COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT pursuant to the second subparagraph of Article 251 (2) of the EC Treaty concerning the common position of the Council on the adoption of a European Parliament and Council Regulation on conditions for access to the network for cross-border exchanges in electricity

2001/0078 (COD)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT pursuant to the second subparagraph of Article 251 (2) of the EC Treaty concerning the common position of the Council on the adoption of a European Parliament and Council Regulation on conditions for access to the network for cross-border exchanges in electricity

A. Background

1. On 13 March 2001, the Commission submitted a proposal for a European Parliament and Council Regulation on conditions for access to the network for cross-border exchanges in electricity.

2. During its 13 march 2002 Plenary Session the European Parliament approved, subject to a number of amendments, the Commission's proposal for a European Parliament and Council Regulation on conditions for access to the network for cross-border exchanges in electricity. The European Economic and Social Committee supports the proposal as well. The Committee of the Regions has not expressed itself on the proposal.

3. On 7 June 2002 the Commission amended its proposal, incorporating in whole, in part or in principle many of the amendments voted by the European Parliament in its first reading.

4. The Council, in accordance with Article 251 of the Treaty, adopted its common position on this proposal for a Regulation on 3 February 2003.

B. Aim of the Commission proposal

The objective of the proposal is to promote cross-border trade in electricity, which is currently equivalent - in terms of physical flows - to only around 8% of total electricity production. This figure is relatively modest when compared to other sectors of the economy. It provides for the creation of a compensation mechanism under which compensation payments are to be received by transmission system operators (TSOs) hosting cross-border flows of electricity on their network, financed through contributions of those TSOs causing these flows. Furthermore, it contains harmonising rules regarding national network access tariffs and the allocation of interconnector capacities (congestion management) to ensure that scarce capacity is allocated on the basis of market-based mechanisms, avoiding any kind of discrimination. Finally, it provides for the adoption and amendment by the Commission, under a comitology regulatory procedure, of Guidelines, in which the basic principles contained in the Regulation would be further detailed.

C. Commentary on the Common Position of the Council

1. The Commission supports the Common Position of the Council, which was adopted unanimously. The main elements of the Commission proposal are retained in the Common Position. Furthermore, most changes introduced by the Council strengthen or clarify the Commission's proposal, without changing its substance.

2. The European Parliament adopted at its first reading 34 amendments to the Commission's original proposal. As a result of the European Parliament's opinion, the Commission introduced several substantive amendments in its amended proposal. Out of the 34 amendments adopted, the Commission has accepted 6 (amendments 1, 6, 8, 10, 12 and 14) in the form proposed by the Parliament or with some redrafting. Two amendments were accepted in part (amendments 3 and 4) and 10 Amendments were accepted in principle (18, 21, 27-34).

3. All amendments of the European Parliament accepted by the Commission in its amended proposal are included in the common position. Of the amendments retained, there have been partial adjustments which, however, maintain in all cases the underlying objective of the European Parliament's revisions.

4. Differences between the Commission's amended proposal and the Council's common position.

Recitals

The recitals remain unchanged, except some clarifying additions or modifications to the wording. However, the Council added two recitals, one on the importance of third countries complying with the rules of the Regulation (recital 7), the other (12) outlining the basic principle of locational signals.

Article 1 - Subject-matter and scope

The Council has slightly changed the description of the subject and scope of the text, adding in particular that the specificities of national and regional markets shall be taken into account.

Article 2 - Definitions

The Common Position brings more precision to the definitions, without changing their substance, and includes a few further definitions in order to bring greater clarity to the text. Furthermore, it has complemented the definition of "cross-border-flows" by adding the possibility of an exemption to be applicable in case the transmission networks of two or more Member States form part of a single control block.

Article 3 - Inter transmission system operator compensation mechanism

Apart from some clarifying modifications of wording, two changes of substance have been made to this article:

- Member States could not support that the Commission decides on the amount of compensations payable between transmission system operators under an advisory comitology procedure. Instead, the Common position suggests a regulatory procedure.

- The common position stipulates that compensations for cross-border flows, which transmission system operators will receive, shall be calculated on the basis of the costs of the infrastructure "used" for cross-border flows. The Commission had proposed "build" for cross-border flows.

The Commission, whilst considering these modifications unnecessary, can eventually accept them as far as they do not undermine the objectives of the provisions in question.

Article 4 - Charges for access to networks

The provisions of this Article are not substantially changed, except for some useful clarification with regard to the provision of locational signals by network access charges. In particular, the text makes it clear that, firstly, the Regulation only deals with signals "at the European level" and, secondly, the principle of locational signals shall not prevent Member States from applying charges on consumers which are identical throughout the country.

Article 5 - Provision of information on interconnection capacities

The provisions of this Article remain unchanged, except some slight modifications to the wording.

Article 6 - General principles of congestion management

The provisions of this Article remain unchanged, except some slight modifications to the wording. However, paragraphs 7 - 9 of this Article have been deleted and incorporatedin a new Article 7 of the Regulation.

Article 7 - New interconnectors

This - new - Article replaces the provisions of Article 6 (7-9) on exemptions for certain interconnectors from the rules on the use of congestion revenues, which are contained in Article 6 (5) of the Regulation.

Furthermore, it extends the scope of the exemption to the provisions on third party access contained in the new electricity directive.

Other differences compared to the Commission amended proposal are:

- The exemption is only possible for "new" interconnectors, which is defined as an interconnector not completed by the entry into force of the Regulation

- In contrast to the amended Commission proposal, the exemption must not necessarily be time-limited.

- The conditions under which an exemption can be granted have been extended and strengthened

- The exemption can be granted with regard to only a part of the total capacity and may also apply to significant increase of the capacity of an existing interconnector

- The rule that the exemption shall normally apply only to direct current lines has been made clearer and the conditions for an application to alternate current lines specified

- A decision on the exemption can be taken by one regulatory authority concerned, in consultation with the authorities of the other Member States concerned by the interconnector. In the Commission's amended proposal the decision had to be taken "jointly" by the two authorities concerned.

The possibility of an exemption from third party access has been introduced by the Council to safeguard investments in very high-risk projects, which would not take place if such an exemption were not given. For some major investments the regulated rate of return on investment impedes investors to commit their money to a project for which the risks of it becoming profitable are very high.

The Commission feels that the strict limitative conditions, which the Council further elaborated, and the Commission scrutiny of any regulatory decision on an exemption should be sufficient guarantees to ensure that this possibility of exemption will only be used in cases in which it is absolutely necessary to safeguard an investment in the interest of the internal market and security of supply.

Article 8 - Guidelines

The provisions of this Article are not substantially changed, except for some clarifications. These clarifications concern in the first place the provision of locational signals at the European level as an underlying principle of national network access tariff systems: the guidelines shall provide for an harmonised approach in this respect but any harmonisation shall not shall not prevent Member States from applying charges on consumers which are identical throughout the country. Secondly, it is now clearly stated that the guidelines, when adopted for the first time, shall be comprehensive and cover the harmonisation of national tariff systems as well as the main elements of the inter-TSO compensation mechanism.

Article 9 - Regulatory Authorities

The wording of this article has been slightly changed, without any modification of the substance. An obligation on regulatory authorities to co-operate with each other has been included.

Article 10 - Provision of information and confidentiality

The provisions of this Article remain largely unchanged, except some slight modifications to the wording. The only change in substance concerns the right of the Commission to seek necessary information directly from undertakings concerned: the Council felt that the Commission should have this right only in case the Member State concerned, or its regulatory authority, fails to provide the information in a time limit fixed by the Commission. Furthermore, the Council limits the possible addressee of a request for information to "undertakings" only, whilst the Commission proposal included also "associations of undertakings".

Article 11 - Right of Member States to provide for more detailed measures

This article remains unchanged.

Article 12 - Penalties

This article remains unchanged, apart form some very minor clarifying modifications to the wording.

Article 13 - Committee

This article remains unchanged, apart form some very minor clarifying modifications to the wording and the addition that the committee shall adopt its rules of procedure.

Article 14 - Commission report

Unchanged, apart from the addition of a clarification whereby the report shall also deal with the aspect of locational signals.

Article 15 - Entry into force

The Common position maintains the principle of an immediate entry into force of the Regulation (twentieth day following publication) and provides that it shall apply from a later date, namely the date by which Member States have to implement the new electricity directive (1 July 2004), as of the common position on the revised electricity directive. The Commission in its amended proposal left the date of application open (square brackets).

ANNEX

The common position leaves the annex, i.e. the guidelines on the management and allocation of available transfer capacity of interconnections between national systems - broadly unchanged. However, where the text contains obligations the use of the word "should" was systematically replaced by "shall", in line with the obligatory character of the guidelines.

D. Conclusion

The Council position takes on board all amendments, which were expressed by the European Parliament in its first reading and which the Commission accepted in its amended proposal. Where the common position deviates from the amended proposal it remains close to the principles behind the Commission's original proposal. Consequently, the Commission supports the common position of the Council.

E. Annex

Declarations of the Commission to the minutes of the Council meeting

On Article 7:

"The Commission emphasises its intention of interpreting this exemption restrictively in order to ensure that such an exemption is restricted to the minimum necessary, in particular for the duration of the exemption and the relevant capacity of the project to which the exemption relates, in order to achieve the objective of financing investments of an exceptional level of risk."

" Where there is a non-discriminatory and transparent auction procedure approved by the Regulator in conformity with Directive xxxx (and respectively the Regulation) the Commission confirms that this represents regulated third party access within the meaning of Directive xxx (and respectively the Regulation).

On Article 8:

"In the review of any subsequent proposal for the adoption of the first set of guidelines submitted to Council when applying Article 5 of the Decision 1999/468/EC the Commission recalls its statement concerning Article 5 of Decision 1999/468/EC, according to which the Commission, in order to find a balanced solution, will act in such a way as to avoid going against any predominant position which might emerge within the Council against the appropriateness of an implementing measure (cf. OJ C 203, 17.7.1999, p.1)."