Opinion on:

- the amended proposal for a Council Directive concerning common rules for the internal market in electricity, and - the amended proposal for a Council Directive concerning common rules for the internal market in natural gas (94/C 195/24)

On 22 March 1994 the Economic and Social Committee decided, under the fourth paragraph of Article 20 of its Rules of Procedure, to draw up an Opinion on the abovementioned proposals.

The Section for Energy, Nuclear Questions and Research, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 13 April 1994. The Rapporteur was Mr Gafo Fernández.

At its 315th Plenary Session (meeting of 28 April 1994) the Economic and Social Committee adopted the following Opinion unanimously.

1. Introduction

1.1. The Committee welcomes the presentation by the Commission of amended proposals concerning the establishment of common standards to make possible the internal market in electricity and natural gas.

1.2. The Committee is particularly pleased that a good number of the suggestions and recommendations contained in its previous Opinion of 27 January 1993 (1) on this subject have been taken into account both by the European Parliament in the preparation of its own Opinion and the Commission in drawing up the new proposals.

1.3. In particular, account has been taken of the Committee's suggestions that there should be greater flexibility in the implementation of the internal market in these sectors, that the specific investment and development conditions in these sectors must be considered, that the operating conditions should be gradually aligned and, especially, that further consideration be given to the security of supply and public service obligations aspects.

2. Summary

2.1. The Committee broadly approves the new Commission proposals as conducive to an acceptable balance between the positions of the Member States, the electricity and gas generating industries and the various categories of consumer.

2.2. The Committee expresses its satisfaction that the proposals allow the Member States, within the limits of Community law, to impose public service obligations on undertakings operating in these sectors, while urging the Commission to define these obligations precisely as soon as possible. However, provision should be made for a reference to arbitration under Article 21, paragraphs 1 and 2 (electricity) and 17, paragraphs 1 and 2 (gas) and in any case not without the right to refer the issue to independent arbitration under the terms of Article 21, paragraphs 3 and 4 (electricity) and 17, paragraphs 3 and 4 (gas).

2.3. The Committee approves the new criteria for the construction of plant to increase electricity generating capacity, although it takes the view that the criteria must be improved to take due account of small generating or co-generating installations and of electricity originating in other Member States.

2.4. The Committee welcomes the new philosophy of 'negotiated Third Party Access', within the discharging of public service obligations, but wishes to stress the need to guarantee the independence of the manager of the electrical transmission network and to improve arbitration procedures for disputes.

2.5. With regard to the unbundling and transparency of accounts, the Committee emphasizes the need for data to be kept confidential, and is concerned that the European Union's gas companies may lose negotiating power vis-à-vis suppliers from outside the Union.

2.6. As indicated in its earlier Opinion on the subject, the Committee wishes to stress the need to move forward simultaneously in the coordination of Member States' energy policies and gradually to harmonize certain factors (e.g. fiscal, environmental or proper consideration of the scope of public service obligations).

3. Overall assessment of the proposals

3.1. The Committee broadly approves the new Commission proposals as conducive to an acceptable balance between the positions of the Member States, the electricity and gas generating industries and the various categories of consumer.

3.2. It also notes the degree of autonomy which will be retained by Member States, in line with the subsidiarity principle, to decide on how the electricity and gas sectors should be organized within their own countries, provided that these arrangements are compatible with the introduction of market principles and the construction of the internal energy market.

3.3. Nevertheless, the Committee is also aware that the present proposals represent a compromise which will have to be fine-tuned as the proposed process of aligning the operating conditions in both sectors progresses and as experience is acquired in operating the internal market in these sectors under these conditions.

3.4. It is against this background that the Committee has carried out the following assessment and puts forward a series of recommendations.

4. Organization of the electricity and natural gas sectors

4.1. The Committee expresses its satisfaction that Article 3(2) of both proposals allows the Member States, within the limits of Community law, to impose public service obligations on undertakings operating in these sectors. However, this obligation must not be used as an excuse not to negotiate access (Article 21, paragraphs 1 and 2, for electricity and 17, paragraphs 1 and 2, for gas) and in any case not without the right to refer the issue to independent arbitration under the terms of Article 21, paragraphs 3 and 4 (electricity) and 17, paragraphs 3 and 4 (gas).

4.2. As stated in its earlier Opinion, the Committee considers it important to achieve an equilibrium between application of competition rules and general protection of consumers.

4.3. The Committee therefore urges the Commission to define the precise scope of the aforementioned obligations as soon as possible, especially when neither the concept nor the scope of the obligations is in any way harmonized between the Member States.

5. Production and transmission in the electricity sector

5.1. In the Committee's view the two alternatives for the construction of new electricity generation capacity - based on either a system of objective, non-discriminatory, non-exhaustive licensing criteria or a tendering procedure for the necessary new capacities - are sufficient to combine continued security of supply with the introduction of commercial criteria, while allowing the Member States flexibility as to what particular form of organization they choose.

5.2. The Committee considers that the Member States' option under Article 7 to take into account 'the nature of the primary sources to be used' should not apply to the autoproducers and independent producers referred to in Article 5(3) with a nominal production capacity of less than 50 MW installed capacity.

5.3. The Committee regards the reference in Article 6(1) to the 'use, if necessary' of interconnected electricity systems as too vague.

5.4. In the Committee's Opinion it should be stated explicitly that new production capacity situated in another Member State will also be able to compete in the tender procedure, provided that the necessary conditions are met as to system stability, possible use of the network or interconnected systems and compliance with public service obligations; the provisions contained in Article 21(1) iii) under the more general heading 'access to the system' should be incorporated in this Article.

5.5. With regard to the electricity transmission system, the Committee considers that the key element is, as it indicated in its previous Opinion, the complete independence of the system operator. Only on this basis will it be possible to ensure that the obligations to manage the system economically, on objective, non-discriminatory terms - as provided for in Article 13 - are met.

6. Operation of the electricity distribution system

6.1. The Committee fully supports the public service obligations in the form of a universal obligation to supply and regulation of the tariffs for this service as laid down in Article 15(2).

7. Organization of the natural gas sector in the collection, storage, transport and distribution stages

7.1. Many of the arguments put forward above in respect of the electricity sector apply also to the natural gas sector.

7.2. The most fundamental differences are rooted in the establishment of a single system of objective, non-discriminatory licences for the construction and operation of the new capacity needed in the Member States and in the different way of regulating the transmission system, based on the independence of operators. The Committee approves these proposals.

8. Unbundling and transparency of accounts

8.1. The Committee endorses the new criteria for unbundling of accounts presented by the Commission for the electricity sector, although in the case of gas it is concerned at the possible negative effect of the proposed unbundling and concomitant loss of commercial confidentiality on the negotiating position of Community companies in relation to energy suppliers.

8.2. On the transparency of accounts, the Committee takes the view that the nature of much of the information involved requires that access for the relevant authority, laid down in Article 19 for electricity and Article 15 for gas, should be subject to a guarantee of confidentiality of the data compatible with the objectives set, particularly as this is referred to in the preamble to both proposals.

8.3. The Committee also takes the view that these criteria should be revised after a reasonable period, to assess whether they are best suited to guarantee the obligations laid down in other chapters of the Directives.

9. Access to the system

9.1. The Committee welcomes the new Commission proposal concerning the voluntary, negotiated introduction of Third Party Access. This proposal concerns the right to enter into negotiations with system operators in order to conclude contracts on a non-discriminatory basis.

9.2. The Committee considers that this new approach brings an element of gradualness and caution into the construction of the internal market in these sectors, while at the same time allowing its real potential to be assessed in economic terms and from the angles of security of supply and compliance with public service obligations. The experience acquired should make it possible to decide whether to extend the system or turn to alternative models for attaining the internal market in these sectors.

9.3. Nevertheless, the Committee considers that five points are in need of additional clarification.

9.3.1. The first concerns the possibility, provided for in Article 21(1) of the electricity Directive, for electricity producers and transmitters to conclude voluntary contracts. In the case of vertically integrated undertakings, this could lead to the precedence of these contracts over the general economic priority criteria for dispatch laid down in Article 13(3). In practice this could mean major problems in applying the Directive.

9.3.2. The second concerns the lack of a precise definition of the terms 'affiliated' and 'associated' undertakings in both Directives. In the Committee's view a definition which refers to existing Community law should be incorporated in Article 2 of the Directives.

9.3.3. The third concerns the independent arbitrator provided for in Articles 21(4) (electricity) and 17(4) (gas). In view of the large number of such bodies in the Directives, it might be advisable to consider subsuming all these activities in a single authority at national level for each sector which could arbitrate in any dispute arising in a Member State in the application of these Directives, without excluding the possibility of recourse to the national courts of the European Union.

9.3.4. The fourth is a lack of precision with regard to the arbitration procedure in the event that access to the system involves two or more Member States [Articles 24 (electricity) and 21 (gas)]. It should be stated whether the arbitration procedure is to be a joint one for all the competent authorities in the Member States concerned, or whether it should be laid down in the Directives on the transit of electricity and gas through large-scale networks (1) (2).

9.3.5. The fifth is the need for a closer link between the denial of access to the market, based on its connection with public service obligations, and the existence of available capacity and proper pricing of the services. This would be particularly relevant in the Member States where public service obligations do not exist or are insufficiently defined.

10. Harmonization procedure

10.1. The Committee considers that the harmonization procedure provided for in Articles 26 (electricity) and 23 (gas) should be spelt out more explicitly so as to include in the proposals the criteria for the safety of installations and protection of the environment referred to in Articles 7 (electricity) and 4 (gas) and the public service obligations specified in Article 3(2) of both Directives.

10.2. The Committee considers it essential to respect the timetable which provides for revision of these Directives by 1 January 1999. The Committee should, however, be expressly requested to give its views on this revision in line with the legal basis of these Directives.

11. Concluding comments

11.1. The Committee reiterates that the appropriate development of trans-European energy networks will facilitate the attainment of an internal market in these sectors.

11.2. In the light of this situation, the Committee is also drawing up an Own-initiative Opinion with the purpose of assessing the desirability of proposing to the European Union institutions and the 1996 Intergovernmental Conference for the revision of the EU Treaty that a specific chapter on energy policy be included; this could cover both the components of a common energy policy and the harmonization required of other aspects of the Member States' energy policies.

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2. Specific comments on the Directive concerning common rules for the internal market in electricity

12.1. Seventh 'Whereas' clause of preamble: reword as follows: 'Whereas security of supply and consumer protection entail a number of public service obligations which must be taken into account in parallel with the application of new competition criteria.'

12.2. Twentieth 'Whereas' clause: add the following: '... to the Council, the European Parliament and the Economic and Social Committee ...'

12.3. Article 2: insert a definition of 'subsidiary' using the definition in Article 3 of the Council Directive of 23 July 1990 on a common system of taxation applicable to parent companies and subsidiaries in different Member States (1).

12.4. Article 5.2: add the following: '... in paragraph 1 shall draw up an inventory of the new means of production and transmission which may be necessary, including replacement capacity...'

12.5. Article 6.1: the Commission should review the wording 'if necessary'.

12.6. Article 7: add the following at the end of the second paragraph: 'These criteria should not be taken into account for power stations with a capacity of less than 50 MW which use only combined heat and power systems or renewable energy sources.'

12.7. Article 8.2: amend as follows: '... at least administratively fully independent from the other activities...'

12.8. Article 9.3: add the following: '... proper functioning of the system, including the planning and construction of the necessary new capacity.'

12.9. Article 21.4: add the following: '... rights of appeal to national courts and to Community law'.

12.10. Article 23, first paragraph: replace 'energy market' by 'supply of energy'.

12.11. Article 21.3: add at the end of the second sentence 'but only after reference to arbitration under paragraph 4 below.'

12.12. Article 24: add the following at the end: 'In particular steps shall be taken to ensure that in the case of disputes over access to the market involving the interconnected networks of different countries, the same arbitration procedure is followed as is laid down in Article 21(4) with the intervention of the competent authorities of the countries concerned'.

12.13. Article 26: add the consultation of the Economic and Social Committee in both paragraphs.

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3. Specific comments on the Directive concerning common rules for the internal market in natural gas

13.1. Eighth 'Whereas' clause of preamble: reword as follows: 'Whereas security of supply and consumer protection entail a number of public service obligations which must be taken into account in parallel with the application of new competition criteria'

13.2. Twenty-third (penultimate) 'Whereas' clause: add the following: '... to the Council, the European Parliament and the Economic and Social Committee ...'

13.3. Article 2: insert a definition of 'subsidiary' using the definition in Article 3 of the aforementioned Council Directive of 23 July 1990 on a common system of taxation applicable to parent companies and subsidiaries in different Member States.

13.4. Article 6(3): add the following: '... to maintain a high level of reliability and security of its system, including the planning and construction of the necessary new capacity'.

13.5. Article 17.4: add the following: '... rights of appeal to national courts and to Community law.'

13.6. Article 19, first paragraph: replace 'energy market' by 'supply of energy'.

13.7. Article 17.3: add at the end of the second sentence: 'but only after reference to arbitration under paragraph 4 below.'

13.8. Article 20(2): add the following: 'The Commission shall make a report to the European Parliament, the Economic and Social Committee and the Council ...'

13.9. Article 21: add the following at the end: 'In particular steps shall be taken to ensure that in the case of disputes over access to the market involving the transmission networks of different Member States, the same arbitration procedure is followed as is laid down in Article 17(4) with the intervention of the competent authorities of the countries concerned'.

13.10. Article 23: add the consultation of the Economic and Social Committee in both paragraphs.

Done at Brussels, 28 April 1994.

The Chairman

of the Economic and Social Committee

Susanne TIEMANN

(1) OJ No C 73, 15. 3. 1993, p. 31.

(2) OJ No L 313, 13. 11. 1990.

(3) OJ No L 147, 12. 6. 1990.

(4) OJ No L 225, 20. 8. 1990, p. 6.