sou · GNB3115d1 · 2000-01-01 00:00:00 — The objective of the Environmental Code is to promote sustainable development and thus assure present and future generations of a healthy and good living environment. Other laws are the Road , the on Ancient Monuments, the on the Shelf, and the on Flammable and Explosive Goods. There are also detailed safety provisions. Inspectorate of Explosives and Flammables has issued, among others, the National Inspectorate and Explosive and Flammables Natural Gas Regulations and General on the Regulations. The regulations apply to the design, laying and operation of natural gas pipeline systems. The right to use land for gas pipelines is regulated by the Pipeline Rights , and the Expropriation . Chapter 7 contains an outline of the EC Natural Gas Market Directive. The main purpose of the directive is to create a competitive market for natural gas. The Directive contains common rules for access to the system, transmission, distribution, delivery and storage of natural gas, etc. The central provisions of the Directive to increase competition are in Chapter VI which governs access to the system. The main objective is to give third parties access to the system, i.e. to give the customer an opportunity to choose his gas supplier. The Directive allows for different procedures for access to the pipeline network. The choice is available between negotiated and regulated access, or both of these procedures. Regulated access gives the legal right to use the network on payment of published tariffs and/or other conditions and obligations. On the other hand, negotiated access gives the right to negotiate the conditions for access to the networks. The member states shall specify which in the respective country shall have access to the system, with the aim of concluding agreements or of purchasing natural gas. The definition of such "entitled " is designed to lead to the opening of the market which corresponds to 20 percent of the total annual gas consumption on the national market. This proportion should increase to 28 percent five years after the Directive has come into force and to 33 percent after 10 years. The member states shall adopt the necessary measures for safeguarding that at least who have gas-fired electric power generation (with some exceptions) and other end users who have an annual consumption of more than 25 million m3 of gas per consumption point are designated as entitled . For the group of other end users, the threshold shall be lowered to 15 million m3 5 years after the Directive has come into force, and 5 million m3 after 10 years. Another important item in the Directive is its provisions for separate accounting (Chapter V). A central element is to avoid discrimination, cross-subsidizing and distortion of competition. Integrated natural gas companies shall therefore have separate accounting in their internal book-keeping for the fields of transmission, distribution and storage of natural gas and, where appropriate, shall prepare collective accounts for the activities outside the gas sector, in a that would have been required of them if the relevant activities were pursued in separate companies. Other main items in the Directive include Chapter II which deals with general rules for the organization of the sector. This includes the provision that member states can direct natural gas companies, in the public economic interest, to provide public services. These may concern safety, including security of supply, regular deliveries, quality and price of deliveries, and also environmental protection. Such services shall be clearly defined, open, non-discriminatory, and capable of being checked. With reference to public service obligations, it is possible to exclude the application of certain sections in the Directive. The chapter also deals with permission to build or operate natural gas plants. Chapter III regulates certain matters related to transmission, storage and/or LNG companies. The companies shall operate, maintain and develop safe, reliable and efficient transmission, storage and/or LNG plants on commercial terms, with due consideration to the environment. Under no circumstances may companies discriminate between different system users or categories of system users, particularly if such discrimination would be to the benefit of its associated companies. The companies are also charged with some information responsibilities. If the information is commercially sensitive, it shall be treated confidentially. Chapter IV contains largely corresponding provisions for distribution companies. The only difference is that member states can charge distribution companies and/or supply companies with responsibility for supplying in a certain area and/or of a certain category. The Natural Gas Market Directive can also allow various forms of exemptions from the rules on matters such as market opening and access to the system. In the case of Swedish companies, an application can be lodged with the Commission for a temporary exemption (maximum of 10 years) if the Directive were to cause serious problems within a geographically limited area, especially as regards the development of the transmission infrastructure, and if the objective is to encourage investments. Moreover, a natural gas company can apply for a temporary exemption from the rules concerning access to the system if the company faces or risks facing serious economic or financial difficulties due to "take or pay" undertakings. The rules in the Natural Gas Market Directive specify the targets that should be achieved, while the member states themselves can choose the way in which they should be achieved. The make-up of the Directive thus gives every member state a certain amount of latitude in choosing the arrangement which is best suited to a certain situation. analyses various ways of achieving the targets and the effects that may conceivably arise if one alternative or the other is chosen. The choice of access form to the gas pipeline networks, which is the central part of the analysis in the chapter, can be assumed to affect the gas market and its players in different ways. Two important areas are how competition and readiness to invest are affected. The Natural Gas Market Directive is aimed at increasing competition on the gas market, but a well established infrastructure for natural gas is also one (of several) condition for achieving an effective market. In a sense, a conflict situation thus arises between the objective of achieving effective competition on the natural gas market and the economic incentives for setting up the infrastructure for natural gas. Significant economic risks are generally incurred in infrastructure investments. The traditional method of reducing the economic risks of network owners has been the vertical integration of transmission and supply, combined with long-term contracts with . This has substantially limited the access to the networks to third parties and has reduced the competition. Competition aspects and readiness to invest in the infrastructure must therefore be weighed against one another. A central question will therefore be how the two access forms affect the readiness to invest in the infrastructure. A concrete assessment that must be made in this context is how regulated access weakens the incentive to such an extent that negotiated access should be given preference to regulated access. The analysis indicates that the requirement for examination and publication of tariffs in regulated access limits, to some extent, the freedom of action of network owners compared to the situation in negotiated access. Negotiated access gives the network owner certain opportunities for affecting the competitive situation in gas supply. It is thus probable that the incentive to invest in the natural gas infrastructure is stronger in negotiated access than it is in regulated access. However, the economic conditions for up the infrastructure can also be influenced by traditional energy policy regulatory means such as taxes and other rules. These measures can be designed just to promote investments in the infrastructure and can therefore be more effective in this respect than regulations aimed at creating competition on the market. Moreover, the nature of the credit market has changed after most of the gas system had been built up, and the need for long-term commitments has therefore lessened. At the same time, it is probable that a system of negotiated access is more demanding on resources and involves greater uncertainty for potential users of transmission and distribution networks than a system of regulated access. This means that negotiated access involves higher costs and more uncertainty in gaining on the natural gas market than would be the case in negotiated access, which limits the competition. The chapter also analyzes the degree of market opening in . The definition in the Natural Gas Market Directive of what is the least that should be regarded as an entitled customer leads to an opening of the Swedish market by about 45 percent when the Directive is implemented. After 5 years, the market opening will increase to 50 percent and after 10 years, to around 60 percent. Even if the market opening is relatively large, it is only 25 to 30 end who will be entitled . Distribution companies are not included in the provisions of the Directive on what is the least that should be regarded as entitled . However, studies indicate that the economic efficiency is low in many European distribution companies. One way of increasing the efficiency would be to regard these as entitled and give them access to the transmission networks. However, it is open to discussion what proportion of can gain access to the systems in practice. has the right to transport 2 billion m3 of gas annually in the Danish system, and there is therefore some uncertainty. Another uncertainty factor is in the choice of access form in and in the fact that the Danish production capacity is gradually declining. It will be important to gain access to the Danish and other transport systems to be able to put to use other import options. The analysis also indicates that the provisions of the Directive concerning entitled may encourage cross-subsidizing and changed price behaviour. It is basically only bigger who can put the increased competition to use for assuring themselves of lower prices, while the domestic sector, for example, is excluded. In such a situation, the risk of cross-subsidizing is greater in the sale of gas to big than in sales to households, for example, since the competition in the former case is much stiffer than in the latter. This can also give rise to upward price pressure for the consumer groups that cannot, in practice, purchase gas in competition between different suppliers. In order to avoid elements of discrimination, cross-subsidizing and distortion of competition, the Natural Gas Market Directive includes provisions for separate accounting. In their internal book-keeping, integrated natural gas companies must keep separate accounts of the operations of transmission, distribution and storage of natural gas. The objective is that financial surpluses from monopoly operations (such as transmission) must not be used for subsidizing operations that are open to competition, such as trading in gas. The requirements of the Directive are minimum requirements. Other alternatives could be that the network operations and other operations are pursued in separate companies. Such separate companies could also have separate owners. The analyses presented in the chapter indicate that it may be relatively complicated to prevent or impede certain cross-subsidizing by separate accounting. Even if demands are made that monopoly operations and operations open to competition shall be pursued in separate companies, it would be complicated to draw up regulations that would prevent cross-subsidizing. As an example, studies have shown that cross-subsidizing could occur in the Swedish electricity market, for example. This is in spite of the fact that a corporate body that pursues network operation must not pursue the generation of or trading in electricity. It is impossible to specify in detail the conditions that must be met for separate accounting to be performed satisfactorily. For it to perform acceptably, it would probably be necessary to define clearly the functions that will belong to the transmission operations. Demands are also made on accounting principles, cost verification and an effective supervisory authority. If such conditions are met, and given that the network operations and operations that are open to competition can be kept apart, there is probably no significant difference from the competition viewpoint between the requirements of the Gas Market Directive for separate accounting and separate companies. Another alternative would be to demand separate companies which should also have separate owners. However, there is the risk that such a far-reaching separation could be an obstacle to the development of a natural gas market. An important aspect is whether should utilize the opportunity to charge natural gas companies with public service obligations. The concept of public services is not clearly defined, but for certain , the market prices for certain services, for example, can be perceived as being insuperably high. Another example is that various requirements of the authorities could give rise to extra costs which cannot be passed on to certain customer categories. To make such services accessible to everyone, one or more gas companies must be charged with the task of providing the services. However, such requirements must be combined with a possibility for the companies to cover the extra costs that arise. This can take place, for example, by the companies being protected from competition within certain market segments. However, the main objective of the EC Natural Gas Market Directive is to increase competition and achieve efficiency gains in the longer term. It should therefore be possible to demonstrate that the gains from such action would exceed the costs, i.e. that the efficiency losses caused by providing public services are lower than the gains from increased access to the networks. It should also be analyzed whether conventional economic policy measures would not have a greater distribution policy security than legislation in the field of natural gas. The Natural Gas Market Directive contains three different forms of exemptions from the rules concerning access to systems and/or opening of the market. For , an exemption could be claimed only if the implementation of the Directive would cause serious problems in a geographically limited area, especially as regards the development of the infrastructure for transmission and if the objective is to encourage investments. Such an exemption is decided by the Commission. Heavy new investments in gas infrastructure pose the risk of being unprofitable in the type of competitive market that could conceivably emerge when the Gas Market Directive has been implemented. This is the background against which the exemption has been introduced in the Directive, i.e. to encourage new investment in areas that were not earlier supplied with natural gas. As stated in Chapter 5, a number of such investments in are analyzed. The exemption leads to a temporary limitation of the competition on the natural gas market and is aimed at reducing the economic risk in the expansion of natural gas. The actual risk may also be related to uncertainty concerning the natural gas demand in the relevant area. However, the uncertainty concerning the future demand for natural gas can also be highly dependent on the uncertainty concerning future taxation of natural gas compared to the taxation of other energy types (cf. Chapter 3). The exemption rule can also favour vertically integrated natural gas companies, to the disadvantage of companies with a different structure in its operations. Network industries have traditionally been built up of vertically integrated state companies. However, this has taken place in times when the capital market was much less developed than it is today. In view of the currently well-developed capital market, totally different opportunities may be available for up separate infrastructure companies. If the exemption rule were applied, there would be reason to analyze its effect. As an example, it may be justified to counteract contract forms that would make many bound, after the 10-year period, by very long-term commitments. The risk is otherwise incurred that, after a long time, the temporary exemption rule would lead to the formation of a number of regional monopoly markets in the event of an expansion of the network. A form of exemption other than those discussed above is that in which a natural gas company, which has ended up or is expected to end up in serious economic and financial difficulties due to 'take or pay' commitments, applies for temporary exemption from the access rules. Gas companies on the Swedish gas market are tied by traditional and long-term 'take or pay' commitments. The import agreement entered into by with /S, for example, expires in 2003, 2006 and 2010. Such commitments could lead to heavy losses if the networks are opened to access. An analysis of contracts and how these affect the incentive structures indicates that the agreement date may be of importance. If exemptions were to be granted for agreements that were concluded after the EC Natural Gas Market Directive has become known, this may lead to the players on the market being given the opportunity, in practice, to override the regulations that govern the market. For agreements concluded before the EC Directive became known, the rule changes that retroactively alter the conditions for commercial agreements may make the players on the market unwilling to conclude agreements with long-term effect. However, it is important that any exemptions granted should be of limited duration, so that the players on the market are given clear indication of the rules of the game that will apply. Chapter 9 contains a review of how the work of introducing the Natural Gas Market Directive is developing in our neighbouring countries and in countries that can be regarded as being of particular significance to the Swedish gas market. The countries analyzed are , , , and . However, in many of these countries, the work has not been completed, and work is in progress on adapting the legislations in the field of natural gas to the Directive. In the light of this, it is currently impossible to report, in most cases, on the explicit standpoints that have been taken. However, more general views can be reported. There are clear indications that negotiated access will be chosen in . There are also clear indications that the market opening will initially be limited to 30 percent and that distribution companies will not be entitled . In , a working committee has suggested regulated access. Since the country is not connected to the interconnected European system, the access form is basically of no importance. However, the regulated access means that some limited trading will take place between major . has a very limited domestic market and has not yet reported on the access form. Since 1998, has had a completely liberalized market with regulated access, so that all have free choice of their gas supplier. Work is in progress in on drawing up the natural gas legislation. However, is currently oriented towards negotiated access, and all will be entitled. suggests that new legislation be introduced in the field of natural gas. The reason for this is that the EC Natural Gas Market Directive, which is to be implemented in Swedish legislation, is appreciably more far-reaching and comprehensive than the present Swedish legislation in the field of natural gas, which basically contains rules concerning concessions. The new Natural Gas mainly governs activities related to concession, obligations of the pipeline owner, separate accounting and supervision. The construction of a major natural gas pipeline is a complicated process that may give rise to substantial impact on the environment. The present Pipeline gives society an opportunity to examine the construction and run of certain pipelines for conveying substances such as natural gas. In our opinion, the Pipeline has performed satisfactorily, and the main elements of the current concession system should therefore be retained. Our proposal is as follows: A concession should be required for running and using a natural gas pipeline and for constructing and using a natural gas storage facility. The Government should examine the concession issue. Natural gas pipes which are to be used mainly for meeting the needs of individual households and companies or are to be used exclusively in port and industrial areas should not be exempted from the obligation to obtain a concession. Concession may be granted only under certain conditions. The natural gas pipeline must be suitable from the general public viewpoint. The applicant should be suitable from the general public viewpoint to pursue the operations covered by the concession. The concession must not be in conflict with a detailed development plan or regional regulations. However, minor departures may be made if they do not run counter to the purpose of the development plan or the regional regulations. Certain provisions of the environmental codes shall be applied in the examination. An environmental consequence description must be included in an application for a concession. The purpose of suitability assessment is mainly to prevent the running of natural gas pipelines that are socio-economically unnecessary, or pipelines being run in such a that they cause unnecessary intrusion, to the detriment of third parties. The concession shall relate to a natural gas pipeline with a basically predetermined run. A concession may be tied to conditions for matters such as protecting the environment. A concession shall be granted for 40 years. On application by the concessionaire, the duration of the concession may be extended by 40 years at a time. The transfer of a concession demands special permission. The suitability of the proposed new holder shall be examined in the same as in an application for a new concession. A concession may be revoked if the natural gas pipeline is no longer used and is not needed to safeguard the supply of energy, or if the concessionaire neglects his obligations. If a concession should expire, the most recent holder of the concession is responsible for removing the natural gas pipeline and adopting other restoration measures if this is necessary from the public or individual viewpoint. Obligations of the pipeline owner The chapter describes the fundamental principles for achieving increased competition on the gas market. In the opinion of the committee, it is important for the natural gas market in to be open to competition. To achieve increased competition in natural gas trading, buyers and sellers on the natural gas market must be given an opportunity to use the natural gas pipelines. In our opinion, the provisions of the Natural Gas Market Directive concerning access to the system are the central tools for achieving increased competition on the natural gas market. It is possible to choose either negotiated or regulated access, or both of these procedures. suggests that access to the natural gas pipelines should be based on a regulated procedure, with published tariffs. The principal reason for our suggestion is that regulated access gives rise to lower costs and less uncertainty than negotiated access, and therefore gives rise to less obstacles to access to the market. It thus has the most beneficial effects on competition and thereby on consumer interests.