EUROPEAN COMMISSION Brussels, 16.2.2016 SWD(2016) 25 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL concerning measures to safeguard security of gas supply and repealing Council Regulation 994/2010

{COM(2016) 52 final}

{SWD(2016) 26 final}



Table of Contents 1. Introduction 2. Procedure 2.1. Identification 2.2. Organization and timing 2.3. Consultation and expertise 2.4. External expertise 3. Problem Description 3.1. Nature and extent of the problem 3.2. What has been done so far with the implementation of Regulation 994/2010? 3.3. Baseline scenario 3.4. Subsidiarity 4. Objectives 4.1. General objectives 4.2. Specific objectives 5. Policy options 5.1. Option 0: No further action at EU level 5.2. Option 1: Enhanced implementation and soft law measures

5.3. Option 2: Enhanced coordination and tailor made solutions 5.4. Option 3: Enhanced coordination with some principles/standards set at EU level 5.5. Option 4: Full harmonisation 6. Analysis of the impacts of the various policy options 6.1 Option 1: Enhanced implementation and soft-law measures 6.2 Option 2: Improved coordination and tailor made solutions 6.3 Option 3: Enhanced coordination with some principles/standards set at EU level 6.4. Option 4: Full harmonisation 7. Comparison of the options 8. Monitoring and evaluation Annex 1: Public consultation Annex 2: Provisions under the current Regulation 1. The infrastructure standard: N-1 and reverse flow 2. Risk assessment, Preventive Action Plan and Emergency Plan 3. Supply Standard and protected customers 60 4. Competent Authorities 5. Gas Coordination Group Annex 3: Summary of the set of measures included in the options proposed Annex 4: Background information Annex 5: Possible regions for the joint risk assessments and plans 3

Annex 6: Model for the evaluation of the revised Regulation Annex 7: Glossary Annex 8: Minutes of the last meeting of the Steering Group 67

1.Introduction Secure, sustainable, competitive and affordable energy to EU consumers is the main goal of the Energy Union Strategy adopted on 25 February 2015. Achieving this goal will require a fundamental transformation of Europe's energy system, based on a vision of an Energy Union "where Member States see that they depend on each other to deliver secure energy to their citizens, based on true solidarity and trust, and of an Energy Union that speaks with one voice in global affairs". The Energy Union Strategy, built on five mutually-reinforcing and closely interrelated dimensions, has identified fifteen action points to achieve the goal pursued by the Energy Union. The revision of the Regulation on Gas Security of Supply (EU) No. 994/2010 (hereafter, 'the Regulation') is one of the actions identified and framed in the dimension of "energy security, solidarity and trust". With the revision, the Energy Union pursues to make the EU more resilient to supply disruptions. The Ukraine Crisis has been yet another reminder of Europe's increasing import dependence on foreign supplies of natural gas. On 16 October 2014, the Commission published its Stress Test Communication analysing the effects of a possible partial or complete disruption of gas supplies from Russia . One of the key conclusions of the stress test exercise was that increased cooperation and coordination can substantially mitigate the impacts of a disruption. The stress test exercise also demonstrated that security of supply risks are not the same in all parts of Europe. Europe's most vulnerable areas are often those that often first and foremost suffer from a lack of infrastructure needed to enjoy diversification of supply and to develop a functioning market. The extent to which the market can be relied upon to ensure security of supply determines to a very large degree the need for and the nature of security of supply measures. In order to secure gas supply in the most effective and efficient way, Member States and regions need to take account of the different level of exposure to a supply crisis and need to define appropriate measures both in advance and during a crisis. The current text of the Regulation leaves room for such description. Moreover, it acknowledges the central importance of a functioning market as most reliable instrument in ensuring secure supplies in a cost-efficient manner, and consequently seeks to limit interventions to the energy market to what is absolutely necessary. As part of the stress test publication a report on the implementation of the Gas Security of Supply Regulation (EU) No. 994/2010 was adopted . The report demonstrated that the Regulation has already produced important beneficial effects on Europe's gas security of supply situation, both in terms of preparation and mitigation. For instance, Member States are now better prepared to face a supply crisis thanks to the need to prepare plans and they are better protected thanks to the need to meet a determined supply and infrastructure standard. At the same time, the Report also highlighted areas in which improvements to the Regulation could further bolster Europe's supply security, whereby it was made evident that a potential revision of the Regulation would not mean that implementation of the existing Regulation can be suspended: the Commission will continue to push for better implementation of the provisions by assessing notified plans as well as the effects of implemented measures. The Report pointed at several sections to be improved in the Regulation with a view to ensuring a more effective management of supply crises. The Report concludes that "there is scope to strengthen the EU's preparedness and capacity to respond effectively to gas supply crises further. The Commission services are of the view that the lessons of recent risks to security of supply in the EU, i.e. risks caused by extreme weather conditions such as the prolonged cold spell in 2012 or geopolitical risks having an impact on EU energy security such as the 2014 crisis in Ukraine, should be pulled together in a review of possible improvements to Regulation 994/2010." The revision of the Regulation should be seen in the context of the Commission's overall efforts to ensure open, competitive and well-connected gas markets. Regulation (EU) No 994/2010 is about preventing gas supply disruptions and mitigating their effects, but contributing at the same time to a well-functioning and well-connected market. In fact, the Regulation is complementary to other initiatives designed to improve the gas infrastructure in Europe and to secure a fair regulatory framework that fosters trade rather than hinders it. In terms of infrastructure a Union-wide network development plan, as well as the TEN-E Regulation (EU) No. 347/2013, are now in place, indicating those pipelines, storages and LNG terminals that need to be built most urgently. And there is EU funding available within various financial instruments, most notably the Connecting Europe Facility. In terms of regulatory developments, the implementation of the Third Energy Package has been an important step towards the completion of the internal market. In this context, the Commission has adopted a number of network codes that significantly facilitate cross-border trade of gas with impressive results in the North-West part of the continent, where liquid hubs have started to appear that contribute considerably to secure supplies at a cost-effective price. In particular the Balancing Network Code, where implemented, enables and incentivizes market players to ensure security of supply on the basis of market functioning as long as possible. Moreover, with diminishing indigenous conventional gas production, the EU's import dependency is expected to remain at least stable or increase over the next two decades. Improving energy efficiency and the share of renewable energy and stimulating demand response, in line with the vision of the Energy Union as a sustainable, low-carbon and climate-friendly economy, could help to counterbalance further increases. In any case, the EU's objective is to enhance energy efficiency and diversify supplies of gas imports in order to reduce the dominance of suppliers in gas markets and hence the EU's overall vulnerability. A complete overhaul of the Regulation appears disproportionate and that is why this Impact Assessment is based on an assessment of the measures that are currently in place. Where the current rules are not sufficient or no longer fit for purpose, various alternative and additional policy options are proposed and assessed. As explained below, the assessment of the current measures draws heavily upon the research carried out in 2014 in the context of the review of Regulation (EU) No 994/2010, on the stress test exercise of mid-2014 and on the public consultation held in 2015. It should be noted, finally, that the revision of Regulation (EU) No 994/2010 will go at pair with other, complementary measures to enhance security of supply. The on-going revision of the Commission's Decision on Intergovernmental Agreements (IGAs) will ensure full compliance of agreements related to the buying of energy from third countries with EU law. While the LNG and storage strategy notably sets out what needs to be done to improve access to LNG and storage, with the aim of diversifying gas sources across Europe. The cross-sector interaction between gas and electricity will be also taken into account, both in the revision of Regulation (EU) No 994/2010 and in the framework of the electricity market design reform currently under preparation. 2.Procedure 2.1.Identification

(1) Lead DG: DG ENER (2) Associated DGs: SG, LS, DG CLIMA, DG COMP, DG GROW, DG ECFIN, DG ENV, DG HOME, DG NEAR, DG TRADE, EEAS, JRC, JUST, FISMA (3) Agenda planning/WP references: 2015/ENER/006 2.2.Organization and timing 2.2.1.Drafting process This Impact Assessment analyses the effects of the new measures considered to be proposed in the Amendment of the Regulation on Gas Security of Supply. Building on the outcome of the Report on the implementation of the Regulation (EU) No 994/2010, the Public Consultation, the results of the Stress Test conducted in 2014, the directions set by the European Energy Security Strategy (EESS) as well as the key initiatives identified in the Energy Union package of February 2015, the work on this Impact Assessment started in April 2015. Key dates in the process were: May 2014 European Energy Security Strategy 16 October 2014 Stress Test communication 16 October 2014 Report on the implementation of Regulation 994/2010 2014 - 2015 Gas Coordination Group meetings 2014 - 2015 Madrid Forum 2015 CEER report on storage related measures 15 January – 8 April 2015 Public consultation 27 Apr 2015 1st meeting of the Inter-service Steering Group (ISG) 4 May 2015 Stakeholders meetings – Gas Coordination Group 22 May 2015 2nd meeting of the ISG 18 June 2015 3rd meeting of the ISG 7 July 2015 4th meeting of the ISG 31 July 2015 Submission of the Impact Assessment to the RSB

16 September 2015 RSB meeting date 9 November 2015 5th meeting of the ISG 13 November 2015 Resubmission of the Impact Assessment to the RSB 2.3.Consultation and expertise As described in section 2.2.1, DG ENER repeatedly solicited input to the review of the Regulation from all segments of the gas sector from the outset, including on problem definition and specific technical elements. A public consultation was organized between January 15th and April 8th 2015 and produced 106 responses from stakeholders. The non-confidential responses and a summary document have been published on the Commission website. (See Annex 1 for further information). In addition to the public consultation, dedicated workshops and meetings, including as part of the Gas Coordination Group, were organized to consult stakeholders. An inter-service steering group has also been established early in the process and has been consulted regularly. 2.4.External expertise External consultants were used for different topics during the preparation of this proposal. A study was conducted on potential measures in the area of underground gas storages and their impact, as well as input from JRC in order to support with analyses contained in this Impact Assessment. A further study comparing approaches to increase the EU's bargaining power in natural gas markets has also served as input for specific policy options related to how to meet the supply standard (common purchasing schemes). This Impact Assessment makes use of and points to the conclusions drawn from these reports. 3.Problem Description 3.1.Nature and extent of the problem In the current geo-political context, such as the situation in Ukraine, the EU gas system remains vulnerable to external shocks. In December 2009 gas supplies through Ukraine were disrupted for 15 days. As a result of, among others, the adoption and implementation of Regulation (EU) No 994/2010, the level of preparation of the EU has been improved, but there are still serious reasons for concern. The stress test exercise showed that a severe disruption of gas supplies from the east (i.e. Russia) would still have large impacts across the whole EU. Some areas, notably in the East of Europe, would still suffer now severe economic and social impacts as a result of missing volumes of gas. Already in 2009 the estimated loss in GDP of Bulgaria reached 9% as a result of the gas crisis and the stress tests exercise showed that missing gas volumes could put at stake more than 80% of the gas consumption of some Member States. Map 1: Most likely supply disruption in February after a 6-month Russian gas disruption scenario.

Source: ENTSOG. Western Member States would also feel the impact of such disruptions in the form of increased gas prices as a result of gas scarcity in the East. For example, during the gas disruption in 2009, wholesale gas prices in the UK were affected. The UK authorities estimate that if the supply cut-off had been prolonged, further price increases would have been expected. Furthermore, during the cold spell of 2012 wholesale day-ahead gas prices increased by more than 50% on the European hubs compared to levels registered before the cold weather. Notably in Italy prices reached 65€/MWh from 38€/MWh, while in UK, Germany and Austria prices kept aligned and reached 38€/MWh from levels of 23€/MWh. The current situation is the result of a number of problems of different nature and magnitude, including behavioural biases, external factors and technical issues: - Behavioural biases (purely national approaches to security of supply) The first and most significant problem is related to behavioural biases, i.e. the fact that Member States only think national when designing their security of supply policies. Behavioural biases are widespread across Member States and therefore lead to significant negative effects overall. The approach applied by Member States in the design of their security of supply policy remains almost purely national, as evidenced by the stress tests and the Commission's assessment of the Preventive Action Plans and Emergency Plans prepared by Member States. The assessment of the second cycle of Plans confirms this trend, which was already observed in the first cycle prepared in 2012. National approaches lead to sub-optimal measures, in particular for the compliance with the supply standard,and make the impacts of crises more acute than they could be. The stress test exercise has shown how a cooperative approach among Member States would significantly dampen the impacts of very severe disruption scenarios in the most vulnerable Member States. Maps 2 and 3: Likely supply interruptions – before further national measures – in February at the end of a 6-month Russian gas supply disruption scenario in cooperative and non-cooperative scenarios during a cold spell. Cooperative Scenario Non-cooperative scenario Source: ENTSOG. Purely national approaches are not very effective in case of a severe disruption, given their, by definition, reduced scope. This is particularly problematic for Member States with specific historic dependence backgrounds and/or particular geographical positions and without diversified and fully functioning markets. Moreover, their situation can be further exacerbated as a result of national over-protective measures in other Member States that reduce the liquidity of the markets (i.e. by hoarding certain gas volumes) and consequently the ability of shippers to deliver gas to those vulnerable Member States where it is most needed. The negative spill-over effects of such over protective measures, particularly when they are not fully transparent, also affect Member States in well-connected and fully-functioning markets, although to a lesser extent.Another weakness of purely national approaches is the fact that the impacts of simultaneous emergencies in neighbouring Member States are hardly ever factored in, which may likely make envisaged measures inadequate in practice.

Synergies also tend to be overlooked or disregarded by purely national approaches. Consequently, the use of existing and/or envisaged resources can be sub-optimal (e.g. cross border use of storages, LNG terminals) and result in higher costs. In line with this, industry expressed concerns during the public consultation process about the costs associated with security of supply measures and overall advocated for increased transparency and justification of new measures, in particular regarding the supply obligations. Costly measures can have a negative impact in gas prices for European households as well as the industry, whose international competitiveness may thus be negatively affected. It must be borne in mind that wholesale gas prices in Europe are still more than twice as high as in the US. The reasons behind these national approaches can be several and of diverging nature. Some Member States underestimate risks of supply disruptions, for example due to historic relationships with main suppliers, and therefore they focus on national measures even though their scope and effectiveness is necessarily limited. Such underestimations can have serious consequences in case of an emergency. Moreover, they nourish mistrust from other Member States, who will be inclined to concentrate on their own policies for fear that others might free-ride on their efforts. Mistrust is also fuelled by Member States' fears that actions that other Member States may undertake in the case of an emergency could negatively affect their security of supply. As a result of these behavioural biases, Member States are less likely to cooperate in a spirit of solidarity with other more vulnerable Member States. Solidarity is however needed to ensure security of supply across Europe and to keep overall costs at a minimum, as demonstrated by ENTSOG in the context of the Stress Test Exercise. Effects will be spread out more evenly and the overall negative effects of a severe disruption would be smaller. - External factors (notably the behaviour of third country suppliers) The second largest problem stems from the fact that external risks are not properly factored in the design of security of supply policies, given that the relevant information is not always available. Under the current Regulation, Member States (and the Commission) have only access to some, limited, commercial information out of emergency situations. This makes it difficult for them to assess the nature and extent of some very important risks. This type of problems is more acute in Member States with less developed and less competitive markets. Those markets are exposed to additional security of supply risks stemming from large contracts, mainly in the hands of only a few gas companies, with third country suppliers. Preparations ahead of and for a crisis in such Member States may not be optimal due to the existence of clauses in contracts that can jeopardize the reaction by European shippers or the Member State. Further to the external risks, market players active on less developed gas markets claim that lack of transparency on long-term gas prices of other bilateral contracts puts them in a difficult position in price negotiations with an up-stream gas producer. Overall, situations of potential supply tightness, e.g. a modification of gas supply patterns to a given buyer or buyers in a Member State beyond what would be expected under the normal functioning of the market, cannot be fully assessed in advance due to the limited access to information provided for in the Regulation. The lack of information prevents early reaction by market players and public bodies, if needed. As an example, due to a lack of information, it was not possible to fully assess the observed deviations in gas flows to a certain number of European shippers during the autumn/winter 2014/2015, nor their potential implications. The deviations at issue forced some Member States to resort to storage withdrawals at an unusual period of the year, which could have had negative consequences towards the end of the heating season if the winter had been more severe. Many Member States explained that the lack of a legal basis to require certain information ahead of a crisis hampered their ability to access to information that would otherwise improve their assessment of the magnitude of potential threats. - Technical issues (infrastructure not sufficiently available or not sufficiently protected) The third type of problems in terms of its magnitude and impact is related to infrastructures. Physical connection between production and consumption areas is a prerequisite for satisfying demand. During the 2009 gas supply crisis the necessary amounts of gas were available on the EU internal market but it was physically impossible to ship them to the affected Member States in Eastern Europe. Thanks to the implementation of the Security of Supply Regulation, the situation has improved but it is still not optimal. The stress test exercise demonstrated clearly that in a crisis situation when the EU is cut off from its Eastern supply route, countries in Central and Eastern Europe start to draw on gas from western markets. In such scenario, missing reverse flow capabilities on some major interconnection points are limiting factors. It was concluded that the EU misses out on the potential for Eastern Europe to tap into LNG sources available in Western Europe and on the full access to Norwegian deliveries. One reason for such missing capacities, despite the obligation contained in the Regulation, is the fact that decisions to build capacity or to agree on an exemption from the obligation to build such reverse flow capacity are taken by the two Member States at both sides of the interconnection point and it does not necessarily take into account the potential benefits of building the infrastructure for other Member States along the whole supply corridor. Moreover, from a pure capacity point of view, a Member State's ability to react in case of an emergency or to prevent its occurrence cannot be considered fully satisfactory yet. The introduction of the N-1 standard was a very positive first step in the aftermath of the 2009 crisis. It obliges Member States to have a certain capacity margin in their gas systems to face the situation of failure of their largest infrastructure. However, the N-1 standard does not capture other aspects of security of supply such as the benefits of infrastructure variety or the identification of missing infrastructures (such as internal bottlenecks). Consequently those aspects are hardly ever addressed as part of the Risk Assessments prepared by Member States and, more importantly, improvements in the networks are not undertaken as part of the preventive measures. A number of replies to the public consultation, from both Member States and industry, confirm such problem as they ask to specifically address with this standard other elements, such as for example other infrastructures that due to their utilisation rate can be more critical.

Finally, Member States currently take a rather narrow approach when considering risks affecting their infrastructures. They tend to focus on physical aspects only, whilst overlooking 'newer' types of risks such as risks relating to cybersecurity or risks relating to a change of ownership. The Energy Security Strategy identified a need to better protect key energy infrastructure against the risk of a take-over by a foreign entity, which aim at penetrating European markets or hampering diversification rather than developing an integrated EU network or infrastructure. Experience with recent take-overs (and planned take-overs) of strategic energy assets in Europe shows that the risks are serious, notably where the buyer is controlled by a third country, which may exercise political influence on the owner/operator of the infrastructure and require the latter not to respect EU law or to take decisions that go against the strategic interests of the countries or regions concerned. - Limited scope of application of the current Regulation Another external risk is the lack of proper involvement of the Energy Community Contracting Parties in the EU security of supply policy. This is particularly important as relations with Ukraine and Balkan countries i.e. Contracting Parties of the Energy Community, are vital for the gas supply. Ukraine is the major transit country for the EU and the EU is the sole transit geographical area for Balkan countries. The EU has a vital interest in expanding the common regulatory space between the EU and the Energy Community Contracting Parties by creating a functioning regulatory framework in the field of security of supply. Not only would such a common approach help to ensure that principles of the internal energy market are exploited to the fullest in times of a supply crisis, but it would also allow for a better risk assessment and more efficient crisis management at the EU level. 3.2.What has been done so far with the implementation of Regulation (EU) No 994/2010? Since Regulation 994/2010 ("the Regulation") entered into force, the Commission has facilitated its implementation with a number of concrete measures, in particular, with the publication of guidelines for conducting the risk assessment and good practices for the preparation of the preventive action plans and emergency plans prepared by the Joint Research Centre (JRC). In the regular meetings of the Gas Coordination Group (around four per year) discussions have been held since the adoption of the Regulation between the Commission, Member States and industry regarding the major challenges in the implementation of this Regulation as well as best practices that could be wide spread. In addition, several workshops were organized with the aim to assist Member States in the implementation. The regional cooperation in the most vulnerable regions has also been enhanced with the preparation by the JRC of a joint risk assessment for the South-East region (Romania, Bulgaria and Greece). Some of the deadlines contained in the Regulation were not respected by a number of Member States, notably with regard to the submission of their Preventive Action Plans and Emergency Plans in 2012 as well as their updates in 2014 and to the decisions on reverse flows. The Commission engaged in a close discussion with those Member States who had not complied with the deadlines and adopted, where appropriate, the necessary means to enforce the Regulation. The Commission has assessed the Preventive Action Plans and Emergency Plans prepared by the Competent Authorities of the Member States and has presented its assessment, for its discussion, to the Gas Coordination Group. Following this discussion, the Commission has adopted a set of opinions on the Plans reflecting its assessments and asking Member States, where appropriate, to amend their Plans in order to fully comply with the obligations of the Regulation. After the adoption of the opinions, the Commission has in many cases engaged in a fruitful discussion with Member States to assess and advice on possible options to amend the Plans. Additionally, in 2014, and in light with the obligations contained in the Regulation, the Commission prepared a report assessing the implementation of the Regulation and possible means to enhance the security. The report assesses in detail the numerous tools contained in the Regulation focussing on how they have been implemented by Member States and their performance, i.e. how each of them has contributed to enhancing the security of supply of the EU and its preparedness. The implementation report evidenced that the Regulation has already delivered important benefits on Europe's gas security of supply situation, both in terms of preparation and mitigation. Member States are now better prepared to face a supply crisis thanks to a number of measures introduced following the Regulation. First of all, all Member States have now prepared and even updated a full assessment of risks affecting their security of supply. Such assessments have been the basis upon which to prepare and put in place Preventive Action Plans and Emergency Plans. These Plans constitute already a very significant improvement compared to the situation in 2009, where the crisis revealed that a number of Member States did not have contingency plans to apply for this type of scenarios. Furthermore, Member States must now comply with standards aimed at ensuring the flexibility of their gas system (in the event of failure of the largest infrastructure, N-1 standard) and the availability of gas even under demanding situations, such as a gas disruption or a significant increase in demand. The Regulation has also established a clear system of responsibilities via a three-tier approach. Natural gas undertakings, based on market mechanisms, are primarily responsible to ensure gas supplies. In case the market mechanisms fail to deliver gas in a country, Member State measures kick in to ensure gas to protected customers. The European Commission provides general coordination and ensures the consistency of national measures. Moreover, Member States have all appointed a single authority responsible for the implementation of the Regulation, which ensures consistency and facilitates the necessary contacts between Member States. Finally, the Regulation has also contributed to a much more thorough discussion on security of supply measures involving not only Member States and the Commission, but also representatives from natural gas undertakings and gas consumers in Europe through the Gas Coordination Group. Overall, the Regulation has been instrumental in putting in place the basic building blocks of gas security of supply at national level and thus improving the resilience of Member States in case of a gas crisis. Nevertheless, and despite the efforts, a conscious cross-border approach to security of supply does not yet exist.. Furthermore, the implementation of the Regulation has evidenced a number of practical issues that were not foreseen initially but which hamper the cooperation process (e.g. language regime, heterogeneity of Plans). It seems clear at this stage that the design of the current Regulation has overall proven useful but it remains insufficient so that further improvements should be pursued. 3.3.Baseline scenario In the absence of any action, the problems identified in the previous section, related to behavioural biases, the fact that external elements are not properly factored in, and the fact that infrastructure is not sufficiently available or protected, will remain. This will continue to limit the scope for strengthening the EU's preparedness and capacity to respond effectively to a gas supply crisis. First of all, the preparation of the risk assessments, preventive action plans and emergency plans will continue to be largely national and uncoordinated. The implementation has shown that they had very different focuses and paid little attention to common or coordinated scenarios and actions in the case of a supply disruption and the cross-border impact of national measures were not taken into account to the necessary extent. The current Regulation also foresees the possibility to adopt a regional approach and prepare regional Plans (on a voluntary basis). However, this possibility has been hardly used until now and it is unlikely that the existing Regulation in its current form would trigger further initiatives. At present regional Plans have only been prepared where they were necessary to comply with other provisions of the Regulation, i.e. the joint Preventive Action Plan prepared by the UK and Ireland, which was mandatory for Ireland in order to comply with the N-1 standard (at regional level). The Baltic States adopted a joint Risk Assessment in 2012 and have since then worked, together with Finland, on the preparation of a Joint Preventive Action Plan and Joint Emergency Plan within that region, within the context of the BEMIP HL group. However, these plans are still unfinished.

The experience gained in the implementation of the existing Regulation has proven that administrative issues, although in principle minor, can also play a relevant role and stand in the way of proper cooperation. In addition to the difficult comparability of Plans, missing translation rules and different timings in the submission of national plans will continue to make the exchange of plans with neighbours difficult in practice and will often lead to a very rudimentary consultation and merely to "tick the box". Additionally, the freedom to implement certain measures (e.g. supply standard and definition of protected customers) will likely continue as a patchwork of different groups of protected customers, rules and monitoring systems among the Member States. Indeed, the group identified as protected customers largely differs among Member States and some Member States go also beyond the limits set out in the Regulation by including other consumers alleging technical reasons (e.g. impossibility to cut gas supply to non-protected customers when they are in the same distribution network). Even though differences in approaches can often be justified given the widely diverging situation of the gas market in the various Member States, they can also be counterproductive when it comes to cross-border solidarity measures. As an example, the larger is the group of protected customers more gas is needed to ensure the supply standard and therefore less gas would be available to help neighbouring countries in case needed. In recent years important efforts have been taken to ensure that sufficient infrastructure is available. Yet if no further action is taken under the Regulation, further improvements are unlikely. Whilst a majority of the stakeholders in the public consultation highlighted that the N-1 is a good indicator for "minimal level of infrastructure" in the event of a technical failure, they also pointed out there is scope for improvement underlining as main limitations of the N-1 the fact that: 1) it only takes infrastructure into account, no gas volumes; 2) it could give a false impression of security of supply if not combined with other indicators such as the daily withdrawal rates from storages under various filling scenarios. Regarding the reverse flow obligation, a number of major interconnection points are still not equipped with bi-directional capacity (32 interconnections are still unidirectional) and this situation will not necessarily change under the existing decision's regime already mentioned in the previous section. The TEN-E Regulation clearly contributes to the implementation of the reverse flow projects thanks to e.g., streamlined procedures, cross border coordination and guidance for cross-border cost allocation. These improvements could facilitate enabling reverse flow capacity in existing or new pipelines. However, this is not sufficient to ensure that Member States carry out on a regular basis feasibility assessments for enabling or increasing bi-directional capacity in line with the results of the risk assessment. For new pipelines, the lack of obligation to assess the feasibility of bidirectional capacity in the very early stage of the project is a clear shortcoming, which is not addressed through the TEN-E Regulation. Table 1: Interconnection with bidirectional flow capability 2009 2014 Number of cross-border interconnection points in the EU 49 53 Number of bi-directional interconnection points 12 21 Number of unidirectional interconnection points 37 32 Source: Report on the implementation of Regulation (EU) 994/2010 [SWD (2014) 325 final, 16.10.2014)] Regarding information exchange, implementation has shown that the high level of aggregation of data on the gas supply contracts with third countries makes it impossible to conduct a proper security of supply assessment at EU level, as required under Article 13 of the Regulation. In the absence of further action, it is very unlikely that a better access to information will be granted, as evidenced during the autumn/winter 2014/2015 mentioned earlier. With regard to the Energy Community, there is no commitment yet to the implementation of the Regulation and so far an outdated security of supply Directive (2004/67/EC) has been transposed. Moreover, if the Regulation were to be implemented in the Energy Community, a parallel legal regime for its implementation would be created under the current practice of implementation of the EU energy acquis into the Energy Community legal order. As such, the obligations would apply only between the Contracting Parties and not between the EU Member States and the Contracting Parties, which would lack the necessary involvement of the Energy Community Contracting Parties in the EU security of supply policy. As regards risks relating to foreign take-overs of strategic energy assets, it should be noted that current EU law does not offer the tools necessary for tackling these problems. Article 11 of the Electricity and Gas Directives requires National Regulatory Authorities (NRA) to make certification of a transmission system operator (TSO) acquisition by non-EU entity dependent on proof that the foreign owner complies with the unbundling rules and that 'the security of energy supply of the Member State and the Community' is not at risk. Before certifying, the NRA must seek an ex-ante assessment of the Commission, which is however not binding and not always followed in practice either (e.g. DESFA case). In addition, the assessment under Article 11 applies only to TSOs, i.e. it does not cover all security of supply relevant infrastructures (e.g. storage or LNG terminals). The Commission has strong investigative powers to screen merger and acquisitions with EU relevance in merger procedure, in which it also takes binding decisions. However, the objective of merger control is to prevent distortions of competition related to concentration of the market, and does not aim to address issues related to security of supply as such. At the national level, the situation is very diverse. Whilst some Member States exercise hardly any form of control, an increasing number of Member States have put in place or are putting in place measures to subject foreign investments to screenings, or to limit the participation by foreign entities in the capital of companies. This shows that foreign ownership of strategic infrastructure, notably in the energy sector, is of increasing concern to Member States. Given that national approaches are very different in nature, there is a risk that in some Member States foreign ownership risks are taken too lightly, whilst other Member States might 'over-react'. In conclusion, the experience gained in the implementation of the Regulation shows that, despite the important achievements, its design has proven insufficient to overcome a number of problems. Efforts undertaken by Member States in this area are strictly limited to the explicit obligations contained in the Regulation. Consultation among Member States has resulted in many cases in a "tick-in-the box" exercise rather than a thorough reflection process where issues such as the different perceptions of risks, mistrust and free-riding concerns (see section 3.1) could have been addressed. Additionally, existing tools have proven insufficient to properly factor in external risks. Therefore, in the absence of any action, the identified problems will remain damaging the EU's ability to efficiently prevent and react in case of a gas emergency. 3.4.Subsidiarity While the revision of the Regulation has been inspired primarily by the existence of a number of problems of different nature, behavioural biases are the most significant affecting the vast majority of Member States. Against this background, the necessity of EU action is based on the evidence that national approaches not only lead to sub-optimal measures, they make also the impacts of a crisis more acute. Additionally, the risk of a major disruption of gas supplies to the EU is not confined to national boundaries and could directly or indirectly affect several Member States. Therefore, national actions in terms of preparedness and mitigation cannot only be defined nationally, given the potential impact on the level of security of supply of a neighbouring Member State and/or on the availability of measures to tackle scarcity situation.

The increasing interconnection of the EU gas markets and the "corridor approach" in gas supply framed in the Energy Union strategy, require a coordination of measures. In the absence of such coordination, security of supply measures implemented at national level are likely to jeopardize other Member States or the security of supply at EU level. Situations like the cold spell of 2012 and the stress test of 2014 showed that coordination of action and solidarity are of vital importance. An action in one country can provoke a shortage and risks of blackouts in neighbouring countries (e.g. electricity export limitations imposed by Bulgaria in February 2012 had an impact on the electricity and gas sectors in Greece). By contrary, coordination may offer a wider range of solutions (e.g. swaps to deal with congestions). So far, the potential for more efficient and less costly measures thanks to regional cooperation has not being fully exploited, which is detrimental to EU consumers. While the stress test has shown that functioning markets are key to secure gas supplies, it has also shown that well-coordinated actions by Member States, in particular in case of an emergency, can significantly increase supply security. This concerns not only better coordination of national mitigation actions in case of an emergency, but also of national preventive measures, such as proposals for better coordination of national storage or LNG policies, which can be of strategic importance in certain regions. The cooperation should be also extended to specific measures to foster solidarity between Member States in security of supply matters. However, the regional approach to security of supply also requires paying special attention to the divergences that could appear between regions. The creation of regions with different levels of security of supply could seriously hamper the internal market and the benefits that the cooperation can bring. Such coordinated approach requires action at the EU level. Action at EU level could be also needed under certain situations (e.g. Union and regional emergency) where the security of supply in the EU, cannot be sufficiently achieved by the Member States alone and can therefore, by reason of the scale or efforts of the action, be better achieved at Union level. The EU action is framed under Article 194 of Treaty of the Functioning of the Energy Union (TFEU) which recognizes that certain level of coordination, transparency and cooperation of the EU Member States' policies on security of supply is necessary in order to ensure the functioning of the energy market and the security of supply in the Union. 4.Objectives 4.1.General objectives As one of the 15 actions of the Energy Union, the revision of the Regulation aims at making the EU more resilient with the ultimate goal to give EU consumers –households and business- secure, sustainable, competitive and affordable energy. The revision of the Regulation aims at achieving an adequate level of preparedness in Europe to gas supply disruptions and to mitigate any effect which should occur, at the least possible cost for the EU consumers. The general objectives pursued by the revision of the Regulation are in line with the EU Treaty goal to ensure security of energy supply in the Union (Article 194(1)(b) TFEU). The measures proposed also ensure the proper and continues functioning of the internal market and well interconnected energy markets, in line with the EU Treaty goals to establish a functioning internal market in gas, in the spirit of solidarity between the Member States (Article 3(3) TEU; Article 194(1) TFEU) and to promote the interconnection of energy networks (Article 194 (1)(d) TFEU). 4.2.Specific objectives The revision of the Regulation pursues four specific objectives: (1) Enhanced regional cooperation

A regional approach in the assessment of risks and in the definition and adoption of preventive and mitigation measures could provide for a coordination of efforts that will bring significant benefits in terms of the effectiveness of measures and optimisation of resources. This is particularly relevant for those measures aimed at ensuring the supply, under very demanding conditions, of the categories of consumers considered protected (e.g. the supply standard). As result of this, Member States could be better prepared ahead of a crisis (e.g. more accurate assessment of correlated risks) and delay the resort to emergency measures. Moreover, even if an emergency were declared, a coordinated approach to security of supply would ensure a consistent response in the event of a crisis. This could reduce the potential negative spill over effects of purely national measures in neighbouring Member States. Overall, exploiting synergies could lead to a more cost-effective solutions resulting in an increased security of supply with a less cost for consumers and minimizing any negative impact. (2) Improved assessment and consideration of external factors More accurate assessments of the external aspects in the design of security of supply policies will be achieved, mainly, through improvements on information exchange ahead and during a crisis and the scrutiny of the gas supply contracts with third countries. (3) Improved infrastructure standard obligations Improved N-1 and reverse flow obligations could ensure more robust and resilient gas system and flexible EU network, which is a pre-condition to ensure that gas flow where it is most needed without physical restrictions, enhancing the security of supply at national, regional and EU level. (4) Enlargement of the geographic scope The enlargement of the regulatory framework to the Contracting Parties in the Energy Community will allow for a better level of preparedness and more efficient crisis management in the whole European territory. The specific objectives identified will be achieved while respecting the functioning of the market and ensuring that market measures are used to respond to supply crisis situations for as long as possible. 5.Policy options With the intention to meet the objectives set out in the previous section, the Commission services have identified five policy options ranging from an enhanced implementation of the existing Regulation to the full harmonization at EU level. Option 0 represents the baseline or the measures currently in place. Each policy option consists of a package of measures combining existing tools, possible updated and improved, and new tools. In broad terms, the options could be described as follows: Option 0: No further action at EU level Option 1: Enhanced implementation and soft law measures Option 2: Enhanced coordination with an increased scope for tailor made solutions Option 3: Enhanced coordination with some principles/standards set at EU level

Option 4: Full harmonisation at EU level For a summary of the measures contained in each of the proposed options see Annex 3. 5.1.Option 0: No further action at EU level This option implies that the measures in place will continue and no further measures will be introduced. Member States will produce national plans based on the outcome of their national risk assessments. The flexibility in the definition of protected customers and in the implementation of the supply standard will remain. The current mechanisms of information exchange will persist, basically: a) information on gas contracts will be provided in an aggregated manner; b) Member States should report certain information only during an emergency. Regarding the infrastructure standard, Member States will continue calculating the N-1 standard following the current methodology, while for the reverse flow the cross border consultations will remain limited to the physically neighbouring countries. With regard to the Energy Community, there will not be further commitment than the implementation of the Regulation. 5.2.Option 1: Enhanced implementation and soft law measures This option introduces a set of measures to enhance the implementation of the Regulation without introducing any amendment to the legislative act. Building on what has already been done to implement the existing Regulation, this option goes one step further proposing soft law that could improve the enforcement of the legislation and the use of voluntary measures that have not been fully explored by Member States. As the possibility to prepare joint risk assessment and plans has been used only in a limited number of cases (e.g. UK-Ireland and Estonia-Lithuania-Latvia), under this option Member States would be encouraged to improve coordination and explore the regional approach with guidelines, prepared by the Commission, setting out how to prepare a regional assessment of risks (e.g. definition of common scenarios, structured information on relevant national and regional circumstances such as market size, network configuration, flows). Based on the outcome, Member States would be encouraged to elaborate coordinated preventive action plans and emergency plans. The guidelines would facilitate the preparation of the plans providing the minimum elements to be included in the plans in accordance with Articles 5 and 10 (e.g. mechanism for cooperation before and in the case of a crisis, preventive measures to enhance diversification of sources and routes, contribution of reverse flows to mitigate the impact of gas disruptions). Under this option, a more harmonised system for the compliance with the supply standard would be proposed with the use of guidelines. The guidelines, prepared by the Commission and based on best practices observed, would introduce transparency and predictability in certain aspects relevant for the fulfilment of the supply standard. For example, the guidelines would provide the sequential steps for the Competent Authorities to ensure accurate and timely compliance: 1) the identification of the natural gas undertakings to ensure the gas to protected customers, 2) quantification of gas needed for protected customers under the scenarios defined in Article 8, 3) measures taken to fulfil the standard, 4) the monitoring process and, 5) the mechanisms adopted at national level in case of non-compliance by the natural gas undertakings. Both guidelines on the supply standard and on Plans and the Risk Assessment would be based on the numerous efforts carried out by the Commission, including workshops and the Gas Coordination Group, but will also take into account the best practices observed in the second cycle of Plans prepared by Member States in 2014. Given the observed issues with regard to the definition of protected customers, the Commission would be stricter in the implementation of this definition ensuring the enforcement of the current legal text and initiating infringement procedures when the threshold is surpassed by Member States. No technical reasons or other type of reasons could justify the consideration of protected consumers beyond the limits established by the Regulation. With regard to the infrastructure standard, the enforcement of the current legal text would require initiating infringement procedures immediately against three countries that do not fulfil the N-1 rule today. Regarding the reverse flow obligation, still today some major interconnection points remain not equipped with bi-directional capacity as they have been granted exemptions. Under this option, the Commission would re-examine the assessment carried out by Member States under Article 7 of the existing Regulation in the framework of the current biannual update of the Risk Assessments.

For the improvement of the information exchange, the Commission will prepare a series of guidelines. First of all, instructions would be prepared for the collection and submission to the Commission by the Competent Authorities of the data required under the new current Regulation with regarding to commercial contracts. It would result in a more accurate and better diagnosis of the situation. The system regarding commercial gas contracts would also be complemented by guidance with respect to the EU acquis, including security of supply and competition law with respect to clauses in gas supply contracts. Such guidance would focus on illegal or possibly anticompetitive clauses and contract frameworks based on the experience of security of supply analysis and competition investigations. Furthermore, guidance would be provided with respect to gas market pricing (e.g. hub pricing) and their relevance for long-term gas contracts. The latter could be tackled at least in two ways: a) by the Commission's recognition that competitive and not distorted gas markets, including gas hubs, are relevant for pricing of long-term gas contracts in combination with increased transparency of price quotations on gas hubs and transport costs from production centres to markets or, b) by creating an aggregated benchmark price, consisting of a sufficiently large number of individual prices to prevent disclosing price of individual undertakings, on a regional level. Under this option, Member States could also assess the potential merits for crisis situations of collective purchasing of gas for offsetting or mitigating the impacts of supply shocks in very severe supply situations. To the extent such measures would be implemented or organized by commercial entities, their benefits should be weighed against potential adverse effects on competition. Any assessment of such collective purchasing schemes would be without prejudice to the possible parallel application of Article 101 to horizontal co-operation agreements. In this context, the Commission guidelines on horizontal co-operation agreements provides guidance regarding which practices are allowed and which could be anticompetitive. 5.3.Option 2: Enhanced coordination with an increased scope for tailor made solutions This option introduces a series of changes in the Regulation aimed at improving coordination among Member States while leaving them flexibility in some areas to decide on measures tailor-made for their security of supply needs. The starting point of this option is a mandatory regional Risk Assessment to be carried out jointly by the Competent Authorities of all the Member States included in a concrete area. Such regional Risk Assessment would replace the current national Risk Assessments and should be based on common scenarios to de decided by Competent Authorities in each area on the basis of the existing criteria detailed in the Regulation (e.g. market size and network configuration, supply disruptions, correlation of risks, etc). This Risk Assessment would be developed according to a mandatory template. On the basis of the results of the regional Risk Assessment, the Competent Authorities of the Member States will have to develop their national Preventive Action Plans and Emergency Plans. These Plans will remain national plans but should be prepared following mandatory templates and accompanied by a courtesy translation into English. Additionally, a more far-reaching consultation process will apply in the form of a mandatory revision process (peer review). Thus, each national plan would be reviewed by peers from the Member States in the same area as well as other neighbouring Member States potentially impacted by the Plans. Furthermore, the involvement of other stakeholders such as natural gas undertakings, industrial gas customers, the relevant organisations representing the interests of households and industrial gas customers, electricity transmission and distribution system operators could be considered in such a system, to provide further input to the peer review team. The Commission will be required again to assess and deliver an opinion on the Plans, as under the current Regulation, but under this option the Commission will take into account the peer review carried out for each set of Plans. Following its assessment, the Commission may require the Competent Authority who prepared the Plans to review any or both of them and present specific recommendations for amending them. In the case the Member States do not take the Commission's opinion into account or do not duly justify the reasons why it does not agree with the Commission's opinion, the Commission would have the right to issue a decision requiring the amendment of the Plans. The Preventive National Plans will continue to serve as a planning and transparency tool where preventive measures are described by each Member State, including the compliance with the supply standard. In this option the level of the supply standard would no longer be defined at EU level. Instead, each Member State will, on the basis of the regional Risk Assessment, define the necessary level(s) of the supply standard as well as the means to ensure undertakings take measures to comply with it. The definition of the protected customers, to be established by the Competent Authorities, will not change under this option but an increased oversight of the implementation will be proposed. In their Emergency Plan Competent Authorities will have to define measures to ensure that, in the case of an emergency, non-protected customers would not use gas intended for the supply of the protected customers. The nature and type of the measures will be decided by the Member States (e.g. technical improvements in the networks to enable selective curtailments, deterrent sanctions for non-eligible consumptions, etc.). A new solidarity principle will be introduced in the system. According to such principle each Member State would be obliged to send excess gas to a neighbouring country in which the supply to protected customers is at risk. Excess gas would be defined as any gas that is available on top of what is needed for the protected customers in that Member State. The principle only takes effect in an emergency situation, i.e. when the amount of gas available in a given Member State is insufficient to meet the gas demand of protected customers. Members States will have to identify and assess in their Emergency Plans ways to ensure the application of such solidarity principle and, provided the assessment shows positive outcomes, implement it. With regard to infrastructures, the calculation of the N-1 standard would be amended by focusing on the most critical infrastructure instead of the single largest infrastructure. Each Member State would have to identify the most critical infrastructure, on the basis of the Regional Assessment, and explain in detail in the Preventive Action Plan the measures, volumes and timing needed to comply with the N-1 standard calculated with this new approach. The infrastructure standard would be completed by considering in the implementation of bi-directional capacity (reverse flows) a cost-benefit analysis along the whole transportation corridor. Thus, Member States along the transportation corridor will also be specifically consulted ahead of the adoption of a decision on a concrete interconnection point. Such approach would be required for the request of any exemption as well as for the decisions setting the level of the reverse flow capacity. The tools already developed under Regulation (EU) No 347/2013 such as for the cost-benefit analysis and cross-border cost allocation for PCIs should be applied. In order to improve the access to security of supply relevant information and facilitate information exchange, the scope of the reporting obligations under the current Regulation for gas supply contracts with a duration of more than one year concluded with suppliers from third countries would be widened by adding information on minimum daily, monthly and yearly contracted quantities as well as conditions for the suspension of gas deliveries. Natural gas undertakings will continue to be responsible for sending the information to the Competent Authorities and the latter to the Commission. Furthermore, the data will be now notified to the Commission in a non-aggregated form (i.e. per contract). This obligation would be complemented by a more flexible and focused system under which Competent Authorities will also be legally enabled to request suppliers' security of supply relevant information under duly justified circumstances which could be in relation to but ahead of the declaration of an emergency. Information subject to this request could cover information contained in gas supply contracts but only to the extent needed on security of supply grounds. Such information would typically cover non-price related gas delivery information, such as total maximum and minimum contract volumes, delivery points, or flexibility margins. The circumstances under which this information could be requested would be, for example, unexplained modifications in the gas supply pattern to a given buyer or buyers in a Member State which would not be expected under the normal functioning of the markets and which could have a negative impact on the security of supply of the Union or its parts. In any case, the Competent Authority would have to duly justify its request. The Commission will be entitled to request the information gathered by the Competent Authority in a non-aggregated form, and could also trigger the request of such information by the Competent Authority, in order to assess the overall security of supply situation of the Union or its parts. The confidentiality of commercially sensitive information will be ensured. As for the Energy Community, the revised regulation would be adopted into Energy Community Contracting Parties' national legal orders following the standard procedure based on the Title II of the Treaty establishing the Energy Community. Only voluntary cooperation on cross-border issues between the Contracting Parties and Member States would be animated by the Commission in a similar manner to the existing Commission Recommendation for internal market rules. For the approach presented in this option to be workable, a certain grouping of Member States is necessary, above all for practical reasons. The definition of the groups should take into account: a) supply patterns, b) existing and planned interconnections and interconnection capacity between Member States, c) market development and maturity, d) existing regional co-operation structures and e) the number of Member States in a region, which should be limited in order to keep it workable also in practice. Finally, Member States should in principle not be in more than one region. In view of those criteria, annex 5 contains a possible regional set-up building also on the currently operative regions in the framework of Regulation (EU) No 347/2013 (TEN-E Regulation). 5.4.Option 3: Enhanced coordination with some principles/standards set at EU level Option 3 builds on option 2 and goes one step further towards harmonisation by increasing the regional cooperation as a tool to improve security of supply and by setting at EU level a limited number of levels and principles to be complied with by all Member States while leaving them flexibility to decide on the most appropriate measures.

Under this option, the Competent Authorities of the Member States would also be required to prepare regional Risk Assessments as described in option 2, which will serve now as the basis for regional Preventive Action Plans and Emergency Plans. Therefore, Plans would now be prepared on the same regional basis as the Risk Assessment and would replace the national Preventive Action Plans and Emergency Plans. These Plans should be prepared according to mandatory templates and will be subject as well to the peer review assessment already described under option 2. Additionally, and in order to ensure the coherence of the different regional Plans as well as to assess the cross-regional effects of a gas emergency, the Gas Coordination Group will be given a stronger role. The Gas Coordination Group will discuss the Plans and will advise the regions on how to ensure the coherence between all the regional Preventive Action and Emergency Plans. The discussions at the Gas Coordination Group will be taken into account in the Commission's decisions on the Plans. Such discussions could also be taken into account by the Commission when addressing the situation of security of supply in the EU in the Report on the State of Energy Union. The supply standard will remain a national obligation, as under the current Regulation, but, contrary to option 2, the current definition set at EU level will continue to apply. This option would also retain the current discretion at national level as regards the means to ensure the compliance with the supply standard. The difference will be an increased oversight of the existing measures as well as new measures to comply with the supply standard involving Member States and the Commission. New measures envisaged by Member States would be subject to increased scrutiny, most notably a thorough impact assessment covering the impacts on the national energy market, the EU energy market, impacts on neighbouring Member States, proportionality and costs. Such assessment should be carried out by the Member State before implementation and made publicly available. The Commission would assess the analysis submitted by the Member States focusing on cross-border impacts and impacts on the internal market and may request the amendment or the removal of measures with negative impacts in a decision. Existing measures will also be assessed but in the framework of the assessment of the Preventive Action Plan. As part of the Plans prepared by the Competent Authorities, they will be subject to the peer review, the discussion in the Gas Coordination group and the Commission's decision on the Plans. In this regard, the criteria for the Commission's assessment of the Plan will be widened to specifically include negative effects in the functioning of the internal market or the distortion of competition. As in option 2, the current definition of protected customers would continue to apply, together with the increased oversight already described under option 2. However, a priority will be given to certain subcategories of protected customers (i.e. households, essential social services and district heating), to the extent they exist, for the application of the solidarity principle described under option 2, which in this option will be mandatory and not only a best efforts obligation. Thus, the supply to non-protected customers in a Member State will not be able to continue for as long as the households, essential social services and district heating (to the extent they are considered protected customers) in any of the Member States to which its transmission system is connected are not supplied. The practical arrangements to apply this principle will have to be agreed between Member States and reflected in the Emergency Plans, thus maintaining a high degree of flexibility. As regards infrastructures, the calculation of N-1 would be improved by amending certain technical aspects of the N-1 formula. The changes proposed by the majority of industrial stakeholders look at better capturing the internal bottlenecks within entry-exit systems, withdrawal rates from storages under various filling scenarios and the effectively available cross border capacity. This approach is complemented by an increased transparency in the parameters used for the calculation of the N-1, both in terms of their values as well as the underlying calculations, achieved through the templates for the Plans. Additionally, the pure capacity approach of the N-1 rule will be complemented by a national hydraulic calculation as well as a series of EU-wide scenarios. The hydraulic calculation would incorporate actual gas flows into the picture and will be explicitly included in the Risk Assessment prepared by the Competent Authorities. Regarding the EU-wide scenarios and similarly to the stress test exercise carried out in 2014 or the ENTSOG winter/summer outlooks, the European Network of Transmission System Operators for Gas (ENTSOG) would carry out such an EU-wide simulation in consultation with the Gas Coordination Group (e.g. scenarios to be modelled, duration, tie of the year, assumptions). Member States should then take into account the outcome of the simulation in their risk assessments, in order to take the appropriate measures to reduce the impact of a potential disruption (e.g. diversification of suppliers, routes, infrastructures). With regard to the reverse flow obligations, and in addition to the cost-benefit analysis along the whole transportation corridor introduced under option 2, the time duration of exemptions will be limited (although they can be renewed subject to the reassessment of the security of supply benefits and costs). There will also be a higher involvement of the Commission and, for the first time, the Agency for the Cooperation of Energy Regulators (ACER), in line with the work currently being carried out in the framework of the PCIs according to the TEN-E Regulation. The national decisions regarding the exemptions and capacity figures would be replaced by a joint decision adopted by the Competent Authorities on both sides of the interconnection point in question and would be subject to the opinion of the Agency as well as to the Commission's final decision, which would no longer be limited to the cases of disagreement among the Member States on both sides of the interconnection. As regards potential risks to security of gas supply stemming from infrastructure take-overs by third country companies, the current EU and national tools do not allow to address the situation in a satisfactory manner. Therefore we propose to introduce in the new regulation an obligation for the Member States as part of their overall obligation to make preventive action plans (at a regional level) to: identify in the Preventive Action Plans infrastructures relevant for security of supply (on the basis of criteria defined in annex to the regulation), assess various risks, including risks relating to a change of ownership of such infrastructure and if applicable to identify mitigating measures. If measures are proposed, these should be compatible with the EU law, including the free movement of capital and the freedom of establishment. The provisions under option 2 to improve the exchange of information will remain under this option as well. This will be complemented by an efficient and targeted mechanism for accessing key security of supply relevant gas supply contracts for the overall security of supply assessment of the Union and its parts ahead of an eventual emergency or unscheduled gas flows. The mechanism will consist of (i) mandatory ex-post notification of certain gas key security of supply relevant supply contracts and (ii) a right of the Commission to request certain gas contracts which could also be very important for security of supply. I.Parties would be obliged to submit all new key security of supply relevant gas supply contracts, as defined above, or any modifications of the existing ones (including all amendments, annexes or other documents signed or agreed in relation to and having an impact on the execution of these gas supply contracts) to the Competent Authorities and to the Commission for a security of supply assessment immediately after being signed. This will not apply to the revisions which are solely related to the contract price or a price formula, which is by far the most common reason for contract amendments. II.Moreover, the Commission would also have a discretion to request suppliers to submit to the Competent Authority and the Commission certain existing long-term security of supply relevant gas supply contracts, even if they were not subject to a revision, where the Commission has reasonable indications to assume that a given on-going contract with a third country could raise security of supply issues or if such contracts would be needed for a comprehensive assessment of the impact of a contractual framework on the security of supply situation in a Member State, region or in the Union and in particular for the Risk Assessments, Preventive Action Plans and Emergency Plans. The confidentiality of commercially sensitive information will be ensured. Subsequently, the Commission could address eventual security of supply issues by requesting the Competent Authorities of the Member States concerned to update their Risk Assessments and include adequate measures in the Preventive Action and Emergency Plans in the light of the new, updated or existing gas supply contracts. In addition, should a Competent Authority identify a competition law concern in relation to a gas supply contract, it could refer to the Commission for a substantial competition law assessment. Should the Commission find a competition concern, it could under existing rules adopt a binding decision bringing the infringement to an end and as appropriate sanctioning it.

Finally, for the Energy Community, option 3 proposes the description in the revised regulation of a set of precise obligations of the EU Member States towards Energy Community Contracting Parties, whose application would be conditioned to the adoption by the latter of matching obligations towards the EU Member States (via several "switch-on clauses"). Such conditional obligations would be associated with particular provisions of the Regulation considered to be the most relevant for the general policy goal which is to develop a coherent and functional security of supply framework with Contracting Parties. The main focus should be put on emergency plans, peer review of plans, cooperation in established regions and risk assessments. 5.5.Option 4: Full harmonisation This option builds on option 3 but goes further proposing a full harmonisation approach by preparing an EU-wide Risk Assessment and Plans and setting at EU level a number of levels and principles to be complied with by all Member States as well as the measures to comply with them, thus reducing the flexibility to a minimum level. Under this option, the scope of the Risk Assessment and the Plans would be extended to the EU level and would be prepared by the Commission. The EU-wide Risk Assessment will replace the regional Risk Assessment described under option 2 and will serve as the basis for the EU Preventive Action Plans and the EU Emergency Plans, which will also replace the regional Plans. The establishment of centralised EU Risk Assessment would contain information of all Member States, assessing in an integrated and coherent manner correlated risks and cross-regional effects in the case of a gas emergency. The EU Preventive Action Plan would include all measures to put in place to tackle the risks identified in a coordinated way, while the EU Emergency Plan would contain all measures to mitigate the impact of an unexpected event such as gas supply disruption to the EU or severe weather conditions affecting several Member States. The supply standard will remain a national obligation but the values will increase compared to option 3 and the current standard. In addition, the flexibility given to Member States in option 3 to comply with the supply standard would be reduced and prescriptive measures would be introduced on the way in which Member States have to ensure the standard is met. The most obvious example of this approach would be prescribing a minimum level of gas stocks to be kept in underground storages by each Member State. Furthermore, as much supported by the industry itself, market-based demand side measures, such as interruptible contracts, voluntary firm load shedding, etc. for industry should also be included here. As a new element compared to option 3, the full harmonisation of protected customers proposed under this option would limit the eligible categories of consumers to households, critical social services, like hospitals, and district heating for households and critical social services. A definition that is clear and limited in scope would facilitate a fair and straightforward allocation of scarce gas resources on the basis of solidarity. Furthermore, not only the solidarity principle but also the mechanisms to apply it in the event of an emergency would be prescribed under this option with the aim to ensure that the expected – and agreed – missing volume of gas for protected customers in Country A can only be acquired via a market-based mechanism (e.g. tender or auction) among non-protected customers in Country B. In that way, the TSO of Country A is sure to procure the agreed missing volume from its neighbour, but at a price at which the non-protected customers with supply contracts are willing to give up their supplies. Regarding the infrastructure standard, the N-1 standard would here be mandatory at regional level and would replace the current N-1 standard at national level. This option also contemplates mandatory reverse flow at every interconnection point, eliminating the exemption procedures foreseen in previous options and in the existing Regulation. New pipelines would also have to be designed to be bi-directional. This absence of flexibility with the elimination of the exemption procedure is the new element compared to option 3. With respect to the information exchange, this option would go a step further than option 3 and include an ex-ante notification of security of supply relevant gas supply contracts with third countries and the assessment by the Competent Authorities and the Commission. Under this mechanism, commercial parties would be obliged to submit security of supply relevant gas supply contracts to the Competent Authorities and the Commission before signature. The Competent Authorities would issue a draft decision on the contracts' implications for security of supply that would be submitted to the Commission. If considered necessary, the Commission would be able to request undertakings to provide any additional information needed for a comprehensive assessment of the impact of a contractual framework on the security of supply situation in a Member State, region or in the Union. The Commission would then issue an opinion on the assessment (i.e. the draft decision) by the Competent Authority which should take the Commission's opinion into utmost account when adopting its final decision. The procedure would have a suspensive effect for the entry into force of the contract until the final decision is adopted by the Competent Authority. The Competent Authority, on the basis of its assessment, should take eventually effective preventive measures in view of the contract and up-date the risk assessments and the Preventive Action Plans and Emergency Plans. Under this option, Member States would increase their bargaining power by resorting to mandatory joint gas purchasing. This binding character is the new element compared to option 1 where the joint purchasing remains voluntary. It would consist of a central buyer contracting on behalf of a number of EU gas suppliers a pre-determined quantity of gas. Such regime would in first instance be inspired by a desire to achieve more bargaining power. The involvement of the Energy Community will under this option be based on a general "switch on" clause. Similarly to option 3, this legal solution would imply a general obligation put on Member States towards the Energy Community Contracting Parties "switched on" as soon as the Contracting Parties decide to implement the Regulation, but under option 4 it will cover the whole Regulation.

6.Analysis of the impacts of the various policy options In this section the impacts of the different policy options are identified and assessed, as well as the ability of the options to contribute to the achievement of the identified objectives. The options proposed should first and foremost be effective at improving the current level of gas security of supply and thus be suitable to tackle the specific problems. As regards the impacts, given the administrative nature of the measures and the objectives pursued with the revision of the regulation, the most relevant impacts in terms of magnitude are of economic nature. Consequently, for each policy option, the assessment will cover: Costs of the measures and impact on prices Impact on stakeholders, with a special focus on SMEs Administrative burden Likelihood of contributing to the completion of the internal market In terms of social impacts, all options are likely to have a positive impact on the welfare of EU citizens by avoiding the occurrence of gas supply crisis and mitigating its effects should they nevertheless occur. The magnitude of this impact varies depending on the effectiveness of the option to address the identified problems (see section 7 for a comparison of the options, including on the basis of their effectiveness). From a point of view of employment, policy options related to enhanced cooperation, such as peer review, or infrastructure development such as reverse flow obligations may have an impact on employment due to some additional tasks appearing, however, these cannot be considered significant or valid for a sustained period of time (see per option the assessment of the impact in terms of administrative burden). Out of these measures, building more reverse flow capacity may have a positive impact on employment for the duration of design and construction. The direct impact of the proposed changes to the current Regulation are mostly administrative in nature, such as improving regional cooperation or improving information exchange on security of supply aspects. Therefore, the proposed policy options can only have an indirect, likely positive impact on the environment in that they are the consequence of stakeholder (e.g. competent authorities, gas undertakings, etc.) decisions on specific measures they will take. The current Regulation provides the possibility to use preventive and emergency measures with potential environmental impact, such as fuel switch (in most cases to oil or coal) or curtailment of gas consumption. As a result of more regional cooperation, as pursued by all the options, we expect a more efficient use of such national and cross-border measures decreasing the overall impact at EU level with less switching to more polluting fuels, for example. The Regulation does not make a choice for gas as a preferred supply option, but where this has been chosen it ensures the necessary security of supply. In line with the 2030 targets, the Regulation already requests Member States to consider efficiency measures and the revised regulation will allow for the use of alternative energy sources, such as renewables, to comply with certain obligations, such as the supply standard. Therefore, the expected environmental impact of security of supply measures introduced in case of a crisis should also overall decrease as a consequence or at least not change considerably. From the point of view of ICT, the options proposed could have a theoretical impact in terms of ICT. Close regional cooperation and the exchange and review of plans of other Member States require appropriate software to be at the disposal of the Member States. Such tools are however already in place and were set up in 2013 to enable Member States to notify their plans to the Commission (the Circbac platform). Competent Authorities have used this tool systematically for the notification of the second cycle of Preventive Action Plans and Emergency Plans prepared under the existing Regulation as well as for their replies to the Commission's opinions on their Plans. In addition to this, the use of web conference tools has become usual practice, for example to hold technical meetings on short notice to assess the security of supply situation under changing circumstances (e.g. online meetings of the Gas Coordination Group on 3 and 14 March 2014). Furthermore, the Commission will build on existing IT systems to ensure the secure handling of confidential documents, notably in the framework of the new targeted system to improve access to information. 6.1. Option 1: Enhanced implementation and soft-law measures 6.1.1 Contribution to the policy objectives Setting principles and mechanisms for cooperation via guidelines would facilitate and streamline the procedure for the coordination among Member States in the preparation of coordinated Risk Assessments and Preventive Action Plans and Emergency Plans. The guidelines, based on the experience gained during these five years of implementation, would help Member States to carry out a joint assessment of risks, paying special attention to correlated risks affecting several countries at the same time (e.g. severe weather conditions or failure of upstream pipelines). On the basis of the results of the joint risk assessment, Member States would then prepare coordinated Preventive Action and Emergency Plans. The guidelines for the supply standard would allow for a more harmonised compliance introducing transparency and predictability in certain relevant aspects such as the measures taken to fulfil the standard and the monitoring process. Regarding the definition of protected customers, the enforcement of the existing legislation seems in any case insufficient to solve the problems identified in the implementation of this provision. Technical reasons, different definitions of essential social services and different levels of gas penetration across Europe reduce the effectiveness of this provision even in the case of timely and accurate implementation.

Regarding the infrastructure standard, the room for improvement seems limited. For example, it is unlikely that the re-examination of the reverse flow exemptions will conclude with indications of enabling bi-directional capacity in exempted pipelines, mainly due to the market environment does not normally change rapidly to amend decisions adopted by Member States, which are mostly based on the results of the market demand assessment and the cost benefit analysis. As regards the guidelines for better implementation of information exchange obligations, they will have positive impact in the regional and EU assessment by the Commission based on more comprehensive and comparable information. In addition, the guidance with respect to the acquis has a positive preventive character thanks to an increased awareness of risky and/or illegal contract clauses and frameworks, as for example, the insertion of a territorial restriction in a supply contract with a buyer may have a negative impact on the security of supply in other Member States. Guidance on gas market pricing will also provide useful reference for pricing of long-term gas contracts, in particular, in areas without liquid hubs. It is claimed that gas prices of other buyers are a relevant benchmark for such negotiations. This would create more transparency and strengthen the bargaining position of gas purchasers by allowing them to compare an offer from a supplier with competitive prices at the various European hubs. Regional benchmarks can possibly strengthen the bargaining position of gas purchasers vis-a-vis gas suppliers by allowing a rough comparison of an offer with other long-term gas contracts in the absence of local gas hubs. Regarding collective voluntary common gas purchasing, undertakings can already today, to the extent they respect competition and trade rules, aggregate their demand and address suppliers to achieve better terms and conditions. In the retail energy market, but also in other sectors, it is not uncommon that buyers join forces to negotiate better conditions with their suppliers. In theory, this could also be the case on wholesale gas markets. The Commission has issued guidance as to the applicability of Article 101 TFEU to joint purchasing schemes and what the relevant elements are in assessing their compatibility. It is therefore up to market participants to decide for themselves whether pooling their demand and setting up a scheme would indeed result in increased buyer power and therewith improved conditions. Whereas in general such considerations related to price may be more relevant, such schemes could also have security of supply effects, for instance when they enable to tap in to a new source or spur the development of new infrastructure. 6.1.2 Analysis of impacts a) Costs of the measures and impact on prices Overall option 1 will have a limited impact in costs as the measures proposed are oriented to improve the implementation of existing measures and the enforcement of current obligations. Indeed, the main advantage of soft law is the minimum cost in their implementation, as it only requires limited number of changes in the measures already in place. For example, the guidelines for the supply standard will imply more detailed information on the fulfilment of this obligation that Member States have to report to the Commission. Therefore, the costs of option 1 and the impact on prices are negligible. b) Impact on stakeholders, with special focus on SME The measures proposed under option 1 have limited impact on stakeholders, as it only requires the improvement of existing measures. Among the stakeholders, the Competent Authorities will be the most affected as actors responsible for the implementation of the Regulation and therefore, natural addressees of most guidelines. In this regard, the measures proposed to enforce and improve the implementation could have a short-term impact in view of the necessary changes in the approach usually followed by the Competent Authorities. In any case, as the actions aim to improve the way to put in practice existing measures the impact will be limited and, in the long-term, even positive. c) Administrative burden In line with the arguments expressed before, the administrative burden is limited as it is only related to changes in the approach to put in place existing measures. The Competent Authorities will have certain additional administrative burden as actors responsible for the implementation (explained above). Even though it is difficult to quantify, the administrative burden related to following guidelines and best practices in the short term is unlikely to be burdensome. The preparation of guidelines will require additional work for the Commission. However, the efforts already done in the implementation will facilitate this task minimizing the impact. d) Completion of the internal market

As the actions proposed aim to improve the implementation and enforcement of existing measures, the contribution to the single market will be in general positive but limited. Special attention deserve the guidelines on gas market pricing, as the transparency of prices of commercial gas supply contracts could have anticompetitive effects (e.g. possible alignment of prices at upstream or downstream wholesale level but not necessarily at a lower price level). Additionally, a regional benchmark could be also counter-productive if the resulting benchmark was not market-reflective. 6.2 Option 2: Improved coordination with an increased scope for tailor made solutions 6.2.1 Contribution to the policy objectives Measures grouped under this option address all the problems identified while leaving room for manoeuvre for Member States given that a one-size-fits-all approach was almost unanimously rejected in the public consultation. The main benefit of a regional Risk Assessment as a starting point of this option is that such assessment would be based on common scenarios leading to an increased coherence among the national Plans and the necessary involvement of the Member States in the region, which would create more engagement and ownership. This would enhance considerably the security of supply in the region. The mandatory templates will facilitate the development of a joint document and will facilitate the comparability of the national Plans while leaving room to include national specificities as needed. The mandatory templates constitute a simple tool to ensure the consistency and increase the quality of the national Plans and the provision of the courtesy translation into English will address one of the practical difficulties identified in the Report on the implementation of the existing Regulation and will allow for meaningful discussions of the Plans. The peer review process serves a twofold purpose. On the one hand, it will allow for an early identification of inconsistencies and measures that could endanger other Member States' security of supply; on the other hand, it will provide for actively spreading of best practices among Member States building on the experiences of Member States with more advanced security of supply systems. Building on the logic of this option, both the levels of and the measures to comply with the supply standard are left to the decision of the Member States on the basis of two key arguments: the highly divergent situations of the gas market and the different roles of natural gas as a fuel in the energy mix of Member States. Where gas markets are functioning, price signals can be relied upon to attract gas when and where it is needed most. Where gas is used by a large share of households for heating their homes in winters, Member States are more minded to enforce stricter supply levels. This option also addresses the risk of overly protective measures with the obligation for Member States to introduce stricter enforcement measures as regards the definition of protected customers. Such measures would prevent that consumers who are non-eligible for the category of protected customers would, in the case of an emergency, consume the gas allocated for protected customers and thus enhance the security of supply of protected customers in a given Member State. Secondly, as the gas necessary to cover the needs of protected customers under demanding conditions (to be defined by the Member State under this option) would be limited to the strictly necessary amounts, the need to resort to high supply standards, of which risks for neighbouring Member States in terms of overly protective measures were explained in the previous paragraph, would be removed and thus, the security of supply in the region as well as the possibilities for solidarity actions would improve. Furthermore, this tool provides a viable and proportionate solution as each Member State will decide on the nature of the measures, i.e. technical or administrative, depending on their national circumstances, typically the size of their gas market and the number of consumers connected to their distribution network that could potentially consume during an emergency gas allocated for protected customers. Solidarity would also be improved under this option, on the one hand, as a result of the measures on protected customers and to enhance coordination; on the other hand, via the obligation to consider a solidarity principle. As a best efforts obligation, this option has the benefit of flexibility both in terms of implementation and form. Moreover, the regional approach provided by the joint Risk Assessment ensures a comprehensive outlook. Even if this may appear counterintuitive, the consideration of the most critical infrastructure does not seem to significantly improve the security of supply. Firstly, the classical definition of the N-1 standard already ensures that the national gas system has a capacity margin to compensate for the disruption of the largest gas infrastructure. As such, the capacity margin ensured with the classical N-1 definition is higher or equal than the margin that would be ensured by considering the most critical infrastructure. Secondly, the special consideration that the most critical infrastructure deserves and, in particular, the analysis of certain aspects e.g. utilisation level of this asset or the outage probability, should in any case be properly assessed in the framework of the Risk Assessment and the resulting needs addressed as part of the preventive measures to be included in the Preventive Action Plan. The inclusion of the whole corridor in the consultation and assessment regarding the reverse flow obligations would give better understanding of the positive implications of a transnational concept of security of supply and a better magnitude of costs in relation to the benefits provided. Technical barriers such as those represented by different odorization practices need to be addressed in this context, as possible costs related to de-odorization techniques may have to be included in the cost-benefit analysis. With regard to the external problems and the exchange of information, the improvement of the reporting obligations will enhance the Commission's ability to assess security of supply situation at regional and Union level as well as the adequacy of Risk Assessments, Preventive Action Plans and Emergency Plans. Furthermore, the new targeted system for access to information will improve the ability of the Competent Authorities and the Commission to prepare for and react to concerns with respect to gas supplies before they lead to crisis. Cases such as the observed deviation of flows during autumn/winter 2014/2015 show that without such a system the available information may not be sufficient for Competent Authorities or the Commission to draw operational conclusions and foresee the likely development of potentially negative events.

Finally, as regards the Energy Community, the foreseen voluntary cooperation would constitute a step forward in the inclusion of this area in the framework of the security of gas supply policy. 6.2.2 Analysis of impacts a) Costs of the measures and impact on prices Overall option 2 will entail a very limited increase in costs compared to the baseline scenario as a result of the flexible approach followed and the reduction of standards set at EU level (e.g. supply standard). The majority of the measures composing this option consist of improvements of existing mechanisms and the correct implementation of a number of principles and, as such, do not involve significant higher costs. As an example, measures related to the exchange of information, the N-1 standard calculated with