EN Official Journal of the European Union C 132/108

Opinion of the European Economic and Social Committee on the ‘Proposal for a regulation of the European Parliament and of the Council on energy market integrity and transparency’

COM(2010) 726 final

2011/C 132/21

Rapporteur-general: Mr IOZIA

On 22 December 2010 the Council decided to consult the European Economic and Social Committee, under Article 194(2) of the Treaty on the Functioning of the European Union, on the

Proposal for a regulation of the European Parliament and of the Council on energy market integrity and transparency

COM(2010) 726 final.

On 18 January 2011 the Committee Bureau instructed the Section for Transport, Energy, Infrastructure and the Information Society to prepare the Committee's work on the subject.

Given the urgent nature of the work (Rule 59 of the Rules of Procedure), the European Economic and Social Committee appointed Mr IOZIA as rapporteur-general at its 470th plenary session, held on 15 and 16 March 2011 (meeting of 16 March), and adopted the following opinion by 150 votes with five abstentions.

1. Conclusions and recommendations

The EESC:

1.1 supports and endorses the Commission proposal to promote measures to prevent the manipulation of wholesale energy markets and to make them more transparent. This provision is based on a joint study that the Committee of European Securities Regulators (CESR) and the European Regulators Group for Electricity and Gas (ERGEG) were asked to carry out, which highlighted a number of regulatory gaps concerning the wholesale gas and energy market;

1.2 supports the choice to use a regulation on the legal basis of Article 194 TFEU, owing to the need for a completely common set of rules and to the importance of the provisions of the new Lisbon Treaty article on energy in general and the development of the internal market in particular, as set out in point 2;

1.3 welcomes the decision to use delegated acts, which bring needed clarity to important aspects of the regulation such as the definition and timeframe for collecting data, under Article 290 TFEU which introduces this new administrative instrument in order to simplify the work of the European institutions. These delegated acts must be issued in full compliance with the provisions of the Treaty and with sufficient public notification; suggests that a specific period be set when issuing the delegated acts, as laid down in Article 290, in order to allow the regulation to be applied swiftly and uniformly. Without delegated acts, countering market manipulation will be problematic in the future; recommends that civil society stakeholders be involved in preparing the delegated acts and suggests that examples be included in the recitals;

1.4 feels that the efficiency of cross-border markets bolsters security of supply, optimal crisis management and a lower risk of additional costs, which are inevitably passed on to the final user. Steady improvements in the internal market in energy generate considerable savings, benefiting both companies and private users;

1.5 considers that the powers to be conferred on the national regulatory authorities are comprehensive and penetrating, and calls for the establishment of a procedure to monitor, relatively rapidly, the Member States' pledge to grant the national regulatory authorities effective powers of inspection and investigation, on a common, harmonised basis. Differences in regulatory systems have been and continue to be a factor in the delay in completing the single energy market;

1.6 welcomes the regulation's aim of enhancing coordination between the national authorities which regulate energy markets, those which regulate financial markets, the Agency for the Cooperation of Energy Regulators and the Committee of European Securities Regulators. The EESC has been calling for this steady process of integration and cooperation for some time;

1.7 believes strongly that steps must be taken to increase participants' confidence in the market as participants must be sure that they are operating in a market which punishes market abuse with effective, dissuasive and proportionate penalties; recommends that the Commission monitor the regulation's implementation by the Member States which must work together to ensure that the energy market does not repeat the events which occurred in the financial markets through regulatory arbitrage, whereby transactions take place in places where regulation is more flexible or tolerant with regard to penalties;

1.8 questions whether the costs incurred in implementing the regulation should all be paid from the public purse or whether market operators should bear part of them; in some countries, for example, the authorities which monitor the financial markets are partly funded by those they monitor;

1.9 believes that it is vital to step up cooperation and coordination between transmission system operators. Setting up a European Network of Transmission System Operators (ENTSO) will boost the possibility of creating network codes which will ensure effective and transparent access to transmission networks. These network codes must be consistent with the framework guidelines, which do not have binding force, to be issued by the Agency;

1.10 notes that the playing field is not level and discrimination persists in the EU's wholesale energy markets; market integration is completely inadequate partly as a result of structural deficiencies in the network and especially in cross-border interconnection. There are still major obstacles impeding non-discriminatory access to the network and the sale of electricity. Checks conducted by regulators have not yet achieved a uniform level of effectiveness and some markets are still isolated and closed to penetration by other operators;

1.11 therefore supports the Commission's efforts to abolish barriers to achieving an efficient and integrated internal market, with the advantages to be shared between generators, operators and consumers;

1.12 believes that it is imperative to continue building a Europe of energy, in which the general interests of the EU and of consumers are protected, energy supply is guaranteed, social, environmental and economic sustainability is safeguarded by means of well-designed policies which share out the benefits and ensure that the costs are reasonable, and market integrity is defended as a crucial component in the development of the social market economy;

1.13 being aware of the gradual financialisation of energy markets with financial markets, the EESC believes that close cooperation is essential between the various European agencies and authorities which preside over and protect the markets and welcomes the fact that the regulation on electricity and gas market manipulation and transparency has drawn on the general rules on market abuse which are already in force in the financial sector and which will be updated in the near future; consequently, deems that this regulation should be coordinated with the revision of the Market Abuse Directive (MAD);

1.14 calls for the guiding principles on which the new MAD draft directive is based to be included in the final text of the regulation; in particular calls for the following aspects to be taken into account: increased market integrity, more vigorous implementation of the legislation against market abuse, diminished national discretion in respect of the application, suitability and dissuasive capacity of penalties, the introduction of harmonised standards and the scaling back of unfounded administrative obligations particularly for SMEs, the need to increase transparency, and the efficiency of oversight authorities;

1.15 stresses the importance of relations with third countries and is pleased that the Agency conducts such relations and can sign agreements with international organisations and third-country administrations.

2. Introduction

2.1 There have been several major changes in the internal market in electricity and gas, one of the most important of which has undoubtedly been to grant multiple stakeholders access to power exchanges and extending cross-border trading within the EU, helping optimise the use of power generation and expanding the demand base.

2.2 Many obstacles remain to the completion of an efficient, functional and reasonably-priced internal market. Consumers have not benefited particularly from the development of the internal market, which is struggling to gain speed owing to resistance from some monopoly holders supported by their respective national governments. A case in point is the debate on unbundling ownership of generation from that of transmission and distribution, which has not yet been settled in several major Member States but which cannot remain as it is after 3 March 2013.

2.3 The five legislative measures on energy and gas known as the ‘third package’, which must be incorporated into all national legislation by 3 March 2011, help to establish better conditions for the completion of the internal market.

2.4 Partly owing to the decrease in the consumption of electricity and gas, there have been significant delays in the programme to develop interconnection between Member States, and between the EU and its third-country partners. This is one of the primary factors hindering the completion of the internal market and which the Agency must monitor constantly.

2.5 Legislative delays have resulted in a situation whereby the wholesale energy and gas market is vulnerable to potential manipulation and suffers from a lack of transparency, which in the long term has the damaging effect of undermining the market's credibility and the operators' confidence.

2.6 The efficiency of cross-border markets bolsters security of supply, optimal crisis management and a lower risk of additional costs, which are inevitably passed on to the final user. Steady improvements in the internal market in energy generate considerable savings, benefiting both companies and private users in terms of consolidating generation, matching supply and demand easily in a fluid and efficient market and tailoring supply to specific needs.

2.7 In this context and after careful analysis, the Commission has issued a proposal for a regulation to promote market integrity and transparency and prevent market manipulation.

3. Commission proposal

3.1 The EU will certainly gain from being able to count on a wholesale electricity and gas market which is fluid, orderly and functional and above all protected from manipulation which would have a heavy impact on the final user. If the objective of an efficient European wholesale energy market by 2015 is to be met, measures must be adopted promoting orderly and smooth market development.

3.2 In 2007, the Commission asked the Committee of European Securities Regulators (CESR) and the European Regulators Group for Electricity and Gas (ERGEG) to study the gaps in the markets' regulatory framework and to present proposals to improve its transparency and integrity in transactions and contracts to supply gas and electricity, as well as in derivatives.

3.3 This study was extremely valuable and formed the basis for the Commission proposal.

3.4 The Commission proposes that a regulation be adopted which explicitly prohibits any form of abuse in the wholesale electricity and gas markets, particularly insider trading and market abuse, in line with the Market Abuse Directive; the regulation does not however apply to the related financial instruments which are already governed by the directive. This proposal is based on Article 194(1)(a) TFEU, which gives the EU the responsibility of ensuring that the internal market in energy functions properly.

3.5 The prohibition on insider trading is accompanied by the obligation for market operators to divulge all inside information available to them pertaining to their activities and which relate to the capacity of the facilities for the generation, storage, consumption or transport of electricity or natural gas.

3.6 In accordance with the provisions of the new Treaty, as set out in Article 290 TFEU, the Commission plans to issue delegated acts, a new legislative instrument which enables the Commission to amend the technical elements of a directive or regulation by means of a simplified procedure.

3.7 The specification of the definition of market manipulation or attempted manipulation will be drawn up on the basis of delegated acts of the Commission. They will take into account the functioning of the markets, the potential impact on wholesale energy markets of generation, consumption, the use of transmission or the use of actual or planned storage capacity, network codes and the framework guidelines adopted in accordance with Regulations 714/2009 and 715/2009.

3.8 The regulation in question makes the Agency for the Cooperation of Energy Regulators responsible for monitoring negotiations and collects the data needed to assess market performance.

3.9 The Agency collects information partly through the record of wholesale energy market transactions, including orders to trade. This information is shared with the national regulatory authorities, the financial regulators, the competition authorities and other competent authorities.

3.10 The trade repositories will make their information available and in turn the financial regulators will forward reports on transactions in energy products to the Agency.

3.11 The regulation envisages close cooperation between national authorities, between these authorities and the ESMA (the European Securities and Markets Authority), and between the Agency and the ESMA, should it suspect present or past conduct constituting market abuse.

3.12 Penalties are a matter for the Member States, which must adopt effective, proportionate and dissuasive measures (for the definitions, see Article 2 of the regulation).

4. Comments by the EESC

4.1 The EESC endorses the Commission proposal, which would remedy market opacity and which would indirectly support the development of the wholesale internal market in electricity and gas.

4.2 The Committee entirely agrees with the choice of legal basis for the regulation: Article 194 implicitly authorises the Commission to issue acts intended to develop and consolidate the internal energy market. A regulation is certainly the most appropriate instrument to guarantee uniform standardisation which is both immediately applicable and consistent with the objectives of harmonisation which are vital for the smooth functioning of the internal market.

4.3 The playing field is not level and discrimination persists in the EU's wholesale energy markets. Market integration is completely inadequate partly as a result of structural deficiencies in the network and especially in cross-border interconnection. There are still major obstacles impeding non-discriminatory access to the network and the sale of electricity. Checks conducted by regulators have not yet achieved a uniform level of effectiveness and some markets are still isolated and closed to penetration by other operators. The EESC recommends that the Commission monitor the Member States' implementation of European legislation, supporting interconnection projects and removing obstacles, in particular by penalising obstacles to the completion of an internal market which is efficient and transparent, with justified costs.

4.4 The national regulatory authorities and the Commission judge that market performance is affected by the inadequate rules on transparency regarding access to infrastructure, which make it impossible to guarantee an effective, functional, open and efficient internal market.

4.5 The proposed measures would facilitate market development: countering market manipulation and abuse, providing operators with complete sensitive information on the efficiency and material state of the system including electricity generation, supply and demand, including forecasts, network and interconnection capacity, anticipated network bottlenecks, flows and maintenance, balancing and reserve capacity.

4.6 Having all necessary information available at the same time will enable all market operators to assess overall supply and demand on an equal footing, and to have a more accurate grasp of the dynamics of wholesale prices in the electricity and gas market.

4.7 The Agency should establish a data collection department and an inspection department with specially trained staff. The regulation provides for additional staff to cope with the tasks created by the new roles assigned to the Agency.

4.7.1 The EESC calls for the Agency to publish an annual report on initiatives underway, results delivered by the regulation and the development of the wholesale energy market.

4.8 The EESC questions whether the costs incurred through the implementation of the regulation should all be paid from the public purse or whether market operators should bear part of them; in some countries, for example, the authorities which monitor the financial markets are partly funded by those they monitor. The advantage to the operators is clear, and the collection and dissemination of market data ensures transparency guaranteed for all by the public authority, which constitutes an immediate advantage for operators. Furthermore, the anticipated costs would not strain a healthy and well-developed market.

4.9 The competent authorities should also check regularly that transmission system operators comply with the rules. The EESC believes that it is vital to step up cooperation and coordination between transmission system operators. Setting up a European Network of Transmission System Operators (ENTSO), the draft statute for which will be presented in the Spring of 2011, will boost the possibility of creating network codes which will ensure effective and transparent access to transmission networks, as laid down in Regulation (EC) 714/2009. These network codes must be consistent with the framework guidelines, which do not have binding force, to be issued by the Agency.

4.10 The ENTSO must operate in full compliance with competition rules and gradually harmonise and integrate cross-border network codes, without replacing national network codes. Regional cooperation can guarantee the best progress towards an integrated single market in energy. The EESC is in favour of the ENTSO being organised regionally as part of the overall cooperation.

4.11 Regional cooperation has got off to an encouraging start: the Gas Regional Initiative (GRI) and the Electricity Regional Initiative (ERI) are yielding excellent results. The EESC supports and praises the commitment shown by regulators and operators to resolve the complex problems relating to interconnection and the establishment of a transparent and efficient market.

4.12 The signing of an agreement to this effect, for instance between authorities and transmission system operators in Italy and Slovenia, has laid the groundwork for dealing with issues relating to bottlenecks and balancing, with advance warning systems for the areas concerned and balanced, transparent solutions using the market coupling method. This method brings together forecasts for supply and demand by means of a central operator in order to improve the efficiency of the day-ahead market.

5. Specific comments

5.1 The EESC supports the use of delegated acts to identify the specifications of definitions and data collection; these acts must be issued in strict compliance with the provisions of the TFEU. The EESC is of the opinion that the definitions set out in Article 2 are overly vague for a regulation. The procedure for issuing delegated acts which will set out the specifications for the definitions of insider information and market manipulation, as laid down in Article 5 of the regulation, must establish a specific period for issuing delegated acts, as required by Article 290 TFEU, and a system for ensuring sufficient public notification.

5.2 The EESC wishes to point out that without uniform interpretative rules, there is a risk that implementing the regulation may disrupt the market unless the national authorities are helped to form a common assessment procedure and unless they develop a comprehensive and accepted set of rules on abusive practices. The EESC suggests that a set period be specified for delegated acts of the Commission in order to bring certainty to the market. If necessary, the Commission can always update the acts.

5.3 Article 7 gives rise to the same concerns. The EESC believes that a deadline should be set for the Commission to issue delegated acts on data collection, timing, and the form and content of the information to be transmitted. The shorter the deadline after the adoption of the regulation by the EU decision-making bodies, the more effective the regulation.

5.4 The EESC believes that the powers that are to be conferred on the national regulatory authorities are both comprehensive and penetrating; however, it calls for greater certainty of enforcement of the regulation in this area and asks whether it might be appropriate to allow a relatively short period for Member States to fulfil their obligation to guarantee that the authorities are granted these powers of investigation. Differences in regulatory systems have been and continue to be a factor in the delay in completing the single energy market.

5.5 The EESC hopes that penalties will be substantially aligned in all Member States and that there will be no instances of regulatory arbitrage, whereby stakeholders choose to sign contracts in the country with the mildest penalty regime. The legislation on market abuse (MAD) has already identified common standards in penalty regimes and the Commission makes a recommendation to this effect in recital 23 of the regulation. The wholesale energy market trades in energy to meet import/export requirements and therefore the location of the offices in which gas or electricity transactions are processed is irrelevant.

5.6 The EESC stresses the importance of relations with third countries and is pleased that the Agency conducts such relations and can sign agreements with international organisations and third-country administrations. The EESC recommends that Article 14 be reworded to confer on the Agency a general mandate of representation which is specifically linked to the aims of the present regulation.