third Legislative Package aim to make market entry for newcomers easier. In particular, the effective Unbundling options have the objective to achieve non-discriminatory access to networks for all market participants. With easier market entry, customers will have more choice, which will put pressure on energy prices. It has been observed that in countries with effective Unbundling, electricity prices have increased less than in countries without effective Unbundling. Moreover, the measure in the Third Legislative Package will help to overcome the segmentation of energy markets along national borders. National champions will then have to compete with each other to offer customers the best prices and services. They will therefore have to face competition in markets that they dominated. On the other hand, effective Unbundling measures also open important business opportunities for them, since they will be able to sell their energy to a European market of nearly 500 million consumers.

Third country aspects of Unbundling

Will foreign companies still be able to operate in the European market?

Yes. Non-EU companies still have ample opportunity to be active in the EU energy market. Obviously, they have to comply with the unbundling rules just as EU companies. The Unbundling rules foresee that before an undertaking is approved and designated as transmission system operator it shall be certified by the competent National Regulatory Authority. Under this certification procedure, in addition to ensuring compliance with any of the three unbundling options, the Member State has to refuse certification if this puts at risk the security of energy supply of the Member State concerned or of the Community. The national authority must consult the Commission and take the "utmost account" of its opinion.

Are these measures conceived to protect the EU companies against foreign take-overs?

The measures in the case of takeovers by non-EU companies have the objective of ensuring effective unbundling of transmission networks. The measures are clearly not motivated by a general intention to prevent foreign investments in the EU energy sector. On the contrary, such investments are welcome as long as they do not undermine competition in the internal market.

Is this protectionism?

No, to protect the openness of the market, conditions are placed on ownership of assets by non EU companies to make sure that all companies play by the same rules. The goal of the Third Legislative Package is to promote competition in the European energy markets and to promote the proper functioning of these markets.

Is the Third Legislative Package aimed against one specific foreign company?

No, External suppliers are vital to the European Union's energy future. The Community is simply seeking to ensure fair competition. The conditions placed on third country companies will be without prejudice to the international obligations of the Community and in particular WTO rules.

Transmission Network Operators

What are transmission network operators? Are they distribution companies?

Transmission network operators operate the electricity lines with the highest voltage levels, and the gas pipelines with the highest pressure, capable of transporting electricity and gas over long distances. These lines also connect different Member States. That is why problems in one country can cause problems in neighbouring countries and even further, as was shown by the electricity blackout that took place in Central Europe in November 2006.

Distribution companies run local lines which operate at lower voltages and pressures. Incidents in these networks normally remain local, but can still affect entire cities.

Does the Third Legislative Package harmonise voltage, frequency and pipeline pressures everywhere?

In technical terms, transmission networks are already quite similar regarding voltage, frequency and pipeline pressures and gas qualities for example. The Third Legislative Package aims to improve the operation of the networks and the functioning of the markets. The idea is that the transmission network operators themselves will cooperate to prepare the detailed rules (network codes) necessary for the efficient and secure operation of the networks, under the scrutiny of the Agency and the Commission which is entitled to make network codes legally binding by Comitology procedure.

Will there be one centre to manage the whole European network?

The electricity and gas networks are so big that technically it does not make sense to centralise everything. However, we expect that some central tools will be developed, for example for efficient monitoring of what is happening in the entire network and for the exchange of information.

What will be in the European investment plan?

The investment plan should look at the investment needs for the electricity and gas networks from the European perspective, not only at the individual requirements of each Member State. These commonly agreed projects will then be implemented by one or more network operators, depending on where they are situated. Projects included there would be similar to the priority projects under the Trans European Networks policy, such as the Poland-Lithuania electricity link, the France-Spain electricity interconnector, the Nabucco-gas pipeline from Turkey to Austria and new gas routes from Russia to North West Europe.

Procedure

When will the Third Legislative Package on the Internal Energy Market be adopted and enter into force?

Following the plenary vote of the European Parliament on 21 April 2009, the Council is expected to formally endorse the Directives and Regulations forming the Third Legislative Package shortly before or after the summer break. Twenty days after the publication of the texts in the Official Journal of the EU the Directives and Regulations will enter into force. As regards the Directives, Member States will have 18 months counted from their entry into force to transpose them into national law. Likewise, the Agency will have to be set up 18 months after entry into force of the Agency Regulation, hence early 2011.
For further information please see this link.


[1] It lies within the competence of Member States to define "vulnerable customers" precisely.

[2] The roll-out of Smart Meters is, however, subject to an economic assessment.

[3] CapGemini Study ordered by the Netherlands. Reference can be provided if needed. See also quotes of studies in the Impact Assessment of the Commission Proposal of 19 September 2007.

[4] Lowe, Philip et al. (2007): Effective unbundling of energy transmission networks: lessons from the Energy Sector Inquiry. In: Competition Policy Newsletter, No. 1, Spring 2007, p. 23-34. EU/Competition/EC Competition Policy Newsletter


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