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MEMO/11/125

Brussels, 2 March 2011

Questions and Answers on the third legislative package for an internal EU gas and electricity market

What is the aim of the "third energy package"?

The aim is to make the energy market fully effective and to create a single EU gas and electricity market. This will help to keep prices as low as possible and increase standards of service and security of supply.

When will the "third package" come into force?

Member States had 18 months, till 3 March 2011, to transpose the two Directives into national law. The Regulations will be applicable as of the same day.

What does it consist of?

The package consists of two Directives, one concerning common rules for the internal market in gas (2009/73/EC), one concerning common rules for the internal market in electricity 2009/72/EC) and three Regulations, one on conditions for access to the natural gas transmission networks ((EC) No 715/2009), one on conditions for access to the network for cross-border exchange of electricity ((EC) No 714/2009) and one on the establishment of the Agency for the Cooperation of Energy Regulators ACER ((EC) No 713/2009). They were adopted in July 2009.

What is new?

  • - Effective unbundling of energy production and supply interests from the network. This should eliminate any conflict of interests between these activities. Unbundling should prevent network operators from favouring their own energy production and supply companies

  • Increased transparency of retail markets and strengthening of consumer protection rules

  • More effective regulatory oversight by independent market watchdogs, the national regulatory authorities

  • Establishment of the Agency for the cooperation of Energy Regulators (ACER) to ensure effective cooperation between national regulatory authorities and to take decisions on cross-border issues

  • Better cross-border collaboration and investment: a new European Network for Transmission System Operators will bring together EU electricity and gas grid operators to cooperate and develop common commercial and technical codes and security standards.

What’s in it for consumers?

Effective and properly regulated competition will offer the best deal for consumers. The Third energy package has introduced new deadlines so that consumers can actually switch supplier within three weeks. A recent European Commission study published in November showed that although EU consumers could on average save €100 per year if they switched to the cheapest electricity offer available to them only 12% had actually done so.

What are transmission system operators and why must they be regulated?

Transmission system operators (TSOs) are the companies who operate the networks through which gas and electricity are transported. For electricity these are typically the high voltage lines connected to other Member States. In the gas sector, these are big pipelines. As transmission networks are natural monopolies, they must be subject to regulation.

What is third party access principle?

In order to have effective competition the operators of transmission networks must allow any electricity or gas supplier non-discriminatory access to the transmission network to supply customers; this is the third party access (TPA) principle. The conditions of access to the networks are regulated by national regulatory authorities. Transmission networks must furthermore apply regulated tariffs so as to avoid any abuse of dominance, and they must comply with specific rules on unbundling.

Why do we need unbundling of transmission networks?

The rules on unbundling aim at preventing companies which are involved both in transmission of energy and in production and/or supply of energy from using their privileged position as operators of a transmission network to prevent or obstruct access of their competitors to this network. Unbundling requires the effective separation of activities of energy transmission from production and supply interests.

Are there different unbundling models?

Yes. The third energy package provides for three basic models for unbundling: Ownership Unbundling (OU), the Independent System Operator (ISO) and the Independent Transmission Operator (ITO). When implementing the unbundling rules of the third energy package Member States have to decide whether to implement exclusively the Ownership Unbundling model, or leave to the TSO a choice between the different models.

Ownership Unbundling

If a Member State decides to impose full ownership unbundling, all integrated energy companies would have to sell off their gas and electricity grids. In this case, no supply and production company would be allowed to hold a majority share in a transmission system operator, nor exercise voting rights or appoint board members. Supply and production company are free to decide to whom and to what price they sell their networks.

A number of large integrated companies in the EU have already proceeded in this way. For instance in electricity both E.ON and Vattenfall Europe divested their high voltage grid in Germany, while Endesa divested its transmission assets in Spain. In gas, both RWE and E.ON sold transmission assets in Germany, while again Endesa divested transmission and distribution assets in Spain.

Independent System Operator

Under this model, the supply company can still own the physical network, but it has to leave the entire operation, maintenance and investment to an independent company.

Independent Transmission System Operator

Under this model, the supply company can own and operate the network. The management of the network must be done by a subsidiary of the parent company, which can make all financial, technical and other decisions independently from the parent company. A supervisory body is in charge of preserving the financial interest of the mother company without being involved in the day-to-day business.

When do the unbundling rules have to be complied with?

The unbundling rules have to be complied with by 3 March 2012. In case a transmission system is controlled by an entity from a Third country, the deadline for certification is 3 March 2013.

Are exemptions of the regulated regime possible for transmission systems?

Yes. This is possible for new gas or electricity infrastructure. Under the conditions listed in the Third energy package, the competent national authority may grant an exemption (full or partial) from certain obligations, including from the obligation of Third party access, regulated tariffs and unbundling, if the level of risk attached to the investment is such that the investment would not take place unless an exemption was granted. The conditions for obtaining an exemption include that the infrastructure must enhance competition and that the exemption itself must not be detrimental to competition.

Why was the new agency ACER created?

Over the years of working towards creating a well-functioning EU internal market it has become clear that national energy regulators alone and the existing advisory group – the European Regulator Group for Electricity and Gas (ERGEG) – are insufficient to cope with the tasks of regulation at the EU level. Thus it was decided to create an independent body with special expertise on technical issues. This new body ACER is independent from the Commission, national governments and energy companies.

What happens to ERGEG?

ERGEG will be dissolved in the coming months as its activities are fully taken over by ACER.

What does ACER do?

  • drafting framework guidelines for the operation of cross-border gas pipelines and electricity networks. Based on these guidelines the operators of pipelines and electricity networks will establish concrete rules;

  • checking that these rules are consistent with these framework guidelines;

  • reviewing the implementation of the EU-wide ten-year network development plans as well as national network development plans;

  • deciding cross-border issues, if national regulators cannot agree or ask ACER to intervene. This includes the method by which operators can sell the very lucrative capacities during peak hours, when demand is high;

  • monitoring the functioning of the internal market, including retail prices, available network access for electricity produced from renewable and respect of consumer rights. Each year the agency will publish a report on its findings and it may suggest to the Commission and the European Parliament measures that help remove barriers to the completion of the internal market.

When can ACER take legally binding decisions?

In case national regulators cannot reach an agreement on how to regulate cross-border energy infrastructure ACER will decide on:

  • allocating the scarce capacity of electricity cables and gas pipelines among interested market participants ("capacity allocation")

  • sharing the profits from selling the capacity and charges on cable and pipeline users

ACER may "exempt" new cross border electricity cables and gas pipelines from some of the rules of the internal energy market. The idea of such exemptions is to increase the profitability of a new interconnector in order to overcome certain risks which fend off its investors. But this is subject to the approval by the European Commission which must approve any type of exemption from the internal market rules, also including exemptions granted by national regulators.

How does ACER work?

The governance of ACER consists of Director Alberto Pototschnig, an Administrative Board (nine members elected by the European Parliament, the Council and the Commission), as well as a Board of Regulators (27 members of high-ranking staff from national energy regulators) and the Board of Appeal (six members appointed by the Administrative Board).

What are framework guidelines and network codes?

All electricity networks and gas pipelines operate according to certain rules which regulate who may use such networks to transport energy across borders and under which conditions. These rules address aspects of network security and interconnection, as well as the access of persons other than the owners of such an infrastructure ("third party access").

The framework guidelines which ACER will develop over the coming years, will set out general principles for these network rules. Network codes are drafted by the European Networks of Transmission System Operators (ENTSO-E and ENTSOG) in coherence with the principles that ACER sets out in the framework guidelines. Network codes can be made legally binding by a separate Commission decision.

When can ACER draft network codes?

In exceptional circumstances when the ENTSOs fail to produce network codes that are in line with the framework guidelines ACER may draft the network codes itself.

How far are the tasks of ACER different from those of national energy regulators?

The tasks of ACER and those of national regulators are complementary as ACER facilitates the cooperation between national regulatory authorities and as its competencies relate to cross border infrastructure. ACER's task of drafting framework guidelines and (exceptionally) also network codes concern cross-border infrastructures only, not purely domestic cables and pipelines, which fall under the competency of national regulators.


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