Communication from the Commission to the Council and the European Parliament - Completing the internal energy market
Date: 2001-03-13
Institutions: European Commission
Subjects: energy policy, energy supply, energy transport, single market, storage

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.3.2001

COM(2001) 125 final

2001/0077 (COD)
2001/0078 (COD)

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT

Completing the internal energy market

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Directives 96/92/EC and 98/30/EC concerning common rules for the internal
market in electricity and natural gas

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on conditions for access to the network for cross-border exchanges in electricity

(presented by the Commission)

1.

INTRODUCTION

The opening up of the energy sector to competition was achieved much later than the opening
of other sectors of the economy in the context of the objective set in 1985 to create, by 1992,
a single market in Europe without internal frontiers. The Electricity and Gas Directives1,
which were adopted in 1996 and 1998 and had to be implemented in February 1999 and
August 2000 respectively, partly filled this gap and represent an important step towards the
creation of an internal market in these sectors. The objective of the directives is to open up the
thereby
electricity and gas markets through the gradual
increasing the efficiency of the energy sector and the competitiveness of the European
economy as a whole.

introduction of competition,

Full opening of energy markets is a key factor in improving Europe's competitiveness and the
welfare of its citizens. Electricity is the most important secondary source of energy in the
European Union and the electricity industry is one of the largest sectors of the economy in
Europe. Annual production is some 2 500 Terawatt hours2, generating turnover of around
EUR 150 billion. Natural gas is increasing its importance in primary EU energy supply,
notably as the fuel of choice in power generation. The annual end-sales value of gas in the EU
is estimated at around EUR 100 billion per year (incl. taxes).

Energy costs represent an important share of European production costs. In a global and
competitive market place it is vital to ensure efficiency in energy supply and competitively
based energy prices. The high oil prices experienced in recent months combined with the
traditional oil-linkage of gas pricing in Europe has made the potential benefits of gas-to-gas
competition, a key element of the creation of the internal energy market, particularly apparent.

In this Communication it is concluded that, to date, the effects of market opening have been
positive, with regard to both the development of the market as such and the impact of market
opening on related important policy fields, such as public service objectives, environment and
security of supply. However, in order to complete the internal energy market and to reap its
full benefits, further measures are now necessary. The nature of the measures which are
required in order to provide for such an impetus are identified; they concern the degree of
market opening (“quantitative proposals”) and the minimum obligations regarding access to
the network, consumer protection, regulation and the unbundling of the transmission and
distribution function in integrated gas and electricity companies (“qualitative proposals”).

On the basis of these conclusions, the Commission has tabled a formal proposal for the
amendment of the Electricity and Gas Directives. Also proposed is a Regulation setting out
principles and procedures regarding the conditions for access to the network for cross border
exchanges of electricity.

The Communication thus meets the demand of the European Council of Lisbon of
23-24 March 2000 for rapid work to be undertaken to complete the internal market for
electricity and gas. It also responds to the request of the European Parliament
to the
Commission to adopt a detailed timetable for the achievement of accurately defined
objectives with a view to gradually but completely liberalising the energy markets3. On the

1

2

3

Electricity Directive 96/92/EC, OJ L 27, 30.1.1997 and Gas Directive 98/30/EC, OJ L 204, 21.7.1998.
Or 2 500 billion kilowatt-hours.
Resolution ‘Liberalisation of energy markets’ A5-0180/2000 of 6 July 2000.

2

basis of a previous Communication from the Commission4, which provided an initial analysis
of the state of play with regard to electricity market opening and examined the actions to be
taken to facilitate the functioning of the internal electricity market, the Energy Council of
30 May 2000 echoed the call of the Lisbon European Council5.

In preparing this Communication and before drawing conclusions,
the Commission
considered it important that the views of all parties with an interest in the matter, i.e. social
partners, generators, gas producers, Transmission System Operators (hereinafter referred to as
TSOs), distributors, consumers and other interested parties, were heard. Therefore, a public
hearing was organised in September 2000. Nearly 120 associations and companies
participated.

2.

THE INTERNAL MARKETS FOR ELECTRICITY AND GAS – PROGRESS SO FAR

2.1.

The legal framework

The EU Electricity and Gas Directives (96/92/EC and 98/30/EC) entered into force on
19 February 1997 and 10 August 1998 respectively and had, as the general rule, to be
implemented into national legislation two years later.

While the two directives reflect the different specific technical and commercial characteristics
of each of the two sectors, they are to a large extent based on the same key measures intended
to open up the markets to competition. Exclusive rights to import and export gas and
electricity and to build and operate gas and electricity facilities have been abolished following
the implementation of the Directives. With regard to electricity, the construction of new
generating capacity has also been fully opened up to competition.

With regard to the degree of market opening, the Directives set minimum targets for the
opening of the market which, in the case of electricity, correspond to 30% of domestic
consumption in 2000 and 35% in 2003. For the gas market, opening must be 20% in 2000 and
28% by 2003. This opens up the possibility for the largest consumers to choose their suppliers
freely. With respect to gas, all gas fired power generators are also given this possibility,
irrespective of their annual consumption.

Although opening an important part of the market (quantitative opening) is vital in developing
competition, this alone does not ensure that the market works in practice. In this context,
access to the network is a key issue, in particular taking into account that it is likely to remain
a natural monopoly. In fact, it will in most cases not be economic to duplicate the existing
networks that, therefore, constitute essential infrastructure. It is thus vital that market players
can get fair access to the transmission and distribution grids including all the necessary related
ancillary facilities (“third party access" or TPA). The achievement of this is more likely if the
operation of the transmission and distribution systems (in practice, often operated by
vertically integrated companies) are functionally separated from the other commercial
interests, in particular generation/production and supply.

4

5

COM(2000) 297, "Recent progress with building the internal electricity market".
This Communication follows up on the Communication of 16 May 2000 in which the Commission gave
its preliminary thinking on the way in which the liberalisation of the electricity sector could
be completed.

3

The directives offered Member States the choice between a third party access system based on
published tariffs applicable to all customers ("Regulated third party access") and a system
based on negotiations between the parties, with published main commercial conditions
("Negotiated third party access"). With respect to unbundling,
integrated companies are
obliged to unbundle their different business activities by separating their accounts and
preserving the confidentiality of commercially sensitive information through "Chinese walls".
Moreover, the Electricity Directive requires that an independent (at least in management
terms) transmission system operator (“TSO”) is designated to ensure non-discrimination in
system use between the incumbent and new entrants. In order to ensure non-discrimination,
Member States are furthermore obliged to designate a competent and independent “dispute
settlement” authority.

2.2.

Implementation in practice6

All Member States have now adopted national legislation implementing the provisions of the
Directive concerning common rules for the internal market in electricity. Belgium has yet to
adopt the secondary legislation (implementing decrees) needed in order to apply the laws.

As regards gas, most Member States had implemented the Gas Directive into primary national
legislation on 10 August 2000. For these countries the Commission is presently examining
implementing legislation, to ensure that all the detailed requirements of the Directives are
met. However,
to
complete this process and infringement procedures have been launched.

three Member States (France, Luxembourg and Germany) have yet

Notwithstanding this, the initial experience in terms of implementing the Directives has been
encouraging. In terms of market opening, for example, the vast majority of Member States are
going further than legally required, and many have already decided to progressively move to
full market opening.

EU gas and electricity market opening – 2000

Electricity

Directive - min.

30%

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

32%

35%

90%

100%

30%

100%

30%

30%

35%

40%

Gas

20%

49%

59%

30%

90%

20%

100%

0%

75%

96%

51%

6

Detailed information can be found on the Commission'’ website:
electricity – http://europa.eu.int/comm/energy/en/elec_single_market/index_en.html
gas – http://europa.eu.int/comm/energy/en/gas_single_market/index_en.html

4

Netherlands

Portugal

Spain

Sweden

33%

30%

54%

100%

United Kingdom 100%

EU - average

66%

45%

0%

72%

47%

100%

79%

Furthermore, a clear majority of Member States have chosen structural measures
accompanying market opening most likely to promote effective competition. In fact most
Member States have opted for regulated third party access, the authorisation procedure for
new generation capacity, full legal unbundling of transmission system operators, and the
creation of independent regulatory authorities.

However,
the trend towards regulated third party access and strict unbundling is less
pronounced in gas than in electricity; only six Member States are either pursuing or seriously
considering legal or ownership separation of the transportation and commercial supply
activities of integrated companies.

At this stage therefore, it may be said that the state of implementation is encouraging.
However, practical experience has already shown that further improvements and efforts are
necessary to guarantee a smooth operation of the two markets.

As shown above, the degree of market opening differs considerably between Member States
and without further action this trend is likely to continue. Whilst an overwhelming majority of
Member States currently expect
to liberalise all electricity customers by 2007 and gas
customers by 2008, the picture is far from uniform. This situation has given rise to significant
concerns among most Member States and market players. Their concern is that
if this
situation is maintained over a longer period, a real level playing field will not develop within
the internal market. The reciprocity provisions of the electricity and Gas Directives have been
designed, on a temporary basis, to address the issue of quantitative imbalances in market
opening. However, experience in the electricity market has shown that such a clause may not
be able to address all aspects of creating a real level playing field between Member States
and operators7.

Indeed, at the Public Hearing, the importance of this was stressed by an overwhelming
majority of those commenting. The significantly different competitive environment between
Member States, for example, in terms of purchasing possibilities for cheaper electricity by
SMEs, was viewed as an important distortion of competition. In fact over 80% of respondents
at the hearing argued in favour of full market opening in the short to medium term.

Market opening is important, but to be effective in practice fair and non-discriminatory
access to the network must be guaranteed. Whilst important progress has been achieved in
this respect, in particular in electricity, there is still a need for further improvement. The
and
received by the Commission, national
complaints
numerous
regulatory/competition authorities,
the ultimate goal of non-discriminatory
access to the network has not yet been fully achieved in practice. Furthermore, undertakings

administrations

indicate that

7

For example, increasingly sophisticated trading arrangements render it impossible to trace the origin of
gas or electricity.

5

have indicated to the Commission that where clear and effective unbundling does not exist,
together with standard and published third party access tariffs, this represents a significant
barrier to market entry, as it is not believed that effective and non-discriminatory access to the
network will exist. As such, this represents a significant limit to the development of an
effective internal energy market. The systems and rules for third party access and the degree
of unbundling play a fundamental role in this respect. These fundamental elements in the
creation of fair competition have also been highlighted in the recent Green Paper on security
of supply8.

It can therefore be concluded that in order for real competition to develop and provide
tangible results both for suppliers and consumers, effective unbundling and proper, fair and
non-discriminatory conditions for access to the European gas and electricity networks will be
required. Without both of these conditions fulfilled, distortions of competition will always
remain likely. With regard to the structure of the gas sector, the development of real
supply-side gas competition in the gas sector at the up-stream end of the gas supply chain is
also vital. Both the Gas Directive and competition policy may have an important role to play
in achieving this.

These qualitative issues were also underlined by participants at the hearing as being vital to
ensure the development of real, effective and fair competition. Indeed, over 70% of the
respondents at
the public hearing were in favour of strengthening existing unbundling
provisions. In fact, aside from the representatives of the gas industry, only two of the
organisations and companies present believed the current provisions in the Directive to be
adequate to ensure fair competition. Furthermore, with respect to third party access, the
system of case-by-case negotiated third party access, presently permitted by the Directive,
was favoured by none of the respondents.

Also in this context, many participants underlined the importance of the existence of an
independent national regulatory authority, and indeed some insisted on the need for having a
regulator at the European level. A Regulator is important in arriving at a truly competitive
market, especially to ensure non-discriminatory access to the network. Regulators have the
competence to set or approve network tariffs and intervene ex-ante in the market, as opposed
to competition authorities, which can only deal with competition problems ex-post and under
procedures, which are not adapted to deal with the setting of tariffs.

Finally, it is important to develop a common approach on this issue, on the basis of high
standards, to ensure a level-playing field, particularly in the light of the development of
similar rules in accession countries.

Thus, in conclusion, even though the existing market opening process is producing positive
benefits for European competitiveness on the whole, there seem – already at this early stage –
to be several weaknesses in the current legal framework which will need to be remedied if a
fully operational internal market for gas and electricity is to be achieved.

8

COM(2000) 769, p. 71.

6

2.3.

Price developments9

Electricity prices for industrial consumers have gone down in almost all Member States since
the Electricity Directive was implemented. In general, the most significant price reductions
can be found in the Member States that have opened more than the minimum legally required
and which were the market exposed to effective domestic or import competition. This is
shown in the following graph, which depicts the price developments for large industrial
consumers since 1995.

Electricity Price Development for Industry 1995 - 2000
1995 = 100

110,0

100,0

90,0

80,0

70,0

60,0

100% market opening

less than 100% market
opening

less than 40% market
opening

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

Source: Eurostat.
Note:

Prices exclude energy taxes and VAT and prices have been deflated. “Industry” is defined as having an
annual electricity consumption of 2 GWh.

In the UK, which was the first country to liberalise, large price reductions have been seen
since market opening started in 1990; prices for UK industrial users, for example, have been
reduced, on average, by 35% in real terms since this date, compared to a Community average
of 25%. In Finland and Sweden, where market opening started later, price reductions have
also been significant; 20% in Finland since 1995 and 15% in Sweden since 1996. This is
remarkable considering that the electricity price in these two countries was already amongst
the lowest in Europe before market opening. Finally, in Germany, where market opening has
taken place only recently, prices reduced rapidly, on average by 25% between March 1998
and August 2000.

Electricity price reductions are not confined to industry even though the effects have been less
pronounced for households. The largest price reductions can be found in Member States
where consumers are free to change supplier, and in particular where it is de facto easy to do
so. Experience from Finland and Sweden shows, for example, that households were able to
benefit from market opening once the requirement to invest in expensive metering equipment
was abolished, and the concept of standardised load profiles10 was introduced. Since 1998,

9

10

The main source for this chapter is Eurostat, which twice a year publishes statistics on electricity and
gas prices.
Under a standardised load profile, an assumption on the consumption of electricity of a type of small
consumer is made, in volume and timing of demand. Any discrepancies with the profile are settled after
periodic readings of the existing meter, eliminating the need for expensive minute-to-minute reading of
the consumer’s actual consumption and offsetting that against his/her contracted volume.

7

average prices for domestic consumers have fallen by 13% in Finland and by 16% in
Sweden11.

Thus, the price development of electricity has been very positive since the process of market
opening begun in the European Union. However, we cannot conclude that prices will continue
to decrease as market opening progresses. One of the most important determining factors in
the price of electricity is the fuel used for its generation. The European Union has, for
example, little influence on the development of the price of crude oil, and, at least at present,
of natural gas, which in the majority of Member States is linked to the oil price. What a real
competitive market does ensure, however, is that the price adequately reflects demand and
supply and that efficiency gains are made, which were not achieved under the former market
structure dominated by national monopolies.

The picture is less clear for gas. The effect on gas prices from market opening has been
significantly distorted by the increase in oil prices and the development in the Euro/US $
exchange rate. To some extent, this reflects the structural differences between gas production
and electricity generation and the contractual arrangements for gas supply including gas price
linkage to oil prices. Until real gas-to-gas competition develops, gas prices will not properly
reflect the supply and demand situation of the gas market, independently of that for oil.
Nonetheless in the UK, for example, the introduction of competition, along with other factors
such as plentiful fuel supplies and the relative isolation of the UK market, did initially lead to
lower gas prices. Between 1990 and 1999, average UK industrial gas prices fell by 45%, and
by 20% for domestic consumers12. However, following the entry into operation of the
Interconnector from Bacton in the UK to Zeebrugge in Belgium in October 1998, gas prices
in the UK roughly doubled during 2000, mainly as a result of increasing Continental gas
prices linked to the price of oil which has increased considerably over the last 18 months.

Huge disparities in terms of gas price exist between Member States. This situation is likely to
lead to distortions of the market in industries that use energy. It should also be noted that
SMEs are at the moment often disadvantaged compared to large industrial customers in terms
of prices, in particular if they remain captive customers without choice of supplier.

The monitoring of the internal electricity and gas markets is important
to ensure the
development of effective competition and also to ensure that lower prices for electricity and
gas do not have a negative impact on the development of environmentally friendly
technologies relating to renewables and energy efficiency. This concerns not only final
electricity prices, but also competition indicators – examining for example the level of
customers switching following market opening, changes in market shares, and the extent of
new market entry by electricity companies. However it is important to also remember that just
the threat of entry can be enough to encourage incumbent suppliers to reduce their prices.
Analysis of market shares may not be an accurate indicator of the impact of liberalisation. It
will therefore also be important to benchmark transmission and distribution tariffs across the
Community, to ensure that national regulators have the information necessary to ensure
proper comparison of domestic tariff levels. The Commission has recently launched a study
on this issue, and this will continue to be part of its ongoing work.

11

12

According to the Association of Swedish Electricity Distributors, 10% of all households have changed
supplier between 1 November 1999 and 31 August 2000. The electricity prices have, however, also
gone down for other households. The association estimates that 2/3 of all electricity suppliers have
reduced their price.
Source: Department of Trade and Industry: "UK Energy Sector Indicators - 1999".

8

2.4.

The development of trade within the internal market

2.4.1. Current situation and trends in the internal market

The objective of the Electricity and Gas Directives is the creation of one truly integrated
single market, not fifteen more or less liberalised but largely national markets. It is therefore
encouraging that cross-border trade is also progressing. The total volume of trade in
electricity, for instance, is equivalent to around 8% of total electricity production in the
Community. As indicated in the Green Paper on security of supply13, this level of trade is
much lower than in other sectors that have gained much from the internal market, such as
telecommunications, financial services and industrial products.

The table below shows the level of physical exports and imports for each country for 199914:

GWh

Belgium

Germany

Spain

France

Greece

Italy

Luxembourg

Netherlands

Austria

Portugal

Switzerland

Central Europe

Imports

Exports

8 918

39 304

11 858

4 471

1 813

42 539

6 175

22 406

10 494

3 513

20 856

5 030

8 204

38 018

5 905

66 668

1 652

527

657

3 753

14 402

4 453

30 123

13 012

Even though cross border trade is still limited, this does not mean that competition has not
had an effect. In fact, as already noted, the price of electricity has reduced in nearly all
Member States since the implementation of the Electricity Directive. Both competition at
national level as well as the pressure of foreign competition has meant that, despite physical
constraints, electricity producers have had to lower prices in order to keep their customers.

Furthermore, an important indicator of the extent to which a real, integrated internal market is
developing, is the number of customers which have chosen to switch supplier, and whether
new supplies come from a generator situated in another Member State. The Commission has
therefore begun a monitoring exercise in this respect, and has requested such information,
where available, from industry, Member States and national regulators. Whilst data is not yet
available for all Member States, a number of indicators can already be identified.

13

14

COM(2000) 769, p. 69.
Trade within the Scandinavian system (NORDEL) and between Ireland and the UK are not included.

9

According to presently available information, which the Commission was able to collect, the
number of customers having switched supplier is the highest in those Member States where
market opening started early. For instance, in Finland around 20% have changed supplier, and
in Sweden and the United Kingdom most industrial customers are believed to have changed
least once since the introduction of competition in 1996. But also in the
supplier at
Member States where market opening was introduced later, a trend towards changing supplier
is discernible. As regards France, Germany, Spain and Portugal, for instance, it is estimated
that around 5% of eligible customers have changed supplier.

As regards the country of origin of the new supplier chosen by customers, there is only very
limited information available. It appears, however, that most customers tend to opt for a
national supplier, except in countries dominated by a single domestic supplier. It is important
to monitor developments, and more information in this respect can be expected from the
indicators the Commission, through EUROSTAT, is currently developing in order to monitor
and assess the functioning of the internal market.

These developments demonstrate the beginning of a true Community competitive market.
However, they also show that such a market is far from being completed.

In countries whose electricity market is dominated by one or two generators which produce
all the electricity consumed in a country, a competitive environment, that is true market
competition, can only be realised if a high level of imports is possible.

Furthermore, if cross border trade remains limited and markets are principally national, it is
probable that generation capacity in the Union will not be efficiently utilised. For example, if
physical restraints on exports remain, it is possible that new generation installations will be
constructed in one country despite the existence of spare capacity in another that risks closure.
Finally such a situation is likely to impact on the security of supply situation in the Union if
new installations use an imported energy source – for example natural gas – while existing
stations, risking closure, are powered by sources of energy which pose less or no problems in
terms of security of supply, such as renewables.

In order to address these issues, it is essential that the possibilities for trade be maximised. In
this context, three major actions are necessary:

• appropriate rules with respect to the pricing of cross-border trade;

• rules for allocation and management of scarce interconnection capacity; and

• where economically justified, the increase of existing physical interconnection capacity.

All of these issues represent an essential complement to the electricity and Gas Directives.

2.4.2.

The work of the Florence and Madrid Fora

issues,
took

the
To deal with these
European Commission
the
Electricity Regulatory Forum of Florence in 1998 and the European Gas Regulatory Forum of
Madrid in 1999. The issues mentioned above are technical and complex in nature and rapidly
developing and the fora represent an appropriate and flexible mechanism for making progress.
The Fora convene twice a year and consist of Member States’ representatives, national

two considerations,
–
new bodies

and in particular
initiative

first

two

the

the

set

up

to

10

regulatory authorities, the European Commission, Transmission System Operators, electricity
and gas suppliers and traders, consumers, network users, and power and gas exchanges.

For both of these Fora, the first step has been the creation of a body representing the
transmission system operators (TSOs). Thus, for electricity the European Transmission
System Operators Association (ETSO) has been created, which is a wholly new and separate
body from other Electricity Industry associations or bodies. With respect to gas, a grouping of
transmission system operators – GTE – was set up in the summer of 2000. In addition to this,
national electricity and gas Regulators have created the Council of European Energy
Regulators (CEER). These developments have proved important in reaching common ground
on a number of the issues under consideration.

2.4.3.

Transmission tariffs for cross-border trade in electricity

When the directive was adopted, each Member State dealt with the issue of tarification for
cross-border trade on the basis of their national system. This leads to considerable differences
in tariff structures across the Community. Some countries impose charges only on consumers,
whilst other put
tariffs partly on generators, partly on consumers. Furthermore, some
Member States impose charges on transits, other do not. This leads to important distortions of
competition and, in many cases pancaking: the imposition of charges by all countries located
between the generator and consumer, an approach that has no relation to the costs incurred.
Thus, the first task of the Florence Forum was the agreement of a harmonised system for
cross-border tarification.

The Forum rapidly agreed the basic principles upon which such a tarification system must be
based; transparency, simplicity, cost-reflectiveness and non-discrimination. Furthermore, it
subsequently succeeded in agreeing the basis of the mechanism that would be needed to
implement these principles:

• the mechanism must be based on physical flows of electricity, not the distance between

two contracting parties;

• where countries export significant net quantities of electricity, they cause physical flows

and transits. These transit flows cause costs in countries hosting them;

• these “host” countries should be compensated for the costs caused to their networks by the

market parties in the TSO area responsible for them;

• these compensations should be made via payments made between TSOs.

At the fifth meeting of the Florence Forum in March 2000 agreement in principle was reached
to introduce a tarification system for cross-border trade in electricity based on the above
principles, for a provisional test phase of one year. Thus, TSOs would compensate one
another for transits on the basis of financial calculations proposed and verified at national
level. One important issue, however, was left to subsidiarity: the way in which national TSOs
reflect the result of the compensations paid and received in their national tariff system. On
this particular point it was agreed to leave the issue during the provisional one-year period to
the discretion of the Member States. However, the national mechanisms would remain subject
to overall coordination and control by the European Commission to ensure that the potentially
different approaches at Member State level would not result in unreasonable distortion of the
internal electricity market.

11

in unreasonable distortion of the internal market.

The Commission has not yet been prepared to endorse the entry into force of the provisional
system. On the basis of the information received from all national regulators/competent
authorities concerned, it could not be excluded that the potentially different approaches would
result
In fact, different groups of
Member States exist, falling into two broad categories: one group intends to introduce an
export charge whereas the second intends to opt for a system of repartition of costs over all
users of the network. Under such circumstances an introduction of the provisional system
would be likely to lead to an unacceptable degree of discrimination between operators and
distortions of trade, the more so as the level of the export charge envisaged by some countries
would lead in many cases to considerably higher transaction costs than under current national
tariff systems.

This was also stressed by representatives of large industrial consumers, traders, a number of
Member States and a number of national regulators which on various occasions expressed
their serious concerns with respect to the concept and the level of the intended export charge.

The Commission believes that already the provisional mechanism, though being temporary,
needs to be based on principles that ensure a proper functioning of the internal market and
does not contain elements, which constitute a barrier to trade. The most appropriate way to
achieve this goal is that those two Member States envisaging the introduction of an export
charge would examine whether they could refrain from introducing it or whether the proposed
level of the charge could be significantly reduced, in order to limit possible distortions of
trade and competition.

The Commission has undertaken further discussions with individual regulators/national
authorities in order to resolve this issue with the objective of allowing the introduction of the
provisional system in the near future.

However, in the course of these discussions the Member States concerned, in particular
Germany, have declared to be willing to reduce their intended export tariff only under the
condition that all other Member States introduce in turn an export charge of the same level,
including those opting for a system of repartition of costs over all users of the network. Such
an approach would, however, be unacceptable for the latter Member States and for the
Commission. In fact, the Commission in its proposal for a definitive tarification system
outlined below (2.4.5.) suggests the principle of repartition of costs for all Member States and,
consequently, it would be inconsistent to encourage those Member States willing to adopt this
approach already under the provisional system to abandon it and introduce an export charge.

The introduction of a provisional system would have been an important step forward, in order
to gain experience with the inter-TSO compensation mechanism and to achieve an abolition
of existing tariffs, which would also lead to a simplification of the tariff structures.

However, if no satisfactory solution can be found, purely national systems will continue to be
applied to cross-border transmission, until a robust definitive system enters into force in line
with the proposal outlined below (2.4.5.). These transitory national systems will however
remain subject to the competition rules of the Treaty.

However, even if the provisional system can finally enter into force, a number of important
issues remain to be resolved before a definitive tarification system fully in line with the basic
principles mentioned above can be put into place. These include the precise methodology for
calculating the cost of hosting transits, harmonisation of the methodology of financing the
payments, and the harmonisation of certain aspects of national tarification systems necessary

12

for the development of fair and undistorted trade15. It has not been possible to resolve these
issues within the context of the Florence Forum.

2.4.4. Congestion Management

Whilst the Commission places a high priority on ensuring the construction of necessary and
economically justified new interconnection capacity,
it must be recognised that certain
interconnections will remain congested for the foreseeable future. To develop the internal
market it is vital, therefore, that the capacity that is available is allocated in a manner most
likely to achieve a competitive internal market. The Florence Forum endeavoured to develop
commonly agreed guidelines to ensure that this objective was met when Member States
allocate capacity. A working group representing the Regulators, Commission, representatives
of the Member States and, where appropriate, industry, was set up to draw up such guidelines,
which were agreed at the last meeting of the Florence Forum in November 2000. In particular,
they conclude that capacity should be allocated through market-based mechanisms. The
their
adoption of these guidelines represents a step forward on this issue. However,
implementation in practice at national level is wholly voluntary in nature.

2.4.5.

The need for further measures

The Florence Forum has proven a highly effective tool in developing a degree of consensus
on highly complicated, rapidly evolving and controversial issues. Whilst it will remain an
important instrument in this respect, in particular because it ensures the representation of
in particular in the context of the intended
industry and consumers, recent experience,
introduction of a provisional tarification system, has demonstrated that the process suffers
from a number of disadvantages when it
is necessary to reach concrete decisions on
specific issues:

• the process is an informal one, based on bi-annual meetings lasting two days. As such it is
inappropriate to take concrete decisions on very detailed issues that require in-depth
discussions;

• to make progress on any issue requires full consensus of all parties;

• any decisions reached can only be implemented if all parties respect them; there are no

procedures to ensure implementation;

• certain issues such as the calculation of the correct level of inter-TSO payments require
regular detailed decisions to be taken. The Forum is not able to appropriately address such
issues.

In this light, the Commission has concluded that to build on the progress achieved at the
Forum, it is now necessary to adopt a legislative instrument for a clear decision-making
process for making final progress on the issues of cross-border transmission tarification and
congestion management on interconnectors. If the full benefits of the internal market are to
fall to consumers, such an instrument is vital. Furthermore, such an instrument will ensure the
full involvement of the Parliament and Council.

15

This concerns notably the extent to which network charges are split between generators and consumers.

13

Member States alone cannot resolve this issue: to develop an effective tarification system a
harmonised approach is imperative and cannot be developed at national
level. As
demonstrated above, an informal collaborative approach will not lead to the implementation
of an appropriate system with necessary procedural and democratic safeguards. Such a
proposal is therefore wholly in line with the subsidiarity principle, and indeed is made
necessary by it. Thus, together with the adoption of this Communication, the Commission has
decided to propose to the Parliament and Council
the adoption of a “Regulation on
conditions for access to the network for cross-border exchanges in electricity in the internal
electricity market”16.

2.4.6. Gas: The Madrid Forum

The European Gas Regulatory Forum (the Madrid Forum) first met in 1999, and has now met
three times.

Work is less advanced in this sector compared with electricity due to the fact that the
Gas Directive was implemented 18 months later than the Electricity Directive. However, a
number of important issues are now being actively addressed in the Madrid Forum and
substantial progress is being made. The third meeting of the Forum held in October 2000
marked a turning point during which the main issues were identified and a number of key
principles and a clear agenda for future work was set out.

A higher degree of correlation exists between the physical and contract path for gas than for
in particular in relation to international transits bringing gas from fields of
electricity;
production to consuming markets. Gas transport between and through Member States has
taken place for many years and more than 50% of all gas consumed within the EU crosses at
least one border. Cross-border tariffs, based on physical flow through systems, already exist.

However, the correlation between physical and contracted flows will be eroded as a result of
competition. It is therefore vital to ensure that European gas tarification systems take account
of this fact and that third party access tariffs are cost-reflective. For example, tariffs should
not be distance related when actual transportation costs incurred do not reflect the notional
contracted path e.g. when swaps are involved.

Furthermore, whilst at present congestion has not posed a significant limitation with respect to
the development of the European gas market, this is mentioned with increasing frequency as a
potential barrier to trade and refusal of access. As a first step towards providing timely and
accurate information on available capacities in the European gas grid, the gas transmission
system operators have been requested to develop and publish a detailed map of the European
gas network identifying available transmission capacities at all major entry and exit points of
the network.

in order to facilitate the entry of new market players,

Finally,
the establishment of
non-discriminatory grid access codes defining the rights and obligations of network users will
be necessary. The Madrid Forum has called for inter-TSO arrangements to be established with
a view to facilitate cross-border trade and to serve as a clearing mechanism for transport
between different systems. These additional measures are clearly necessary to ensure that the
full benefits resulting from the internal market are passed on to consumers. The work pursued
in the context of the Madrid Forum will therefore need to be continued and completed. It is

16

OJ

14

not yet appropriate to propose the adoption of legislative measures with respect to issues such
as tarification and congestion management for gas, for the reasons mentioned above.
Nonetheless, the Commission will keep this question under review and, if necessary, propose
appropriate measures.

2.4.7.

Infrastructure: the development of an electricity infrastructure plan and the revision
of the TEN guidelines

–

Electricity infrastructure

Stimulation of intra-Community trade in electricity depends on an optimum use of the
existing interconnections between Member States, to be achieved, as outlined above, through
the provision of fair and transparent rules on cross-border tarification and congestion
management.

Furthermore, and equally important, the construction of new infrastructure needs to be
encouraged. The European transmission system is not yet sufficiently developed for the
purpose of a real internal market with effective trade opportunities. This is not surprising
since,
interconnection lines were built by vertically integrated monopoly
companies that did not have objectives beyond the improvement of their own system security
and quality of service.

in the past,

Two years after the entry into force of the Electricity Directive, the following three main
interconnection bottlenecks exist:

– the Iberian peninsula remains,

isolated due to insufficient
interconnection capacity with France and, as a consequence, the rest of the European
network;

to a significant extent,

– interconnection capacity available to Italy (from France, Switzerland and Austria) is

insufficient;

– the UK has only one interconnector with France with limited capacity; other projects are

under examination, but implementation costs are high.

However, congestion problems also occur frequently at other points in the European network,
for instance in the Benelux and Central Europe, and between Scandinavia and the continent.

In many cases, as at the France-Spain border, the only solution for developing trade is the
construction of new connections or the increase in capacity of existing lines as far as is
technically possible.

The construction of new infrastructure is often not a financial problem since the undertakings
are prepared to invest in new networks in response to the demand on the market. In general,
the problem is more of a political nature. Often, plans to construct new interconnection
capacity run up against constraints calling for a balance to be struck between the public
interest, whether Community or national, and local reservations about new infrastructure.
Construction of new lines often raises local opposition at strategic points, for example, as
mentioned above, around the Pyrennees or Alps, making it difficult to go ahead with the
intended scheme.

15

The Community has to play a key role in this respect to ensure that the operation of
the market is not hampered by physical constraints. In the Green Paper on Security of
Energy Supply17 the Commission underlined that a lack of network infrastructure can slow
the integration of national markets and thus limit security of supply. In this context, due
consideration should of course also be given to the enlargement of the internal market and the
additional interconnection capacity this requires.

To overcome these problems, effort must first be made to upgrade the capacity available on
existing lines. Second, where necessary, the constructions of new lines must be facilitated.
For this purpose, work should be initiated to elaborate a European interconnection plan
identifying schemes of ‘European interest’ through a new procedure. A proposal will be
presented in line with the forthcoming revision of the guidelines on Transeuropean Networks.
Such a plan would help to overcome divergent local and national hurdles.

As a first step in forming this plan, and keeping in mind the objective of better coordination of
trade between Member States, the Commission will launch a review with the following
themes

1.

2.

3.

An analysis of the definitions and criteria used when estimating available capacity at
national level as well as by larger associations of networks (UCTE, NORDEL, UK);
in certain cases a relative increase in declared available capacity could be proposed.
Technical operating standards (maximum temperature of cables, for example) will
also be examined and proposals submitted for revision and harmonisation.

Possibilities for technical improvements, such as the reinforcement of transformers or
certain sections of cable or the introduction of new technology will be examined also
with a view to increase physical capacity on certain interconnectors.

After this evaluation of possibilities for increasing capacity on existing networks the
study will then establish the minimum level of interconnection between networks
required for a functioning internal market and will identify the new connections that
are needed.

In this context, it is important that the Electricity Directive ensures that Member States have
available all necessary instruments to require such reinforcement, and that such measures are
compatible with the Directive. Such provisions are therefore included in the proposed revision
of the Directive.

–

Gas infrastructure

As in the case of electricity, a well-integrated network is an essential precondition for the
effective operation of the internal gas market as well as for security of supply. This
requirement has been highlighted by the sharp rise in demand for natural gas within the
European Union over the past decade and the particular situation that has emerged following
the recent implementation of the Gas Directive.

Generally speaking, gas network interconnection within the EU is developing well, driven by
a combination of market demand developments, the need for additional transport capacity and
gas security considerations.

17

COM(2000) 769, p. 70.

16

Over the last few years, a large number of major new pipeline systems have been brought into
operation, which have strengthened and further integrated the EU gas network both internally
within the EU and in relation to external suppliers. Major new gas transmission infrastructure
has been set up by gas operators in recent years to meet growing demand. These include
projects in the northern part of the EU (including the UK-Continent Interconnector, new
supply pipelines from Norway and related reinforcement in continental Europe), the central
part (including various gas pipelines in Germany and Austria) and in the southern part of the
European Union (new gas networks in Portugal, Greece and western Spain, new gas pipelines
from Algeria).

However, increased demand and cross-border trade as a result of market opening may result
in congestion and the need to deal with congestion issues similar to the ones mentioned above
for electricity networks already seem to be emerging, e.g. at the Dutch frontier, in Ireland and
in France (liquefied natural gas). An approach similar to the that envisaged for electricity
networks with regard to identifying new interconnections, establishing appropriate tarification
and capacity allocation mechanisms will, as far as applicable, therefore likewise be adopted
for gas networks.

–

Revising the guidelines of Trans European Networks

In 1994 the European Union launched the political framework for the promotion of
Trans European Networks (TENs) and from 1995 the TENs programme to cover electricity
and gas networks started. Currently, 44 projects of community interest covering links between
Member States and with third countries have been identified in the electricity sector and
46 projects referred to pipelines, LNG terminals and storage in the natural gas sector. The
establishment and development of Trans European Networks for energy are contributing to
the achievement of the internal market. It also contributes to the reliability and security of
supply of electricity and natural gas in the Community and contributes to the cohesion effort.
One of the priorities of the energy transeuropean network policy is the development of
interconnectors between Member States and also internal connections, which extend these
connections at national level. The development of trade in the framework of the internal
market has led the Commission to propose a revision in the guidelines applicable regarding
energy transeuropean networks which will stress the goal of the optimal functioning of energy
networks in the context of the internal market for energy, with due consideration for its future
enlargement.

With this in mind, a report on the implementation of the guidelines for energy trans-european
networks, as well as a revision of these guidelines will be adopted shortly by the Commission.
In this context it will be necessary to give appropriate support and focus on projects of
particular environmental benefit, and in particular those likely to reduce the level of losses on
the networks. This revision will include the resolution of problems of missing links in the
resulting from the
network, congestion and the recognition of new requirements
implementation of the Electricity and Gas Directives and the growing number of eligible
customers.

17

2.4.8. Conclusion

It is clear that the development of the conditions to promote trade in electricity and gas, must
and will remain one of the priorities for the Commission. The adoption of the proposed
transmission tarification and congestion management will
Regulation on cross-border
represent a major step forward. Nonetheless, this initiative must be complemented by the
construction of new infrastructure where technically feasible and economically justified. This
latter task will receive particular attention from the Commission.

2.5.

Public service objectives

In the context of the electricity and gas sectors, public service issues cover a wide range of
aspects relevant to ensure the continued secure supply of high quality electricity and – where
connected – gas at competitive prices. In the past, this overall public service objective has, in
almost all EU countries, been pursued through the public ownership and operation of all
transport and supply functions and all gas transport and supply
electricity generation,
functions. In these circumstances, only a limited amount of regulation was considered to be
necessary to ensure the maintenance of these objectives. However, as privatisation and market
opening has taken place, governments have adopted systems of regulation, usually via sector
specific regulatory authorities, which lay down minimum standards of public service that
must be respected.

In the EU, a number of public service objectives or standards are commonly pursued in the
electricity and gas sectors. At the generation level, these concern obligations upon generators
to respect minimum environmental standards, to generate minimum levels of renewable
sourced electricity or other environmental objectives, or, occasionally, to respect minimum
rules regarding the primary fuel source to meet supply security concerns. This aspect is also
highlighted in the Green paper on security of supply18.

The key public service issues, however, exist at the transmission/distribution/supply level. In
fact, in many respects, the operation of the transmission and distribution systems may
themselves be considered public services; they represent a monopoly and an essential service
for all citizens and industry. This is particularly the case in the context of liberalised markets,
as the transmission and distribution systems represent
the key infrastructure permitting
competition to exist and develop. Thus, all Member States impose minimum operational or
public service conditions on grid operators – for example requiring transmission and
distribution companies to guarantee connection to the grid for all citizens under reasonable
conditions. In addition to this, Member States often, and increasingly, require transmission
and distribution companies to meet minimum service criteria – such as the time within which
repairs must be effected and connections made.

Finally, at the supply level, Member States require companies who wish to operate on their
domestic markets to acquire a licence to do so. The licence requirements include minimum
criteria that must be respected by an operator, many of which are public service in nature. For
example, some countries require uniform tariffs to be offered to equivalent customers and
special tariffs to low income users, protection from disconnection for vulnerable customers
and, for certain countries, requirements as to service standards, including conditions of
contracts, transparency of information and complaint handling mechanisms.

18

See footnote 8.

18

The attainment of the highest possible standards of public service in these areas is a primary
objective of Community energy policy. This reflects a basic Community policy objective
regarding services of general interest, as underlined by the European Council at Nice on 7 and
8 December 2000, on the basis of the Commission’s Communication on services of general
interest19. It is essential that the gradual completion of the internal market contributes to this
objective and thus to the maintenance and increase of public service standards. In particular, it
is vital that all Community citizens have a universal right to be supplied at reasonable prices
and that a minimum set of consumer protection standards is maintained. In this light, the
Directives contain a number of provisions, notably Article 320 to ensure that Member States
retain the necessary tools in this respect.

These provisions ensure that the measures taken by Member States to pursue legitimate public
service objectives remain compatible with the Directives, providing the measures taken are
reasonable and proportionate to the objectives pursued. To date, none of the measures taken
by Member States have raised substantive questions as to their compatibility with the
Directives. Indeed, no Member State has found it necessary to derogate from any provision of
the Directive in order to meet their public service objectives.

The choice of the public service measures or standards adopted by Member States is in
principle a matter of subsidiarity. However, the Commission, in the light of the fact that the
maintenance and increase of such standards overall throughout the Community is an integral
part of Community energy policy, has commenced a benchmarking exercise to compare the
public service measures pursued in the Member States, the methods chosen to achieve them,
and their success in meeting high standards. The results will assist Member States in
maintaining and increasing standards.

The first part of this exercise, the completion of detailed questionnaires by Member State
administrations and regulatory authorities, is now finished. On this basis the Commission will
prepare a detailed Communication. However on the basis of information received,
is
already clear that market opening, including the introduction of full competition, has in no
way prevented Member States from pursuing a successful policy of maintaining high
standards of public service. Indeed as market opening progresses, increasing public service
levels have been attained through the imposition of licence requirements or conditions.
National regulators monitor the respect of these conditions, and impose penalties in the event
of non-compliance21. This approach has enabled Member States, by continually raising and
improving standards, particularly at the transmission, distribution and supply level, to increase
public service standards gradually and continually in a liberalised market.

it

Almost all correspondents at the public hearing stressed the importance of this issue. The
overwhelming majority of those commenting on this issue confirmed that experience clearly
demonstrates that public service standards – particularly with respect to issues such as
ensuring universal service and consumer protection – can not only be maintained in a
competitive market place, but increased.

19

20

21

Communication of 20 September, OJ C 17, 19.1.2001, p. 4.
But also Article 9(2) of the Gas Directive (obligation to supply a given area), Article 17 of both
Directives (refusal of access), Article 20 of the Gas Directive and Article 21 of the Electricity Directive
(authorisation to build direct lines) and Article 23 of the Electricity Directive and Article 24 of the
Gas Directive (safeguards in the event of a sudden crisis).
Including, where appropriate withdrawal of the licence.

19

In conclusion, experience clearly demonstrates that
the creation of liberalised gas and
electricity markets has not resulted in any decrease in public service standards. On the
contrary, with appropriate regulatory control, liberalisation has in fact focused attention on the
importance of the level of service provided, leading to improvements. The benchmarking
exercise currently underway will permit all Member States to profit from such experience
resulting in the attainment of the highest possible standards of public service throughout
the Community.

Notwithstanding this, the Commission’s experience to date concerning the implementation of
electricity and Gas Directive indicates that it would be appropriate to take further measures to
re-enforce existing provisions. First, the Commission considers that one basic public service
objective – the right for household consumers to be supplied with electricity on reasonable
conditions – must be viewed as an underlying objective of the internal market and therefore
the Directive. It is thus proposed to require Member States to take the necessary measures to
ensure that this is achieved. Secondly, it is appropriate to oblige Member States to take the
appropriate measures to ensure that a number of essential public service objectives are met.
They should therefore be required, both with respect to electricity and gas, to introduce
appropriate provisions to ensure the attainment of essential public service objectives
and notably:

• the protection of vulnerable customers; Member States will, for example, need to ensure
the

appropriate protection from unjustified disconnection of,
unemployed, the handicapped, etc.;

the elderly,

inter alia,

• the protection of final customers; Member States will, for example, need to ensure a
minimum set of conditions of contracts, transparency of information, and the availability of
low-cost and transparent dispute settlement mechanisms;

• Social and economic cohesion; beyond ensuring universal service, where necessary,
Member States will need to take appropriate measures to ensure supplies and connection at
appropriate prices to, for example, peripheral areas;

• environmental protection; e.g. demand side management obligations and measures to

promote renewables and cogeneration; and

• security of supply; notably through ensuring appropriate levels of maintenance and

development of infrastructure, and in particular interconnections.

It is vital that the monitoring and benchmarking exercise mentioned above is completed and
continues on a regular basis. Articles 3(2) of both Directives require at present
that
Member States notify public service obligations to the Commission. This applies, however,
only to measures that require a derogation from the Directives. As mentioned above,
Member States have not needed to derogate from the Directives to achieve public service
objectives. To assist the benchmarking and monitoring process, it would be a significant
improvement if Member States were required to notify the Commission of all measures taken.
The Commission would issue a bi-annual report on the basis of this information and, where
appropriate, issue recommendations of measures that Member States should take to ensure
high public service standards.

20

2.6.

Security of supply

The recent Commission Green Paper "Towards a European strategy for the security of
energy supply" (COM/2000/769) examines in some detail the question of security of supply
and its relation to the establishment of the internal market for electricity and gas. On these
issues, it concludes that the “integration of energy markets contributes to security of supply,
provided that these markets are truly integrated”. In reaching this conclusion, the Green Paper
notes, in particular, the vital importance that security of supply is recognised as an essential
public service obligation. It further examines the provisions contained in the Gas and
Electricity Directives that ensure that in an open and competitive market, security of supply
can be met, both at national and Community level.

In essence, the Directives contain provisions that ensure that all the safeguards available to
Member States to guarantee security of energy supplies remain unchanged by the introduction
of competition. For example, Member States are obliged to provide for the possibility to
launch tenders for additional generation capacity backed-up by purchasing agreements. They
also retain the possibility, where necessary, to limit gas purchases from a single source. The
creation of the internal market will mean a greater degree of interconnection of electricity and
gas markets and an increasing number of suppliers. Subject to proper monitoring at both
Community and national level and, where necessary, action under the relevant provisions of
the Directives, the completion of the internal market for electricity and gas can therefore
contribute to security of the Community’s energy supplies.

It should be noted that these safeguards, properly implemented by Member States, guarantee
that the situation that has developed in California, of a lack of supply and (artificially)
escalating prices, will be avoided in the EU. In California, a combination of factors led to the
present precarious and unacceptable situation in terms of security of supply; notably the
existence of an obligatory pool leading to anti-competitive, oligopolistic pricing practices and
the impossibility to offset risk through long-term supply agreements, rapidly increasing
demand due largely to the internet explosion, a lack of new generation capacity due to an
uncertain regulatory environment and extremely strict planning restrictions, retail price
freezes, a lack of a possibility for the TSO itself to launch tenders for the construction of new
capacity combined with power purchase agreements, a lack of interconnection capacity and
supply arrangements with neighbouring states, and a lack of appropriate intra-state trading
arrangements. The provisions mentioned above, notably the possibility for Member States to
launch tenders where demand threatens to exceed supply, together with significant and
increasing interconnection capacity between Member States, effective trading arrangements
and careful monitoring at both Community and national level, means that the development of
the “Californian experience” can be excluded in the EU.

However, given the vital importance of this issue – continued secure supplies of electricity is
probably the most important public service objective – it is appropriate to reinforce the
existing safeguards contained in the Electricity Directive on this point. In particular, it would
be appropriate for Member States to be required to carefully monitor the state of the domestic
electricity market, and in particular the existing demand/supply balance, the level of expected
future demand, envisaged additional capacity under planning or construction, and the level of
competition existing on the market. On an annual basis the Member States should be required
to publish a report outlining their findings, and indicating any measures envisaged to ensure
supply security. Furthermore, given that due to the highly interconnected nature of the EU
electricity network, the relationship between demand and supply at the Community level is of
vital importance for overall system security, the Commission, on the basis of the national

21

reports and its own monitoring work, should publish a similar Communication covering the
Community as a whole.

2.7.

Environmental consequences of energy market opening

The creation of an internal market for electricity and gas has been shown, in many respects, to
have had positive environmental impacts due to the improvements in generating plants,
increased operational efficiency and a switch to cleaner fuels in power production. On the
other hand falling energy prices might not be conducive to the development of energy
efficiency and renewables.

For example, between 1990 and 1998, the use of natural gas for power production increased
by 128% while solid fuels decreased by 18%. In the same period, the average conversion
efficiency of thermal power stations has increased by 6% and the carbon intensity
(CO2/GWh) has been reduced by more than 15%. The trend towards cleaner power generation
plants can be expected to accelerate as market opening progresses. For example, in the
United Kingdom, which was the first Member State to liberalise the electricity and gas
sectors, the development towards a cleaner energy sector has been particularly significant.
Here the share of natural gas increased from 0.5% in 1990 to 38.5% in 1999. The average
conversion efficiency increased by 9.5% between 1990 and 1998. CO2 emissions from power
generation decreased by 27% in UK compared to only 3% in average in the EU in the
same period.

the environmental consequences of market opening must be continuously
However,
monitored22. With market opening, electricity prices may decline and this gives rise to a
number of environmental challenges that must be addressed. If the market price for electricity
reduces, demand may increase, partly at least due to less intensive efforts in energy savings
and energy efficiency. In the Green Paper on Security of Supply projections suggest that
demand may increase by 20% due to lower electricity prices23. Similarly, full competition
may mean that electricity from new and less developed energy sources (e.g. renewables and
combined heat and power) becomes less attractive. This could reduce the development
towards a cleaner fuel mix in the electricity production.

Both the Electricity and Gas Directives provide Member States with the possibility to address
these issues:

–

22

23

in the general economic interest,

Article 3 in both the Electricity Directive and the Gas Directive provide Member States
with the possibility,
to introduce public service
obligations which may inter alia relate to environmental protection. For example,
reductions in overall electricity bills do not preclude the adoption of tariff structures to
encourage energy efficiency. These could be implemented through cuts to fixed
charges, leaving price signals on the variable use of electricity unchanged. Appropriate
regulatory incentives would need to be in place in order to encourage such innovative
tariff structures to emerge.

The Commission has launched a study with the aim of assessing the environmental implications of a
market opening up to 2010.
See footnote 8.

22

–

Articles 8(3) and 11(3) in the Electricity Directive allow Member States to require the
operators of the transmission and the distribution system, when dispatching generating
installations, to give priority to generating facilities using renewable energy sources or
waste or producing combined heat and power.

A number of Member States have adopted such measures and have taken additional actions to
ensure that high environmental standards are respected in gas and electricity production and
supply. Community competition rules, and notably those concerning state aid, normally apply
to such schemes. However, as seen in the treatment of such cases, these mechanisms are in
principle compatible with the state aid rules providing their effects in terms of restriction of
competition are not disproportionate to the pursued environmental objective, and the objective
of increasing the EU’s security of supply situation24. Furthermore recent guidelines have been
adopted highly favourable to support mechanisms for renewable sourced electricity.

To complement the measures taken at national level, the Commission has itself launched a
number of initiatives:

–

–

–

24

25

26

27

28

Renewable energy sources. The Commission has presented a proposal for a Directive25
on the promotion of renewable energy sources in the internal electricity market. The
aim is to ensure that the development of electricity from renewables will be in line with
the overall EU indicative target of doubling the share of renewables in the gross inland
energy consumption by 2010. On 5 December 2000, the Energy Council reached a
political agreement on the proposal, which is likely to be adopted later this year.

Combined Heat and Power (CHP). A strategy for further developing CHP was
outlined in the 1997 Communication on CHP26, which also proposed an indicative
target of doubling the share of CHP in EU by 2010. The recent Action Plan on
Energy Efficiency27 reaffirmed this target and it listed a range of measures to promote
CHP. The proposal for a revised large Combustion Plants Directive also promotes the
use of co-generation. In the framework of the European Climate Change Programme
CHP has been identified as a promising area for achieving emissions reductions.

Emission standards. Emissions from power plants are regulated through the
Large Combustion Plants Directive (88/609/EEC) and the Directive on Integrated
Pollution Prevention and Control28. On 22 June 2000, the Council (Environment)
unanimously adopted a common position on the proposal
revising the
Large Combustion Plants Directive. This increases the scope of the Directive and
provides for more stringent limits for emissions from new plants.

for

See footnote 8.
COM(2000) 279 final, 10.5.2000, “Proposal for a Directive on electricity from renewable energy
sources and the internal market for electricity”.
COM(97) 514 final, 15.10.1997
COM(2000) 247 final, 26.4.2000,
European Community”.
Council Directive 96/61/EC of 24 September 1996 concerning integration pollution prevention
and control.

to Improve Energy Efficiency in

“Action Plan

the

23

–

Energy efficiency and energy saving. In April 2000, the Commission presented its
Action Plan on Energy Efficiency, which calls for a 1% improvement of energy
intensity per year compared to a business as usual, scenario. On 30 May 2000, the
Council invited the Commission to come forward with detailed proposals for the
implementation of the Action Plan. It is essential that efforts continue in this area
immediately and in parallel to the market opening process. A fully opened market needs
an internalisation of external costs to ensure a fair level playing field. The Commission
will therefore promote initiatives in this sense, e.g. an EU-wide energy/CO2 tax, strict
rules on State aid, demand side management measures, measures to promote
cogeneration and renewables which have a competitive disadvantage as long as external
costs are not fully integrated. For example, the Commission will propose the following
legislative measures in this field in 2001:

–

–

–

Proposal for a Directive concerning energy efficiency in buildings;

Proposal for a European Parliament and Council Directive on the environmental
aspects of electric and electronic equipments;

Proposal for a European Parliament and Council Decision on a multiannual
the promotion of renewable energy and energy saving
programme aimed at
(2003-2006) (follow-up to the SAVE and ALTENER programmes).

Furthermore, it intends to prepare, in 2002, proposals with respect to combined heat and
power (CHP).

–

–

Energy taxation. The Commission has proposed the extension of the present
Mineral Oil Directive to also cover other competing energy sources, including
electricity, gas, coal,
lignite, etc. Furthermore, several Member States have
introduced energy/environmental taxes to reduce energy consumption.

Potential future actions. A number of additional and complementary measures
are at present being examined at Community and national level. This includes, for
example, the issue of green house gas emission trading. The Commission has
launched a discussion on the issue in a Green Paper29
in line with the
Kyoto Protocol. The various working groups of the European Climate Change
Programme which bring together
stakeholders, Member States and the
Commission are in the process of identifying possible policies and measures that
could be recommended to the Commission with a view to meeting the EU’s
climate change objectives.

Conclusion

In many respects, market opening could be beneficial
in meeting the Community’s
environmental objectives in energy terms. Notably, the introduction of competitive pressures
has been seen to lead to the more rapid introduction of more efficient and cleaner thermal
generating units than has been the case under monopoly conditions. However, with the
potentially lower prices resulting from market opening, a number of complementary policies
become increasingly important, as presented above.

29

COM(2000) 87 final, 8.3.2000, “Green Paper on greenhouse gas emissions trading within the
European Union”.

24

The Commission is currently undertaking a study that will assess the overall environmental
impact of liberalisation in the energy markets on the environment. The Commission will
monitor the situation closely and, if necessary, propose further measures to safeguard the
environment that, at the same time, complies with the internal market rules.

2.8.

The effects of competition on employment

Though intervening with some delay, the creation of the internal energy market forms part of
the 1992 objective to create a fully operational internal market in the European Union, with a
view to foster growth and employment opportunities to the benefit of the citizens of the
Union. Increased efficiency and lower energy prices as well as opportunities for new
technologies resulting from the introduction of competition in the energy sector will, at least
in the medium and long term, boost employment in the European industry as a whole.

The European Council at Lisbon in March 2000, when calling for the completion of the
internal energy market, stressed the role of the internal market as a key element of the strategy
of the European Union to “regain the conditions for full employment”, in order “to become
the most competitive and dynamic knowledge-based economy in the world with more and
better jobs and greater social cohesion”. Likewise, the European Parliament, in its Resolution
on liberalisation of energy markets of July 2000, said that “competition is having a substantial
effect on economies and consumers as a whole, such as … increased opportunities for new
employment, and is having a positive medium–term impact on the labour market in general
economic terms”.

However, as regards short-term developments in the energy sector alone, the introduction of
competition is likely to lead to a reduction in the workforce, as a result of the necessary
adaptation of the national ex-monopoly companies to competition through appropriate
restructuring measures at company level.

It is important to ensure that such job losses occurring in the transitory period during which
companies in the energy sector are adapting to the new competitive environment are
recognised and appropriately taken care of by national and Community policies.

Against this background and in order to deepen its understanding of the employment situation
in the energy sector, both with regard to experience made so far and possible future trends, the
Commission launched a study. This study was designed and completed in close collaboration
with representatives of the social partners. Based on available statistics on the quantitative
developments of the workforce in the energy sector, it describes and analyses in particular the
qualitative aspects of the employment development in the electricity and gas industry in the
context of market opening.

As regards developments in the size of the workforce in the two industries concerned, statistics
show that the number of people employed in the electricity and gas sectors decreased between
1990 and 199830. Major reasons for this reduction, which in many Member States clearly
started before market opening, have been technological progress and a tendency to
“outsource” certain functions. However, market opening has played a role in accelerating the
process, particularly in the electricity sector.

30

On the basis of the available European and national statistics, it has been estimated that more than
250 000 jobs could have been lost in the sector between 1990 and 1998. However, statistics often only
show employment developments in utilities as a whole and do not – in case of multi-utilities –
differentiate between the different services provided, e.g. gas, electricity and water supply.

25

The reduction of the workforce was coupled with a change of the skill profile required by the
industry. In fact, technical occupations for semi-skilled and skilled employees as well as
middle management and associated clerical professions have been reduced over time. New
job opportunities have been created in areas such as marketing, customer services, IT and
business services. In addition, the emergence of new business activities, such as energy
trading, has brought about new jobs.

As regards the manner in which staff reductions were effected, the 10 companies in the UK,
Ireland, Sweden, Italy and Germany, which were covered by the case studies undertaken,
have managed to effect restructuring in a sociably consensual manner, for instance by
applying voluntary early retirement schemes. In addition, a significant number of the larger
companies surveyed had instituted re-training and redeployment programmes. Under such
schemes retraining was offered, either to allow members of staff to remain with the company
in a new position or tofacilitate finding a job outside the company.

Market opening has thus had both a quantitative and a qualitative impact on the employment
situation of the electricity and gas industry. Traditional skills have become less relevant
whereas new job opportunities have emerged for skills that are important in a competitive
environment, such as marketing and customer service.

Thus far, the reduction of staff numbers, where considered inevitable, has been done in a
socially responsible manner,
through early retirement coupled with retraining schemes.
However, as market opening is moving ahead and restructuring continues, it is necessary that
alternative measures at company level intended to accompany the restructuring process be
further explored and reinforced. Such measures are, for instance, working time reductions and
increased retraining,
in
principle, priority should be given to retraining and redeployment over early retirement.
Developing alternative measures is particularly important if the possibilities for companies to
handle restructuring through early retirement become more limited over time, due to staff
becoming younger on average. Best practice in this respect should be exchanged between
companies and the social partners. The Commission will encourage such an exchange of
experience, for instance in the framework of the sectoral dialogue committee “electricity”31.

in line with the European Employment Strategy under which,

The Joint Declaration by the social partners in the electricity industry, published on
27 November 2000, is an encouraging first step in this context32. In this declaration, the
European electricity industry and trade unions representing employees in the sector launched
a common effort to explore ways by which both businesses and their staff could benefit from
changes linked to the development of the internal market and to reduce the social
consequences of restructuring as far as possible.

The opportunities offered under the European employment strategy should also be taken into
account. The strategy provides the proper framework for dealing with both the quantitative
and qualitative aspects of management of change,
the adaptability and
employability pillars of the strategy. Adaptability refers to the adaptation of the work
organisation of companies as a consequence of the new industrial context. The objective of
the employability pillar is to increase employees’ skills to cope with change, and includes
strategies of life long learning. Actions under these employment policy pillars require the

in particular

31

32

The Committee was set up on the basis of the Commission Decision of 20 May 1998 on the
establishment of sectoral committees promoting the dialogue between social partners at EU level.
Available at www.emcef.org, www.epsu.org, www.eurelectric.org

26

establishment of a strong partnership between public and private actors at different levels and
can be financed through the European Social fund in the context of programmes agreed
between the Commission and the Member States.

Special attention must be given in this context to developments in the candidate countries. It
is important to assist energy companies and governments in these countries in the process of
restructuring the energy sector in a socially responsible manner, for instance through sharing
with candidate countries the experience made in the Community in this respect. Further
monitoring will be undertaken by the Commission in this respect and the countries concerned
will be encouraged to strengthen this aspect under the PHARE programme. However, the
employment effects of market opening in the energy sector might well make their impact felt
most strongly in the candidate countries when they will have been integrated in the internal
market and the PHARE programme no longer applies to them. The Commission shall ensure
that this aspect of market opening in the candidate countries will receive continued attention
and support, also when the candidate countries will have become members of
the
European Union.

In conclusion, it can be said that it has been possible so far to effect restructuring in a socially
responsible manner. However, the situation needs to be closely monitored and, if necessary,
additional measures taken, as market opening and restructuring of the industry moves ahead.
All relevant players must contribute in order to find solutions that will minimise any negative
social consequences of the restructuring of the European electricity and gas industry.

2.9.

Trade with third countries

Electricity has been exchanged between the EU and neighbouring non-EU countries for many
years, for example between the EU and Nordel member countries. Prior to market opening
such exchanges were carried out by the former utilities in the framework of their monopoly
position. However,
the amount of electricity exchanged was relatively limited, due to
technical limitations such as low capacity of interconnections between national systems as
well as differing operating standards.

In the liberalised internal market, trade in electricity with third countries is likely to become
more attractive. Companies are already increasingly negotiating with third countries on future
deliveries of electricity. Furthermore, the situation with regard to technical limitations of
interconnections is gradually improving. There are a number of projects aimed at improving
connections between Eastern and Central European countries, including the Ukraine and
Russia, to the electricity grids of the Community.

A potential intensification of trade in electricity with neighbouring countries would,
in
principle, be a positive development. It would increase competition, resulting in increased
efficiency and possibly provide new investment opportunities for EU companies in
neighbouring countries. However, it must be ensured that such an extension of the market is
made on the basis of a level playing field for all economic operators. A fundamental
precondition for the introduction of Community-wide competition in the electricity market is
the existence of comparable framework conditions in all countries concerned.

In view of the potential for increased trade in electricity and the need to make such trade
subject to certain conditions, clear legal rules need to be agreed and compliance must be
ensured. The enlargement process and the intention to accelerate market opening have
accentuated the need for such a framework. The Community needs to be aware of, and
prepared for, the consequences of a further opening of the internal market with regard to its

27

trade relations with third countries. As regards electricity undertakings in third countries, they
need to have a clear perspective allowing them to develop an effective and coherent strategy
with regard to their participation in the internal electricity market.

With regard to gas, it is clear that the external dimension of the internal market is equally
important. In view of growing import dependency, however, the issues are different. A
reciprocal opening of upstream and downstream markets based on free trade and integration
of EU and non-EU markets and closer and strengthened cooperation are important.
Depending on developments, the Commission may consider whether specific initiatives are
required in order to ensure external reciprocity.

2.9.1. Creation of a reliable legal framework for electricity trade with non-EU countries

It is necessary to create a reliable legal framework for such trade activities. As already spelled
out in principle in the Commission Communication “Recent progress with building the
internal electricity market” adopted in May 200033, such a framework could be established
through the conclusion of regional or bilateral agreements with third countries concerned,
where appropriate in the context of existing framework arrangements, for instance the
Association Agreements concluded with candidate countries. It appears appropriate to look
to address
into the possibility of asking for commitments, on the basis of reciprocity,
environmental and nuclear safety standards, in particular in order to prevent potential danger
to the
a
reciprocity-based framework for trade with third countries, thus ensuring equivalent access to
the Community market and third country markets and the respect of basic environmental and
nuclear safety standards. In the absence of any specific arrangements, existing international
trade rules apply.

in the Community. Such arrangements would constitute

environment

The Action Plan providing for technical assistance for the preparation of candidate countries
to the internal energy market set up by the Commission in 1998 will facilitate the
achievement of this objective. It puts the emphasis on the real need for assistance on
regulatory issues, drafting legislation, operation of the market and transmission system,
establishment of national regulatory authorities, etc. Tailor-made action is being organised to
smoothen the transition process. In view of the proposed acceleration of the opening of the
market in the European Union, the Commission will strengthen the Action Plan for technical
assistance and its other efforts to assist the candidate countries in adapting their energy sector
to meet EU requirements.

2.9.2. Next steps

for entering into a bilateral or

The Commission shall identify – through the analysis of available information and bilateral
contacts – countries, potential candidates
regional
agreement/understanding with the Community. In principle, such countries must have
an electricity market organised in compliance with the basic principles of
the
EU Electricity Directive, both in quantitative and qualitative terms (i.e. with regard to the
degree of market opening, third party access and unbundling) and must be prepared to grant
the situation with regard to
access to the market
environmental standards applicable to electricity production and nuclear safety standards must
be satisfactory.

for EU companies. Furthermore,

33

COM(2000) 297 final.

28

As regards the accession countries any such agreements must be fully in line with the
accession negotiations and future stipulations of the Accession Treaties.

Once potential candidate countries are identified, the Commission would request the Council
for a negotiation mandate on the basis of the procedure of Article 228 of the Treaty and enter
into the negotiations. It is expected that first mandates could be requested in 2001.

Furthermore, it is necessary to monitor the effects in practice of the concluded agreements. It
appears therefore appropriate to require Member States to report regularly to the Commission
on past quantities and origins of imports under new bilateral or regional agreements or
existing arrangements. The Commission would then produce a report on experience made
and, if necessary, propose additional measures at the Community level.

3.

CONCLUSIONS

Important progress has been made with the development of the electricity and gas markets, in
both quantitative (percentage market opening) and qualitative (structural choices on
unbundling, network access, etc.) terms. This has led to important price reductions, most
significant in those countries with a high degree of quantitative market opening.

As regards public service standards, experience demonstrates that market opening, including
full opening, has not resulted in any decline in public service standards. On the contrary, full
market opening combined with effective regulation has led to increasing awareness and
standards of public service. The Commission feels it is of the utmost importance that public
service standards should not decline. Although all the evidence points to public service
standards going up, the Commission feels it is important to stipulate at least that in all
Member States universal service in electricity should be ensured, meaning the supply of high
quality electricity for all households at affordable prices and that a minimum set of final
customer protection standards are adopted.

Market opening has also proved compatible with the Community’s objectives in terms of
security of supply and environmental protection, provided the necessary complementary
policies are pursued. Appropriate measures are in place or under preparation, at national and
community level, to ensure that the progressive completion of the internal market contributes
positively to the Community’s objectives in these respects.

Measures can and are being taken to ensure that the necessary restructuring of energy industry
takes place in a socially consensual manner compatible with the Community’s objectives in
terms of employment policy.

Neighbouring countries are already participating or will participate in the internal market,
subject however to considerations of reciprocity and environmental protection compatible
with the trade rules and necessary to ensure a level playing field. Bilateral agreements could
lay the foundation for progress in this respect.

These developments are encouraging. However, the ultimate objective of a fully integrated
market has not yet been achieved. Experience has shown that
the provisions of the
Electricity and Gas Directives regarding two key issues must be reviewed and strengthened in
order to complete the internal market.

29

As regards the level of market opening, most Member States have gone further than requested
by the Electricity and Gas Directives. However,
the degree of market opening differs
considerably between Member States. This situation, if maintained over a longer period, will
prevent a real
level playing field from developing within the internal market. Such a
development was not anticipated at the time the Gas and Electricity Directives were agreed.
At that time, it was not expected that an overwhelming majority of Member States would
open their markets more than legally required, and certainly not to commit to full opening
within a short fixed time scale. Thus the distortion of competition – both between electricity
and gas companies, and between electricity and gas users – that presently exists, was not
expected. Furthermore, the reciprocity provisions of the Directive do not provide an adequate
solution to this distortion.

Market opening is important, but to be effective in practice fair and non-discriminatory
access to the network must be guaranteed. Though important progress has been achieved in
this respect, in particular in electricity, there is still a need for further improvement. Also, the
standards differ between Member States, a situation that is likely to accentuate distortions of
the market. The number of respondents that stressed the fundamental importance of these
issues at the Public Hearing, both in order to create effective competition and a level playing
field shows the importance of this issue.

The Commission believes that the conditions are right for a significant further step in the
market opening process, leading to the rapid completion of the internal markets for electricity
and gas. As mentioned above, an overwhelming majority of respondents at the Public Hearing
confirmed the need to complete the internal electricity and gas market more rapidly. As
underlined by these companies, consumer representatives and organisations, the benefits of a
fully liberalised market are numerous.

Full opening of gas and electricity markets would provide a level playing field between
Member States and for all market players in the internal market, which cannot be expected
through the implementation of the current directives, as has been demonstrated above.

As regards the price of electricity in particular, the level of competition that has already been
achieved in this area has led to important price reductions. These will maintain and enhance
the general competitiveness of EU industry. Market opening is now moving forward quickly
in most of the countries with which EU undertakings principally compete. The completion of
the single market is vital to keep up with developments of the markets of our trading partners.

Also, competition will lead to a greater homogeneity of prices throughout the Community
thereby providing a level playing field for both industrial and private energy users. This is of
particular importance for small and medium sized enterprises which at the moment are often
disadvantaged compared to large industrial customers,
in particular if they are captive
customers. In this respect, it is notable that a number of respondents underlined that it cannot
be justified to continue to give a competitive advantage to large EU companies over small
ones in terms of access to comparative electricity and gas prices. Given the importance of
small and medium sized enterprises for the Community, such a situation can only be
prejudicial in terms of competitiveness, innovation and employment.

Full market opening will also encourage innovation and the market penetration of new
technologies. In fact, many new technological developments are taking place in power
generation, notably with respect
technology and renewable energies.
Microturbines are increasingly presenting alternatives to customers, and fuel-cell technology
is now being introduced. These technologies have considerable advantages for many

to micropower

30

customers in terms of reliability, environmental impact and often cost. Furthermore, for
peripheral areas, such technologies are particularly attractive. The completion of the internal
market will provide a level playing field for all competitive technologies in terms of access to
customers and will therefore accelerate the introduction of these new technologies.

Further market opening is also likely to increase service levels for customers, particularly at
the final consumer level. The quality of service offered, for example in terms of repairs, new
services and billing arrangements, are some of the areas on which undertakings compete. This
has already been seen in countries where full market opening has taken place.

Finally, the development of “gas-to-gas” competition would be further facilitated by the
completion of the internal energy market. At present, the price of natural gas in continental
Europe is closely linked to the oil price parity. In Germany, for example, light heating oil
prices increased by 50% between July 1999 and July 2000. Gas wholesale prices increased by
42% during the same period. The average December 2000 border price for German gas
imports was up nearly 90% on the previous year. It is clearly in the Community's interest that
gas-to-gas competition continually develops, de-coupling the oil/gas price relationship since
this will improve the diversity of the supply of energy to the EU. The Gas Directive already
envisages the development of gas-to-gas competition through the right to get third party
access by eligible customers right up to the wellhead. As increasing numbers of eligible
customers source competitively, this will require gas producers to increasingly compete
between one another in terms of price.

The development of effective gas-to-gas competition in Europe may be hampered by the
extent of long-term contracts in European gas supply and transportation. An effective way of
opening up the European gas market and developing gas-to-gas competition would be to
introduce gas release programmes by opening existing long-term exclusive supply contracts
to third parties. A few Member States have introduced such programmes and other
Member States should be encouraged to consider such programmes, which would increase
liquidity in the gas market.

In order to achieve full market opening, both quantitative and qualitative elements must be
addressed. It is necessary to fix a deadline for Member States to permit all customers, both
industrial and domestic, to purchase electricity and gas from the supplier of their choice
throughout the Community. This will ensure that an internal market develops rapidly and to
the benefit of all Community citizens, but also to provide a real level playing field for all
EU companies.

Second, it is necessary to ensure an effective system of market access – ensuring that eligible
customers and generators are able to have effective and non-discriminatory access to the
transmission and distribution grid and other essential infrastructure. Experience indicates that
the achievement of the ultimate goal of non-discriminatory access to the network cannot be
fully achieved on the basis of the current rules of the Directive regarding third party access
and the level of unbundling. In this context, independent national regulatory authorities
should be established in all Member States, as they play a pivotal role in ensuring
non-discriminatory terms for access to the network. They should at least have the power to fix
or approve transmission and distribution tariffs.

High standards must be assured with respect to both the conditions of third party access and
unbundling, ensuring a high degree of independence – and thus impartiality – of system
operators. Such standards should in principle be comparable in quality in all Member States in
order to provide for a level playing field and avoid trade distortions.

31

The Commission has therefore concluded that proposals meeting these requirements should
now be put forward to the European Council and Parliament. Furthermore, such proposals can
reinforce the existing provisions regarding public service objectives. These qualitative
proposals have already been identified in the Green Paper on security of supply that was
adopted by the Commission in November 200034.

While it is true that such proposals follow relatively quickly after the implementation of the
existing Electricity and Gas Directives, strong grounds exist for proposing new measures.
First, market opening has proceeded far more quickly than expected in most Member States,
resulting in more important market distortions than expected. Second, existing experience
demonstrates that if effective competition is to develop, and a level playing field is to result,
equivalent and robust minimum standards must be set regarding unbundling and third party
access.

However, it is important that the completion of the internal market does not endanger but
contributes to the attainment of the Community’s goals in other important areas, such as
consumer protection and the protection of the environment, security of supply and other
public service issues. Therefore, as market opening accelerates,
it must continue to be
accompanied by appropriate measures in these areas, both at the national and the Community
level. The Commission will closely monitor developments in this regard and make
appropriate proposals when necessary.

It should also be underlined, that this next legislative stage is only one of the elements that
will need to be undertaken to achieve an effective internal market. Whilst, for example, much
has been achieved in the context of the Florence and Madrid electricity and gas fora, further
progress is essential, particularly with respect, for example, to the cross-border tarification
in the electricity sector. The Commission will
mechanism and congestion management
formalise the progress that has been achieved so far in the framework of the electricity
regulatory forum with legislative measures.

In particular for electricity, it is now necessary to provide for a formal legal framework
building on the results of the regulatory Forum relating to cross border access to transmission
networks. This will allow the adoption of Decisions on the matter that are directly applicable.
The Commission has therefore decided that a proposition fulfilling this requirement should be
presented to the European Parliament and Council.

Furthermore, continued progress will need to be made in adopting existing proposals in the
environmental and taxation areas. To ensure that continued high levels of public service are
maintained and increased, the Commission will continue its ongoing benchmarking exercise,
and will adopt a Communication on this issue during 2001. The Commission will also
continue work on security of supply issues. The Commission on 29 November 2000 has
adopted a Green Paper (COM(2000) 769) on this issue, and continued work on this area will
be important. All of these issues will continue to be priority areas for the Commission in
parallel to the adoption of further legislative measures aimed at completing the internal
markets for gas and electricity.

34

COM(2000) 769, pp. 71 and 72.

32

EXPLANATORY MEMORANDUM

REVISION OF THE ELECTRICITY AND GAS DIRECTIVES

1.

INTRODUCTION

The European Council in Lisbon of 23-24 March 2000 called for “rapid work” to complete
the internal market and asked “the Commission, the Council and the Member States, each in
accordance with their respective powers … to speed up liberalisation in areas such as gas,
electricity … The aim is to achieve a fully functional operational internal market in these
areas; the European Council will assess progress achieved when it meets next Spring on the
basis of a Commission report and appropriate proposals". The European Parliament equally
requested the Commission to adopt a detailed timetable for the achievement of accurately
defined objectives with a view to gradually by completely liberalising the energy markets1.

The Energy Council of 30 May 2000 stressed “the importance and urgency of the conclusions
reached at the Lisbon European Council" and invited the Commission "to present timely
proposals for further action”.

In the Commission Communication “Completing the Internal Energy Market”2,
the
conclusion is reached that proposals aimed at completing the internal gas and electricity
markets can now be made to the Parliament and Council, which would not only achieve this
primary objective but also be compatible with, and contribute to, the Community’s other
relevant policies in this area.

The attached proposal to amend Directives 96/92/EC and 98/30/EC therefore meets the
request of the European Council and the Energy Council; it follows the recent Green Paper on
Security of Supply3 which highlighted the links between the acceleration of the integration of
energy markets within Europe and the need to ensure security of supply.

2.

OBJECTIVES PURSUED

As explained in the abovementioned Communication, if the Community is to create a real and
effective internal market for electricity and gas, any proposal must contain both quantitative
and qualitative elements:

–

1

2

3

The progressive freeing of all electricity and gas consumers to choose their supplier
(“quantitative proposal”). There are three reasons for pursuing an ambitious program in
to ensure that all EU companies receive the benefits of
this respect. First,
competition in terms of increased efficiency and lower prices, leading to increased
EU competitiveness and employment. Secondly, to ensure that EU consumers receive
the full benefits of market opening in terms of lower domestic bills for electricity and
gas. Thirdly, to ensure a level playing field between Member States in terms of market
opening and hence to fully integrate the 15 national markets into one true and fully
operational single market.

Resolution ‘Liberalisation of energy markets’ A5-0180/2000 of 6 July 2000.
OJ C
COM(2000) 769, p. 71.

33

–

terms,

in structural

the Community electricity and gas markets
Improving,
(“qualitative proposals”). Experience in market opening, not only in the Community but
also in other countries, has clearly demonstrated that certain approaches to market
opening are far more likely to bring about the development of effective competition.
The clear majority of Member States have adopted such an approach for electricity and
a large number of Member States have also done so for gas.

As the internal market develops, particularly in terms of the abovementioned quantitative
acceleration, it is therefore essential that methods by which market opening is implemented
gradually converge between Member States if a real internal market is to develop on the basis
of undistorted competition. This is equally necessary if all the possible benefits from the
creation of the internal markets for electricity and gas are to be exploited and passed on
to consumers.

is generally acknowledged that

It
third party access based on published and
non-discriminatory tariffs, and a high level of unbundling, are not only conducive but
necessary to ensure effective competition. To complete the internal market, it is not sufficient
therefore to fully liberalise demand, but effective market structures must also exist. In
addition to the need to ensure that the maximum benefits of competition develop to the profit
of Community citizens, such measures are necessary to guarantee a level playing field
between Member States and to ensure non-discrimination, notably in relation to vertically
integrated companies enjoying a dominant position. Indeed, it has become increasingly clear
that this issue is just as, if not more, important as the level of quantitative market opening if
real reciprocity is to be attained between Member States.

In addition, it is appropriate that this proposal updates the Directives: certain provisions and
options in the Directives have either become redundant, or have not been selected by
Member States. This concerns the tendering procedure for liberalising generation (except as a
back-up measure that can be taken for reasons of security of supply) and the single buyer
model for network access. These can therefore be deleted from the Directive. This
clarification is particularly important in terms of providing for a level playing field in terms of
market structures of the gas and electricity markets in the countries that are candidates for
accession to the Community. In addition, a number of administrative issues have been
simplified in order to reduce red tape. This concerns obligations in the Directives that, in the
light of experience, can be alleviated. Furthermore, a clarification has been made with respect
to the provisions of both Directives with respect to the accounting unbundling requirements.

It also appears appropriate to repeal Council Directives 90/547/EEC and 91/296/EEC on the
transit of electricity and natural gas in order to ensure homogeneous and non-discriminatory
access regimes for transmission including when this involves cross-border transport in the
Community. In order to ensure consistency and avoid confusion related to access regimes and
terms, it is proposed to incorporate and streamline the rules of the transit directives into the
proposal for a new directive on the completion of the internal energy market thereby allowing
transmission system operators access, if necessary, to the grid of other transmission system
operators on conditions that are non-discriminatory.

it

Finally,
is appropriate to improve the existing provisions regarding public service
objectives, to permit an effective and continual benchmarking exercise, and to ensure that all
citizens enjoy the right to be supplied with electricity at affordable and reasonable prices
(universal service) and that they enjoy a minimum set of consumer protection rights.

34

These improvements to the Directives and the removal of redundant provisions will also
provide more clarity and guidance to the candidate countries in the adoption of reforms of
their electricity and gas sectors.

3.

3.1.

THE PROPOSALS

Quantitative proposals – making all consumers progressively free to choose
their supplier

is proposed that Member States make

It
electricity customers
(i.e. all industrial and commercial properties) free to choose their electricity supplier by
1 January 2003, and that this be extended to all customers (i.e. 100% market opening) by
1 January 2005.

all non-domestic

As the opening of gas markets is still behind electricity (Member States had to implement the
Gas Directive 18 months after the Electricity Directive), and gas companies have had less
time to prepare, it is proposed that all non-domestic gas customers be eligible by 1 January
2004, i.e. one year later than for electricity. The same deadline is however proposed as that
for electricity for the introduction of full market opening: 1 January 2005, as this period is
sufficiently long to permit the EU gas industry to fully prepare for full competition, and will
then ensure that both internal markets are operating in parallel. This is particularly important
due to the increasing convergence between the two sectors.

These proposals are made taking into account the experience of those countries that have
already successfully introduced full competition, and the time that has been necessary to make
all the necessary preparations, both administrative, technical and legal/regulatory, to ensure
consumer protection and the respect of necessary public service objectives. In particular, it
takes account of the fact that the eligibility of domestic consumers, unlike the industrial and
commercial sector, often requires important preparation in terms of billing arrangements and
the development of customer load profiling4. It also takes into account the intentions of a
majority of Member States to introduce full competition under a timetable similar to the one
proposed. The Commission Communication on completing the internal energy market clearly
demonstrates that the main objectives of the Community in this area, notably high standards
of public service and consumer protection, environmental protection, security of supply and
socially consensual market opening, can be fully met in the context of such progress.

3.2.

Qualitative proposals

Two proposals are made in this respect, concerning unbundling and network access
methodology. Almost all those that have commented in the context of the public hearing on
the completion of
the internal energy market, which the Commission organised in
September 2000, stressed that high standards and clear measures with respect to both these
issues are essential if effective competition is to be ensured throughout the internal market,
and effective reciprocity is to exist between Member States and companies.

4

Under a standardised load profile, an assumption on the consumption of electricity of a type of small
consumer is made, in volume and timing of demand. Any discrepancies with the profile are settled after
periodic readings of the existing meter, eliminating the need for expensive minute-to-minute reading of
the consumer’s actual consumption and off-setting that against his/her contracted volume.

35

it

Unbundling: In order to ensure a common minimum standard of unbundling throughout the
internal market for electricity and gas,
is proposed that Member States ensure, as a
minimum, that transmission be carried out via a subsidiary company that is legally and
functionally separate vis-à-vis its day to day operations from generation and sales activities of
its parent company (an independent transmission system operator – TSO). A number of
measures are specified that must be respected to ensure that the transmission subsidiary
company is able to operate in functional terms independently of the other commercial
interests of the group to which it belongs. The minimum requirements in terms of functional
separation are the following:

–

–

–

–

those responsible for the management of the transmission system may not participate in
company structures responsible, directly or indirectly, for the day-to-day running of the
generation/production, and supply functions of the integrated group;

appropriate measures must be taken to ensure that
interests of the
management of the transmission system company are taken into account in a manner
that ensures that they are capable of acting independently;

the personal

the transmission system operator must exercise full control over all assets necessary to
operate, maintain and develop the network;

the transmission system operator must establish a compliance programme, which sets
out measures taken to ensure that discriminatory conduct is excluded. The programme
must set out the specific obligations of employees to meet this objective. It must be
drawn up and its respect monitored by a compliance officer appointed by and reporting
to the President/Chief Executive of the integrated company to which the transmission
system operator belongs. An annual report, setting out the measures taken, must be
submitted by the compliance officer to the national regulatory authority and published.

Many respondents at the public hearing further argued that distribution should also be
unbundled in a similar manner, requiring legal separation5, and stressed the importance of
non-discriminatory access to distribution as vital6.

Further opening of the market will render independent distribution system operation as
important as independent transmission system operation. For this reason, the Commission
proposes a legal separation of electricity distribution system operators by 2003 and of gas
distribution system operators by 2004 on largely the same conditions as those described above
for the transmission system operator. However, Member States may decide to introduce a
de minimis threshold, because it might not be proportional
to impose this unbundling
obligation on small local distribution companies.

It should be noted that this modification represents a greater development with respect to gas
than to electricity. In the Gas Directive, only internal accounting unbundling of transmission,
together with measures to ensure the non-disclosure of commercially sensitive information is
required. However, six Member States have in fact moved to ownership,
legal, or
management unbundling, or are preparing to do so. In addition, it is worth noting that several

5

6

The Gas and Electricity Directives require only accounting unbundling at distribution level together
with measures to ensure the non-disclosure of commercially sensitive information.
Distribution costs are relatively significant. For gas, total investments in gas distribution will typically
be twice as high as in transmission. In a country without gas production, gas distribution investment can
account for 70% to 80% of total investment in the supply chain to the end user.

36

integrated gas undertakings are pursuing similar policies of separating management and
operation of transportation functions from the gas supply function. It is generally accepted
that such a development will lead to a more effective and equivalent competitive structure
throughout the internal market and will permit more market entry, as potential entrants will be
confident of non-discriminatory access. Moreover, within integrated companies it will provide
clearer cost signals and incentives to the different business functions. The adoption of this
measure will thus lead to a more rapid and equitable development of an effective internal
market for gas.

These provisions were the ones underlined as important by an overwhelming majority of
those commenting during the hearing. In the light of experience in implementing the existing
Directives, they have also proven to be the most important in ensuring effective functional
independence.

Many respondents at the hearing argued that storage and LNG facilities for gas should be
further unbundled and subject to regulated access. Many also argued that full ownership
unbundling for transmission should take place. It is clear that measures such as these would
result
the
in more effective guarantees of non-discriminatory access. Furthermore,
Commission fully recognises the fundamental role that access to gas storage and other key
ancillary facilities must play if a competitive market
the
Commission has decided to propose a clarification of the importance of access to storage,
other ancillary services and flexibility instruments; strengthening the method of third party
access regarding distribution and LNG facilities (see below); and to require that gas
companies be obliged to identify and create separate operators responsible for storage and
LNG activities (storage and LNG operators);
those
requesting access to these key facilities. The Commission expects that these measures will be
sufficient to ensure effective and non-discriminatory access to the gas and electricity systems.
It has decided not to require, at least at present, unbundling requirements additional to this
with respect to storage and LNG (i.e. not to require separate legal entities for these activities).
Furthermore it
is proposed to include a provision on non-discriminatory provision of
balancing services for both gas and electricity.

is to develop7. In this light,

thus increasing transparency for

for

the Commission will continue to monitor carefully whether effective and
However,
non-discriminatory access develops
transmission (including upstream pipelines),
distribution, LNG, storage and other key ancillary facilities. In order to ensure continued
examination of these issues by all Community institutions, it is proposed that the Directives
be revised to require the Commission to submit a report to the European Parliament and
Council, inter alia on these issues before the end of the second and fourth years following the
entry into force of this revision (Articles 1 and 2), together, if necessary, with appropriate
proposals for further action.

7

Gas offtake varies for all customers greatly, both within a single day and between seasons during the
year. Gas supply, however, is more constant as gas producers wish to maximise the capacity usage of
their pipeline infrastructure. Non-discriminatory access to flexibility instruments such as storage may
therefore be crucial for an efficient access to the overall gas system and for ensuring a level playing
field between incumbent utilities having significant storage facilities at their disposal and new entrants
and customers without such facilities.

37

that

considered

universally

the minimum system necessary

Third party access: As mentioned above, effective third party access was also identified by
all respondents at the hearing as vital to ensure the development of effective competition. It is
almost
ensure
non-discrimination and the necessary transparency and predictability to create effective
competition to develop is published and regulated tariffs, which are applied under
non-discriminatory terms and conditions to all system users, be they customers or companies,
including those belonging to the group to which the TSO belongs. Such tariffs may be divided
into objective classes of customers, providing that this does not result in discrimination. This
system has been adopted by almost all Member States with respect to electricity, but not
concerning gas8. It is therefore proposed that a published and regulated tariff structure be the
minimum norm for transmission and distribution tariffs in both markets. It is important to
ensure that future accession countries also implement structures compatible with the approach
pursued by Member States.

to

In order to ensure that non-discrimination is effective in practice, Member States and national
regulatory authorities will have to carefully monitor the behaviour of the legally separated
transmission and distribution system operators. Thus, Member States and national regulatory
authorities will need, inter alia, to ensure that transmission and distribution operators reply to
access requests within a reasonable period of time. In the Commission’s view a period of two
in principle, not be exceeded. They will equally need to ensure that
weeks should,
transmission and distribution system operators do not ask questions to companies requesting
access to the network, which relate to the source of the energy, the destination or the onward
transport route that are not necessary for the carrying out of their responsibilities in relation to
the operation of the network.

Regulation: Independent national regulatory authorities play a pivotal role in ensuring
non-discriminatory access to the network, as they have the power to fix or approve
transmission and distribution tariffs prior to their entry into force. Competition authorities can
only act on competition distortions ex-post, while regulators have an active ex-ante function.
These authorities also play a major role in issues relating to cross border trade, in the creation
of a truly internal market. They also bring about regulatory continuity and transparency to the
market. The proposed Directive therefore requires Member States to establish independent
regulatory authorities with the competence,
inter alia, to set and/or approve tariffs and
conditions for access to gas and electricity transmission and distribution networks. Thus, the
regulatory authority must approve the transmission and distribution tariffs prior to their entry
into force. This approval may be on the basis of a proposal by thetransmission/distribution
system operator(s), or on the basis of a proposal agreed between the transmission/distribution
system operator(s) and the users of the network. Indeed, it is in any event appropriate for
transmission/distribution system operators to consult closely with all categories of their
network users prior to proposingtariffs to their regulatory authority. Although independent,
these organisations will need to work closely with other government bodies such as
competition authorities where these still retain the responsibility for settling other types of
disputes relating to TPA, for example, questions of discrimination in individual cases.

8

For gas,
the following Member States have either a system of negotiated access, or a hybrid
published/negotiated system: Austria, Belgium (who, however, recently decided to change to regulated
TPA), Denmark, France, Germany and The Netherlands.

38

Trade with non-EU countries: In a liberalised market there may be increased opportunities
for EU businesses to trade with suppliers and customers outside the EU. Significant benefits
could arise from such trade as in other industries. However, there must be agreement between
the EU and third countries on reciprocal access to markets and on environmental and safety
standards to prevent potential danger to the environment in the Community, particularly for
the electricity market. A framework for bilateral or regional agreements could be envisaged to
cover these matters. However, some Member States may already have separate arrangements
with non-EU countries to exchange electricity. These agreements need to be monitored so that
they are compatible with the Community objectives on, for example, nuclear power safety.
Hence, the Directive requires Member States to inform the Commission of the imports of
electricity from those countries to which the Electricity Directive does not apply.

3.3.

Updating provisions

the fact

To reflect
that a number of options in the present Electricity Directive are
implemented by no Member State, and are generally accepted to be less likely to lead to the
development of competitive markets than those actually implemented, it is proposed that
these are deleted from the Directive. This is important in ensuring a continued level playing
field with potential accession countries. Thus, it is proposed that the tendering procedure with
respect to generation be deleted. However, Member States are required to make provision for
the launch of tenders for new capacity that might be used as an exceptional measure for
reasons of security of supply. The “Single buyer” option with respect to TPA for electricity is
also deleted.

An administrative improvement is also proposed to remove a procedural requirement that, in
the light of experience, has been shown to be unnecessary, and can be deleted without
reducing the effectiveness of the Directive. This concerns the requirement that in the event of
a refusal to grant authorisation to construct new generating capacity, a copy of the relevant
decision is forwarded to the Commission. It has become evident that this procedure is
unnecessarily onerous as many such refusals take place for small facilities on simple planning
grounds (Article 5(3) of Directive 96/92/EC). The benefits of this procedure are therefore
outweighed by the administrative burdens it imposes, particularly on local authorities. This
requirement is therefore dropped. Companies that are refused authorisations retain the right,
however, to refer any case they may wish to the Commission.

Article 14(3) of the Electricity Directive and 13(3) of the Gas Directive require that integrated
undertakings maintain separate accounts for their different activities. According to the
definitions contained in Article 2(5) and (6) of the Electricity Directive and 2(3) and (5) of
the Gas Directive both transmission and distribution mean the transport of electricity/gas
“with a view to its delivery to final consumers”. Certain companies have argued that this
means that
is unnecessary to maintain separate accounts for distribution and supply
activities. The Commission believes this to be incorrect and incompatible with the wording
and objective of this provision, notably to create transparency and effective regulation.
Nonetheless to ensure full clarity on this issue, the draft Directive proposes a modification of
Article 14(3) of the Electricity Directive and 13(3) of the Gas Directive.

it

With respect to the reciprocity provision, contained in Article 19 of both Directives, it is now
possible to fix a final date at which this provision shall cease to be valid. As it is proposed that
all Member States must designate all consumers to be eligible by 1 January 2005, the clause
becomes invalid on that date.

39

it

is

to

repeal

proposed

Finally,
and Electricity Transit Directives
the Gas
(Council Directives 90/547/EEC and 91/296/EEC) to avoid different regimes, publication
requirements, dispute settlement systems, etc. for access to the network. Transmission system
operators shall, if necessary and for the purpose of carrying out their functions including in
relation to transit, have access to the network of other transmission system operators based on
non-discriminatory terms and conditions.

3.4.

Public service objectives

As mentioned in the Communication on completing the internal market, the attainment of
public service objectives is one of the most fundamental objectives of the Commission in this
area. Whilst existing provisions of the Gas and Electricity Directives have operated well to
date, room for improvement exists, in particular in the context of full market opening. First, in
order to ensure that universal service in electricity is ensured as market opening progresses,
the Commission feels it is important to include a provision in the proposal stating that
Member States should ensure universal service, meaning supply of high quality electricity to
all customers in their territory (Article 3(3)). Equally, and as a complement
to this,
requirements (Article 3(3) and (4)) are introduced upon Member States, both for electricity
and gas, to introduce appropriate provisions to ensure the attainment of the public service
objectives and notably:

•

•

•

•

•

The protection of vulnerable customers: Member States will, for example, need to
ensure appropriate protection from unjustified disconnection of, inter alia, the elderly,
the unemployed, the handicapped, etc.;

The protection of final customers’ basic rights: Member States will, for example, need
to ensure a minimum set of conditions for contracts, transparency of information, and
the availability of low-cost and transparent dispute settlement mechanisms9;

and economic

Social
service, where necessary,
Member States will need to take appropriate measures to ensure supplies at appropriate
prices to, for example, peripheral areas;

cohesion: beyond universal

Environmental protection; and

Security of supply; notably through ensuring appropriate levels of maintenance and
development of infrastructure, and in particular interconnections.

Furthermore, and again as a complement to the above, in order to ensure that it is clear that
Member States have available all necessary instruments to guarantee network maintenance
and development,
is proposed that a new Article be inserted in the Gas and
Electricity Directives (Article 8(5) of the Electricity Directive and Article 7(5) of the
Gas Directive), which states that “Member States may require Transmission System
Operators to meet minimum levels of investment for the maintenance and development of the
transmission system, including interconnection capacity”.

it

9

Appropriate provisions to ensure these basic rights can be found in Article 17 of the Commission
proposal for a Directive of the European Parliament and of the Council on universal service and users’
rights relating to electronic communications networks and services, COM(2000) 392 of 12 July 2000.

40

Finally, given the vital importance of continued secure supplies of electricity as highlighted in
the Green Paper of Energy Supply – probably the most important public service objective – it
is necessary to take a number of additional complementary measures to reinforce the existing
safeguards contained in the Electricity and Gas Directives on this point. In particular, and in
addition to the requirements on Member States to provide for the possibility of launching
tenders for new capacity when necessary, it would be appropriate for Member States to be
required to carefully monitor the state of the domestic electricity and gas markets, and in
particular the existing demand/supply balance, the level of expected future demand, envisaged
additional capacity under planning or construction, and the level of competition existing on
the market. On an annual basis, the Member States should be required to publish a report
outlining their findings, and indicating any measures envisaged to ensure supply security.
Furthermore, given that due to the highly interconnected nature of the EU electricity and gas
network, the relationship between demand and supply at the Community level is of vital
importance for overall system security, the Commission, on the basis of the national reports
and its own monitoring work, should publish a similar Communication covering the
is proposed to include these provisions in
it
Community as a whole. For this reason,
Article 6(6) of the revised Electricity Directive and in Article 4a of the revised Gas Directive.

Article 3(2) of the existing Directives requires Member States to notify public service
objectives to the Commission. However, as no Member State has adopted such objectives,
which require a derogation from either Directive, no such notifications have been made. In
to permit an effective benchmarking exercise by the Commission, enabling
order
is
they maintain the highest
Member States to ensure that
appropriate to amend this provision to ensure that Member States notify, every two years, all
measures taken to achieve public service objectives, irrespective of whether they require a
derogation from the Directive and notably the new requirements mentioned above. On this
basis, the Commission should be obliged to publish a report every two years analysing the
different measures adopted, and, if necessary, make recommendations as to measures to be
taken to achieve high public service standards.

levels of public service,

it

Finally, a fully opened market needs an internalisation of external costs to ensure a true
level playing field. The Commission will
therefore promote initiatives in this sense,
e.g. an EU-wide energy/CO2 tax, strict rules on State aid, demand-side management measures,
measures to promote cogeneration and renewables which have a competitive disadvantage as
long as external costs are not fully integrated.

4.

CONCLUSION

All the evidence available to the Commission on the basis of the operation of the gas and
Electricity Directives demonstrates that all the basic objectives pursued by the internal
market; lower prices, increased competitiveness, high standards of public service, security of
supply, and environmental protection, are being achieved; and in a socially consensual
context. Experience in countries that have moved to full market opening demonstrates that
these objectives can be and are met under conditions of full competition, and can indeed be
better pursued under such circumstances. The overwhelming view of those commenting in the
context of the public hearing on completing the internal gas and electricity markets, and
comments received in writing, support this approach.

41

The rapid completion of the internal market in this area represents, therefore, an important
step in meeting the Community’s objectives set out at the European Council at Lisbon in
spring 2000. The adoption of these proposals can be expected to bring important benefits in
terms of competitiveness and employment, and provide competitive prices and higher
standards of service to Community citizens for gas and electricity.

42

2001/0077 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Directives 96/92/EC and 98/30/EC concerning common rules for the internal
markets in electricity and natural gas

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular
Article 47(2), Article 55 and Article 95 thereof,

Having regard to the proposal from the Commission1,

Having regard to the opinion of the Economic and Social Committee2,

Having regard to the opinion of the Committee of the Regions3,

Acting in accordance with the procedure laid down in Article 251 of the Treaty4,

Whereas:

(1)

(2)

(3)

1

2

3

4

5

6

the Council of
Directive 96/92/EC of
the European Parliament
19 December 1996 concerning common rules for the internal market in electricity5 and
Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998
concerning common rules for the internal market in natural gas6 have made very
important contributions towards the creation of internal markets for electricity and gas.

and of

Experience in implementing those Directives demonstrates the important benefits that
have begun to result from the internal markets in electricity and gas, in terms of
standards of service and increased
efficiency gains, price reductions, higher
competitiveness. However, important shortcomings and possibilities for improving the
functioning of the markets remain.

At its meeting in Lisbon on 23 and 24 March 2000, the European Council called for
rapid work to be undertaken to complete the internal market in both electricity and gas
sectors and to speed up liberalisation in these sectors with a view to achieving a fully
operational internal market. The European Parliament, in its Resolution of 6 July 2000
on the Commission's second report on the state of liberalisation of energy markets,
requested the Commission to adopt a detailed timetable for the achievement of

OJ C
OJ C
OJ C
OJ C
OJ L 27, 30.1.1997, p. 20.
OJ L 204, 21.7.1998, p. 1.

43

(4)

(5)

(6)

(7)

(8)

(9)

accurately defined objectives with a view to gradually but completely liberalising the
energy market.

The main obstacles in arriving at a fully operational internal market are related to
issues of access to the network and different degrees of market opening between
Member States.

In order to achieve non-discriminatory access to the network, the independence of the
importance. The provisions on
transmission system operator
unbundling should therefore be strengthened. In order to ensure non-discriminatory
access to the distribution network, unbundling requirements for the distribution
system operator should be introduced for both electricity and gas distribution
system operators.

is of paramount

To avoid imposing a disproportionate financial and administrative burden on small
distribution companies, Member States should be able, where necessary, to exempt
such companies from the unbundling requirements.

Further measures should be taken in order to ensure transparent, predictable and
transportation and related
non-discriminatory tariffs
infrastructure, including storage and other ancillary facilities. Those tariffs should be
applicable to all system users on a non-discriminatory basis.

to essential

access

for

of

the

the

light

experience

gained with

of Council
In
Directive 90/547/EEC of 29 October 1990 on the transit of electricity through
transmission grids7 and Council Directive 91/296/EEC of 31 May 1991 on the transit
of natural gas through grids8, measures should be taken to ensure homogeneous and
non-discriminatory access regimes for transmission, including across borders between
Member States.

operation

the

The presence of independent national regulatory authorities, is an important feature in
guaranteeing non-discriminatory access to the network. Those authorities should at
least have the competence to fix or approve transmission and distribution tariffs and
tariffs for access to liquefied natural gas (LNG) facilities, prior to their entry
into force.

(10) National regulatory authorities should be able to approve tariffs on the basis of a
proposal by the transmission system operator or distribution system operator(s) or
LNG system operator, or on the basis of a proposal agreed between these operator(s)
and the users of the network.

(11)

The benefits resulting from the internal market should be available to all Community
industry and commerce, including small and medium-sized enterprises and to all
Community citizens as quickly as possible for reasons of competitiveness and
employment.

7

8

OJ L 313, 13.11.1990, p. 30; Directive as last amended by Commission Directive 98/75/EC (OJ L 276,
13.10.1998, p. 9).
OJ L 147, 12.6.1991, p. 37; Directive as last amended by Commission Directive 95/49/EC (OJ L 233,
30.9.1995, p. 86).

44

(12) Gas and electricity customers should be able to choose their supplier

freely.
Nonetheless a phased approach to completing the internal market for electricity and
gas should be taken to enable industry to adjust and ensure that adequate measures and
systems are in place to protect the interests of customers and ensure they have a real
and effective right to choose supplier.

(13)

Progressive market opening towards
full competition will gradually remove
differences between Member States. Transparency and certainty in the implementation
of this Directive should be ensured.

(14) Directive 98/30/EC provides for access to storage as part of the gas system. In the light
of the experience gained in implementing the internal market, additional measures
should be taken to clarify the provisions for access to storage and other ancillary
services and to reinforce the separation of the operation of transmission and
distribution systems, and gas storage and LNG facilities.

(15) Nearly all Member States have chosen to ensure competition in the electricity
generation market
authorisation procedure. However,
transparent
Member States should have the possibility to ensure security of supply through the
launching of a tendering procedure in the event that sufficient electricity generation
capacity is not built on the basis of the authorisation procedure.

through a

(16)

In the interest of security of supply,
the supply/demand balance in individual
Member States should be monitored and appropriate action taken if security of supply
is compromised.

(17) Member States should ensure that all customers enjoy the right to be supplied with
electricity of a specified quality at affordable and reasonable prices. In order to ensure
the maintenance of the highest possible standards of public service in the Community,
all measures taken by Member States to achieve the objectives of this Directive should
be regularly notified to the Commission. The Commission should regularly publish a
report analysing measures taken at national level to achieve public service objectives
and comparing their effectiveness, with a view to making recommendations as regards
measures to be taken at national level to achieve high public service standards.

(18)

The requirement to notify the Commission of any refusal to grant authorisation to
construct new generation capacity has proven to be an unnecessary administrative
burden and should therefore be dispensed with.

(19) Directives 96/92/EC and 98/30/EC should therefore be amended accordingly.

(20)

In accordance with the principles of subsidiarity and proportionality as set out in
Article 5 of the Treaty, the objectives of the proposed action, namely the creation of
fully operational
in which fair competition
prevails, cannot be sufficiently achieved by the Member States and can therefore, by
reason of the scale and effects of the action, be better achieved by the Community.
This Directive confines itself to the minimum required in order to achieve those
objectives and does not go beyond what is necessary for that purpose.

internal electricity and gas markets,

(21)

To ensure homogeneity in the treatment of access to the electricity and gas networks,
also in the case of transit, Directives 90/547/EEC and 91/296/EEC should be repealed,

45

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Amendments to Directive 96/92/EC

Directive 96/92/EC is amended as follows:

(1)

Article 2 is amended as follows:

(a)

point (9) is replaced by the following:

"9.

'final customer' shall mean a consumer buying electricity for his
own use."

(b)

point (22) is replaced by the following:

"22.

'non-domestic customer' shall mean a consumer purchasing electricity
which is not for his own household use and shall include producers,
transmission and distribution undertakings and wholesale customers."

(2)

Article 3 is replaced by the following:

"Article 3

1. Member States shall ensure, on the basis of their institutional organisation and
with due regard for the principle of subsidiarity, that, without prejudice to
paragraph 2, electricity undertakings are operated in accordance with the
principles of this Directive, with a view to achieving a competitive market in
electricity. Member Statesshall not discriminate between these undertakings as
regards either rights or obligations.

2.

Having regard to the relevant provisions of the Treaty, in particular Article 86,
Member States may impose on undertakings operating in the electricity sector,
in the general economic interest, public service obligations which may relate to
security, including security of supply, regularity, quality and price of supplies
and to environmental protection. Such obligations shall be clearly defined,
transparent, non-discriminatory and verifiable. As a means of carrying out
public service obligations in relation to security of supply, Member States may
introduce the implementation of long-term planning, taking into account the
possibility of third parties seeking access to the system.

3. Member States shall ensure that all customers enjoy universal service, that is
the right to be supplied with electricity of a specified quality within their
territory at affordable and reasonable prices. They shall
take appropriate
measures to protect final customers and to ensure high levels of consumer
to transparency regarding contractual
protection, particularly with respect
terms and conditions, general information and dispute settlement mechanisms.
These measures shall include, in particular, those set out in the Annex.

46

4. Member States shall implement appropriate measures to achieve the objectives
of social and economic cohesion, environmental protection and security of
supply, notably through the maintenance and construction of necessary
network infrastructure including interconnection capacity.

5. Member States may decide not to apply the provisions of Articles 5, 6, 16
and 21 in so far as their application would obstruct the performance, in law or
in fact, of the obligations imposed on electricity undertakings in the general
economic interest and in so far as the development of trade would not be
affected to such an extent as would be contrary to the interests of the
Community. The interests of the Community include, inter alia, competition
with regard to eligible customers in accordance with this Directive and
Article 86 of the Treaty."

(3)

The following Article 3a is inserted:

"Article 3a

1. Member States shall, every two years, notify the Commission of all measures
adopted to fulfill universal service and public service obligations, whether or
not such measures require a derogation from the provisions of this Directive.
This notification shall relate, inter alia, to the requirements of Article 3(4) and
the maintenance of service standards.

2.

The Commission shall publish, every two years, a report analysing the different
measures taken in the Member States to meet high public service standards,
together with an examination of the effectiveness of those measures.

Where appropriate,
the Commission shall make recommendations as to
measures to be taken at national level to achieve high public service standards."

(4)

(5)

Article 4 is deleted.

Article 5 is replaced by the following:

"Article 5

1.

For the construction of new generating capacity, Member States shall adopt an
authorisation procedure, which shall be conducted in accordance with
objective, transparent and non-discriminatory criteria.

2. Member States shall lay down the criteria for the grant of authorisations for
the construction of generating capacity in their territory. These criteria may
relate to:

(a)

the safety and security of the electricity system,
associated equipment;

installations and

(b)

protection of public health and safety;

(c)

protection of the environment;

(d)

land use and siting;

47

(e)

use of public ground;

(f)

energy efficiency;

(g)

the nature of the primary sources;

(h)

characteristics particular to the applicant, such as technical, economic
and financial capabilities;

(i)

compliance with measures adopted pursuant to Article 3.

The authorisation procedures and criteria shall be made public.

Applicants shall be informed of the reasons for any refusal
to grant an
authorisation. The reasons must be objective, non-discriminatory, well founded
and duly substantiated. Appeal procedures shall be made available to the
applicant."

3.

4.

(6)

Article 6 is amended as follows:

(a)

Paragraph 1 is replaced by the following:

"1.

Member States shall ensure the possibility, in the interests of security
of supply, to tender for new capacity on the basis of published criteria.
A tendering procedure can, however, only be launched if on the basis
of the authorisation procedure the capacity being built is not sufficient
to ensure security of supply."

(b)

Paragraph 2 is deleted.

(c)

Paragraph 6 is deleted.

(7)

The following Article 6a is inserted:

"Article 6a

1. Member States shall designate a body, which may be the independent
regulatory authority referred to in Article 22, to monitor security of supply
issues. This body shall monitor, in particular, the supply/demand balance on
the level of expected future demand and envisaged
the national market,
additional capacity planned or under construction, and the level of competition
on the market. The body shall publish, by 31 July each year at the latest a
report outlining its findings on these issues, as well as any measures taken or
envisaged to address them and forward this report
to the Commission
forthwith.

2.

On the basis of the report referred to in paragraph 1 the Commission shall, on
an annual basis, forward a Communication to the European Parliament and the
Council examining issues relating to security of supply of electricity in the
Community,
balance
the
between demand and supply. Where appropriate, the Commission shall issue
recommendations."

particular

projected

existing

and

and

in

48

(8)

In Article 7, paragraph 6 is replaced by the following:

"6. Unless the system operator is already fully independent from other activities
not relating to the transmission system in terms of ownership, the system
operator shall be independent at least in terms of its legal form, organisation
and decision making from other activities not relating to transmission.

In order to ensure the independence of the system operator, the following
criteria shall apply:

(a)

(b)

(c)

(d)

those persons responsible for the management of the transmission system
may not participate in company structures of the integrated electricity
the day-to-day
undertaking responsible, directly or
operation of the generation, distribution and supply of electricity;

indirectly,

for

appropriate measures must be taken to ensure that the personal interests
of the persons responsible for the management of the transmission
system are taken into account in a manner that ensures that they are
capable of acting independently;

the system operator must exercise full control over all assets necessary to
maintain and develop the network;

the system operator must establish a compliance programme, which sets
out measures taken to ensure that discriminatory conduct is excluded.
The programme must set out the specific obligations of employees to
meet this objective. It must be drawn up and its respect monitored by a
compliance officer appointed by and reporting to the President/Chief
Executive of the integrated electricity undertaking to which the system
operator belongs. An annual report, setting out the measures taken, must
to the national regulatory
be submitted by the compliance officer
authority and published."

(9)

The following Article 7a is inserted:

"Article 7a

Transmission system operators shall procure the energy they use for the carrying out
of their functions according to transparent, non-discriminatory and market based
procedures."

(10)

In Article 8, the following paragraphs 5 and 6 are added:

"5. Member States may require transmission system operators to meet minimum
levels of investment for the maintenance and development of the transmission
system, including interconnection capacity.

49

6.

Rules adopted by transmission and distribution system operators for balancing,
in real time, generation and consumption of electricity, shall be transparent and
non-discriminatory. Tariffs and terms and conditions for the provision of such
services by system operators shall be established in a non-discriminatory way
reflecting prevailing market prices and shall be fixed or approved by the
national regulatory authority prior to their entry into force."

(11)

In Article 10, the following paragraph 4 is added:

"4. Unless the system operator is already fully independent from other activities
not relating to the distribution system in terms of ownership,
the system
operator shall be independent at least in terms of its legal form, organisation
and decision making from other activities not relating to distribution.

In order to ensure the independence of the system operator, the following
criteria shall apply:

(a)

(b)

(c)

(d)

those persons responsible for the management of the distribution system
may not participate in company structures of the integrated electricity
the day-to-day
undertaking responsible, directly or
operation of the generation, transmission and supply of electricity;

indirectly,

for

appropriate measures must be taken to ensure that the personal interests
of the persons responsible for the management of the distribution system
are taken into account in a manner that ensures that they are capable of
acting independently;

the system operator must exercise full control over all assets necessary to
maintain and develop the network;

the system operator must establish a compliance programme, which
sets out measures taken to ensure that discriminatory conduct
is
excluded. The programme must set out
the specific obligations of
employees to meet this objective. It must be drawn up and its respect
monitored by a compliance officer appointed by and reporting to the
President/Chief Executive of the integrated electricity undertaking to
which the system operator belongs. An annual report, setting out the
measures taken, must be submitted by the compliance officer to the
national regulatory authority and published.

The provisions of the first and second subparagraphs shall apply from
1 January 2003. Member States may decide not to apply those provisions to
integrated electricity undertakings serving less than 100 000 customers at
that date."

50

(12)

The following Article 12a is inserted:

"Article 12a

The rules in Articles 7(6) and 10(4) do not prevent the operation of a combined
transmission and distribution system operator, which is fully independent in terms of
its legal form, organisation and decision making from other activities not relating to
transmission or distribution system operation and which meets the requirements of
Article 7(6)."

(13)

In Article 14, paragraph 3 is replaced by the following:

"3.

in their internal accounting, keep
Integrated electricity undertakings shall,
separate accounts for their generation, distribution and supply activities, and,
where appropriate, consolidated accounts for other, non-electricity activities,
as they would be required to do if the activities in question were carried out
by separate
discrimination,
cross-subsidisation and distortion of competition. The internal accounts shall
include a balance sheet and a profit and loss account for each activity."

undertakings, with

view to

avoiding

a

(14)

Article 15 is deleted.

(15)

Article 16 is replaced by the following:

"Article 16

1. Member States shall ensure the implementation of a system of third party
access to the transmission and distribution systems based on published tariffs,
applicable to all eligible customers and applied objectively and without
discrimination between system users. These tariffs shall be approved prior to
their entry into force by a national regulatory authority established in
conformity with Article 22.

2.

The operator of a transmission or distribution system may refuse access where
it lacks the necessary capacity. Duly substantiated reasons must be given for
such refusal, in particular having regard to Article 3."

(16)

Articles 17 and 18 are deleted.

(17)

Article 19 is replaced by the following:

"Article 19

1. Member States shall ensure that all non-domestic customers are free to
purchase electricity from the supplier of their choice from 1 January 2003 at
the latest. They shall ensure that all customers are free to choose their supplier
from 1 January 2005 at the latest.

2.

To avoid imbalance in the opening of electricity markets:

(a)

contracts for the supply of electricity with an eligible customer in the
system of another Member State shall not be prohibited if the customer is
considered as eligible in both systems involved;

51

(b)

in cases where transactions as described in subparagraph (a) are refused
because of the customer being eligible only in one of the two systems,
the Commission may oblige, taking into account the situation in the
market and the common interest,
the refusing party to execute the
requested electricity supply at the request of the Member State where the
eligible customer is located."

(18)

In Article 20, paragraph 4 is replaced by the following:

"4.

In the event of cross-border disputes, the dispute settlement authority shall be
the dispute settlement authority covering the system operator which refuses use
of, or access to, the system."

(19)

Article 22 is replaced by the following:

"Article 22

1. Member States shall establish national regulatory authorities. These authorities
shall be wholly independent of interests of the electricity industry. They shall
at least have the sole responsibility:

(a)

(b)

(c)

to fix or approve terms and conditions for connection and access to
national networks, including transmission and distribution tariffs;

to fix or approve tariffs, or changes in tariffs at national level, to reflect
costs or revenues related to cross border transmission of electricity;

to define the rules on the management and allocation of interconnection
capacity,
regulatory authority or
authorities of those Member States with which interconnection exists;

in conjunction with the national

(d)

to fix or approve any mechanisms to deal with congested capacity within
the national electricity system;

(e)

to ensure the respect of the requirements set out in Article 3(3) and (4).

2. Member States

shall create appropriate and efficient mechanisms

for
regulation, control and transparency so as to avoid any abuse of dominant
in particular to the detriment of consumers, and any predatory
position,
behaviour. These mechanisms shall take account of the provisions of the
Treaty, and in particular Article 82 thereof.

3. Member States shall ensure that the appropriate measures be taken, including
administrative action or criminal proceedings in conformity with their national
law, against the natural or legal persons responsible where confidentiality rules
imposed by this Directive have not been respected."

52

(20)

The following Article 23a is inserted:

"Article 23a

Member States shall inform the Commission by 31 March of each year at the
latest of imports of electricity that have taken place during the previous
calendar year from third countries."

(21)

Article 26 is replaced by the following:

"Article 26

The Commission shall review the application of this Directive and submit a report to
the European Parliament and the Council, by [indicate a date] at the latest and by
[indicate a date] at the latest, on the experience gained and progress made in creating
a complete and fully operational internal market in electricity in order to allow the
European Parliament and the Council to consider, in due time, the possibility of
provisions for further improving the internal market in electricity. In particular, the
report shall examine the extent to which the unbundling and tarification requirements
of this Directive have been successful in ensuring fair and non-discriminatory access
to the Community’s
examine
possible necessary harmonisation requirements that are not linked to the provisions
of this Directive."

electricity system. The

report

shall

also

(22)

The Annex, the text of which is set out in Annex I to this Directive, is added.

Article 2

Amendments to Directive 98/30/EC

Directive 98/30/EC is amended as follows:

(1)

Article 2 is amended as follows:

(a)

the following point 12a is inserted:

"12a.

'ancillary services' shall mean all services necessary for the operation of
transmission and/or distribution networks and/or LNG facilities,
including storage facilities and equivalent flexibility instruments, load
balancing and blending;"

(b)

the following point 20a is inserted:

"20a.

'non-domestic customer' shall mean a consumer purchasing natural gas
which is not for his own household use and shall
include power
generators, natural gas undertakings and wholesale customers;"

53

(2)

Article 3 is replaced by the following:

"Article 3

1. Member States shall ensure, on the basis of their institutional organisation and
with due regard for the principle of subsidiarity, that, without prejudice to
paragraph 2, natural gas undertakings are operated in accordance with the
principles of this Directive with a view to achieving a competitive market in
natural gas. Member States shall not discriminate between such undertakings
as regards either rights or obligations.

2.

Having regard to the relevant provisions of the Treaty, in particular Article 86
thereof, Member States may impose on natural gas undertakings, in the general
economic interest, public-service obligations which may relate to security,
including security of supply, regularity, quality and price of supplies, and to
clearly defined,
environmental protection. Such obligations
transparent, non-discriminatory and verifiable. As a means of carrying out
public-service obligations in relation to security of supply, Member States may
introduce the implementation of long-term planning, taking into account the
possibility of third parties seeking access to the system.

shall be

3. Member States shall take appropriate measures to protect final customers and
to ensure high levels of consumer protection, particularly with respect
to
transparency regarding contractual terms and conditions, general information
and dispute settlement mechanisms. These measures
in
particular, those set out in the Annex.

include,

shall

4. Member States shall implement appropriate measures to achieve the objectives
of social and economic cohesion, environmental protection and security of
supply, notably through the maintenance and construction of necessary
network infrastructure including interconnection capacity.

5. Member States may decide not to apply the provisions of Article 4 with respect
to distribution in so far as their application would obstruct, in law or in fact, the
performance of the obligations imposed on natural gas undertakings in the
general economic interest and in so far as the development of trade would not
be affected to such an extent as would be contrary to the interests of the
Community. The interests of the Community include, inter alia, competition
with regard to eligible customers in accordance with this Directive and
Article 86 of the Treaty."

(3)

The following Article 3a is inserted:

"‘Article 3a

1. Member States shall, every two years, notify the Commission of all measures
adopted to fulfil public service obligations, whether or not such measures
require a derogation from the provisions of this Directive. This notification
shall relate, inter alia, to measures regarding environmental protection, security
including final customers, social and
of supply, protection of customers,
regional cohesion, and the maintenance of service standards.

54

2.

The Commission shall publish, every two years, a report analysing the different
measures taken in the Member States to meet high public service standards,
together with an examination of the effectiveness of those measures. Where
appropriate, the Commission shall make recommendations as to measures to be
taken at national level to achieve high public service standards."

(4)

The following Article 4a is inserted:

"Article 4a

1. Member States shall designate a body, which may be the independent
regulatory authority referred to in Article 22, to monitor security of supply
issues. This body shall monitor, in particular, the supply/demand balance on
the national market,
the level of expected future demand and available
supplies, and the level of competition on the market. The body shall publish, by
31 July each year at the latest, a report outlining its findings on these issues, as
well as any measures taken or envisaged to address them, and shall forward
this report to the Commission forthwith.

2.

On the basis of the report referred to in paragraph 1, the Commission shall
forward a Communication to the European Parliament and the Council each
year examining issues relating to security of supply of natural gas in the
Community, and in particular the existing and projected balance between
issue
demand and supply. Where appropriate,
recommendations."

the Commission shall

(5)

Article 7 is replaced by the following:

"Article 7

1. Member States shall designate or shall require undertakings which own
transmission, storage or LNG facilities to designate, for a period of time to be
determined by Member States having regard to considerations of efficiency and
economic balance, one or more system operators to be responsible for
operating, ensuring the maintenance of, and developing the transmission,
storage and LNG facilities in a given area and their interconnections with other
systems, in order to guarantee security of supply.

2.

Each transmission, storage and/or LNG system operator:

(a)

(b)

(c)

shall operate, maintain and develop under economic conditions secure,
reliable and efficient transmission, storage and/or LNG facilities, with
due regard to the environment;

shall not discriminate between system users or classes of system users,
particularly in favour of its related undertakings;

shall provide any other transmission undertaking, any other storage
undertaking, any other LNG undertaking and/or any distribution
the transport and
undertaking, sufficient
storage of natural gas may take place in a manner compatible with the
secure and efficient operation of the interconnected system.

information to ensure that

55

3.

Rules for balancing the gas system adopted by transmission and distribution
system operators shall be transparent and non-discriminatory. Tariffs and terms
and conditions for the provision of such services by system operators shall be
established in a non-discriminatory way reflecting prevailing market prices and
shall be fixed or approved by the national regulatory authority prior to their
entry into force."

(6)

The following Articles 7a and 7b are inserted:

"Article 7a

1. Member States may require transmission system operators to meet minimum
levels of investment for the maintenance and development of the transmission
system, including interconnection capacity.

2.

Unless the transmission system operator is already fully independent from
other activities not relating to the transmission system in terms of ownership,
the transmission system operator shall be independent at least in terms of its
legal form, organisation and decision making from other activities not relating
to transmission.

In order to ensure the independence of the transmission system operator, the
following criteria shall apply:

(a)

(b)

(c)

(d)

those persons responsible for the management of the transmission system
may not participate in company structures of the integrated natural gas
undertaking responsible, directly or
the day-to-day
operation of the production, distribution and supply of gas;

indirectly,

for

appropriate measures must be taken to ensure that the personal interests
of persons responsible for the management of the transmission system
are taken into account in a manner that ensures that they are capable of
acting independently;

the transmission system operator must exercise full control over all assets
necessary to maintain and develop the network;

establish a

transmission system operator must

the
compliance
programme, which sets out measures taken to ensure that discriminatory
conduct is excluded. The programme must set out the specific obligations
of employees to meet this objective. It must be drawn up and its respect
monitored by a compliance officer appointed by and reporting to the
President/Chief Executive of the integrated natural gas undertaking to
which the transmission system operator belongs. An annual report,
setting out the measures taken, must be submitted by the compliance
officer to the national regulatory authority and published.

56

Article 7b

Transmission system operators shall procure the energy they use for the carrying
out of their functions according to transparent, non-discriminatory and market
based procedures."

(7)

In Article 10, the following paragraph 4 is added:

"4. Unless the distribution system operator is already fully independent from other
activities not relating to the distribution system in terms of ownership, the
distribution system operator shall be independent at least in terms of its legal
form, organisation and decision making from other activities not relating to
distribution.

In order to ensure the independence of the distribution system operator, the
following criteria shall apply:

(a)

(b)

(c)

(d)

those persons responsible for the management of the distribution system
may not participate in company structures of the integrated natural gas
the day-to-day
undertaking responsible, directly or
operation of the production, transmission and supply of gas;

indirectly,

for

appropriate measures must be taken to ensure that the personal interests
of persons responsible for the management of the distribution system are
taken into account in a manner that ensures that they are capable of
acting independently;

the distribution system operator must exercise full control over all assets
necessary to maintain and develop the network;

the distribution system operator must establish a compliance programme,
which sets out measures taken to ensure that discriminatory conduct is
excluded. The programme must set out
the specific obligations of
employees to meet this objective. It must be drawn up and its respect
monitored by a compliance officer appointed by and reporting to the
President/Chief Executive of the integrated natural gas undertaking to
which the distribution system operator belongs. An annual report, setting
out the measures taken, must be submitted by the compliance officer to
the national regulatory authority and published.

The provisions of the first and second subparagraphs shall apply from
1 January 2004. Member States may decide not to apply those provisions to
integrated natural gas undertakings serving less than 100 000 customers at
that date."

57

(8)

The following Article 11a is inserted:

"Article 11a

The rules in Article 7a(2) and Article 10(4) do not prevent the operation of a
combined transmission and distribution system operator, which is fully independent
in terms of its legal form, organisation and decision making from other activities not
relating to transmission or distribution system operation and which meets the
requirements of Article 7a(2)."

(9)

In Article 13, paragraph 3 is replaced by the following:

"3.

Integrated natural gas undertakings shall, in their internal accounting, keep
separate accounts for their natural gas transmission, distribution, supply, LNG
and storage activities, and, where appropriate, consolidated accounts for
non-gas activities, as they would be required to do if the activities in question
were carried out by separate undertakings, with a view to avoiding
discrimination,
competition. The
internal accounts shall include a balance sheet and a profit and loss account for
each activity."

cross-subsidisation and distortion of

(10)

Articles 14 and 15 are replaced by the following:

"Article 14

1. Member States shall ensure the implementation of a system of third party
access to the transmission and distribution system and LNG facilities based on
published tariffs, applicable to all eligible customers and applied objectively
and without discrimination between system users. These tariffs shall be
approved prior to their entry into force by a national regulatory authority
established in conformity with Article 22.

2.

1.

2.

Transmission system operators shall,
if necessary and for the purpose of
carrying out their functions including in relation to cross-border transmission,
have access to the network of other transmission system operators based on the
same conditions and principles as set out in paragraph 1.

Article 15

For the organisation of access to storage and equivalent flexibility instruments
when technically and/or economically necessary for providing efficient access
to the system for the supply of customers, as well as for the organisation of
access to other ancillary services, Member States may choose either or both
procedures referred to in paragraphs 2 and 3. These procedures shall operate in
accordance with objective, transparent and non-discriminatory criteria

In the case of negotiated access, Member States shall take the necessary
measures for natural gas undertakings and eligible customers either inside or
outside the territory covered by the interconnected system to be able to
negotiate access to the system so as to conclude supply contracts with each
other on the basis of voluntary commercial agreements. The parties shall be
obliged to negotiate access to the system in good faith.

58

Contracts for access to the system shall be negotiated with the relevant system
operator or natural gas undertakings. Member States shall require natural gas
undertakings to publish their main commercial conditions for the use of the
system by [indicate date] at the latest and every year thereafter.

3. Member States opting for a procedure of regulated access shall take the
necessary measures to give natural gas undertakings and eligible customers
either inside or outside the territory covered by the interconnected system a
right of access to the system, on the basis of published tariffs and/or other
terms and obligations for use of that system. This right of access for eligible
customers may be given by enabling them to enter into supply contracts with
competing natural gas undertakings other than the owner and/or operator of the
system or a related undertaking."

(11)

Article 16 is deleted.

(12)

Articles 18 and 19 are replaced by the following:

"Article 18

1. Member States shall ensure that all non-domestic customers are free to
purchase gas from the supplier of their choice and shall have the rights of
eligible customers for third party access in order to execute such supplies in
accordance with Articles 14 and 15 from 1 January 2004 at the latest.

2. Member States shall ensure that all customers are free to purchase gas from the
supplier of their choice and have the rights of eligible customers for third party
access in order to execute such supplies in accordance with Articles 14 and 15
from 1 January 2005 at the latest.

1.

To avoid imbalance in the opening of gas markets:

Article 19

(a)

(b)

contracts for the supply of gas with an eligible customer in the system of
is
another Member State shall not be prohibited if
considered as eligible in both systems involved;

the customer

in cases where transactions as described in subparagraph (a) are refused
because the customer is eligible in only one of the two systems, the
Commission may oblige, taking into account the situation in the market
and the common interest, the refusing party to execute the requested gas
supply, at the request of the Member State where the eligible customer is
located."

(13)

Article 22 is replaced by the following:

"Article 22

1. Member States shall establish national regulatory authorities. These authorities
shall be wholly independent of the interests of the gas industry. They shall at
least have the sole responsibility:

59

(a)

(b)

(c)

to fix or approve terms and conditions for connection and access to
national networks, including transmission and distribution tariffs, and
terms, conditions and tariffs for access to LNG facilities;

to define the rules on the management and allocation of interconnection
capacity,
in conjunction with the national regulatory authority or
authorities of those Member States with which interconnection exists;

to fix or approve any mechanisms to deal with congested capacity
within the national gas system;

(d)

to ensure the respect of the requirements set out in Article 3(3) and (4).

2. Member States

shall create appropriate and efficient mechanisms

for
regulation, control and transparency so as to avoid any abuse of dominant
position,
in particular to the detriment of consumers, and any predatory
behaviour. These mechanisms shall take account of the provisions of the
Treaty, and in particular Article 82 thereof.

3. Member States shall ensure that the appropriate measures be taken, including
administrative action or criminal proceedings in conformity with their national
law, against the natural or legal persons responsible where confidentiality rules
imposed by this Directive have not been respected."

(14)

Article 28 is replaced by the following:

"Article 28

The Commission shall review the application of this Directive and submit a report to
the European Parliament and the Council, by [indicate date] at the latest and by
[indicate date] at the latest, on the experience gained and progress made in creating a
complete and fully operational internal market in natural gas in order to allow the
European Parliament and the Council to consider, in due time, the possibility of
provisions for further improving the internal market in natural gas. In particular, the
report shall examine the extent to which the unbundling and tarification requirements
of this Directive have been successful in ensuring fair and non-discriminatory access
to the Community’s gas system The report shall also examine possible necessary
harmonisation requirements which are not linked to the provisions of this Directive."

(15)

The Annex, the text of which is set out in Annex II to this Directive, is added.

Article 3

Directives 90/547/EEC and 91/296/EEC are repealed with effect from 1 January 2003.

Article 4

Member States shall bring into force the laws, regulations and administrative provisions
necessary to comply with this Directive by 31 December 2002 at the latest. They shall
forthwith inform the Commission thereof.

60

When Member States adopt those provisions, they shall contain a reference to this Directive
or be accompanied by such a reference on the occasion of their official publication.
Member States shall determine how such reference is to be made.

Article 5

This Directive shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities.

Article 6

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament

For the Council

The President

The President

61

ANNEX I

"Annex

(Article 3)

prejudice

Without
Directive 97/7/EC of
the
Council Directive 93/13/EC2:

to Community

rules

European

on
Parliament

consumer
and

protection,
of

the

in

particular
and

Council1

(a)

Member States shall ensure that final customers have a right to a contract with their
electricity service provider that specifies:

–

–

–

–

–

–

–

the identity and address of the supplier;

services provided, the service quality levels offered, as well as the time for the
initial connection;

the types of maintenance service offered;

the means by which up-to-date information on all applicable tariffs and
maintenance charges may be obtained;

the duration of the contract, the conditions for renewal and termination of
services and of the contract;

Any compensation and the refund arrangements which apply if contracted
service quality levels are not met; and

The method of initiating procedures for settlement of disputes in accordance
with point (f).

(b)

(c)

(d)

Member States shall ensure that final customers shall be given adequate notice of any
intention to modify contractual conditions and shall be free to withdraw from contracts
if they do not accept the new conditions.

Member States shall ensure that transparent information on applicable prices and
tariffs, and on standard terms and conditions, in respect of access to and use of
electricity services is available to the public, and particularly to final customers.

Member States shall ensure that electricity suppliers specify in the bills sent to each
final consumer, the composition of the fuel mix used to generate the electricity that is
consumed by the final consumers they supply. The relative costs of the different fuels
used to generate a unit of electricity supplied to the final consumers shall be specified
and the relative importance of each energy source with respect to the production of
greenhouse gases.

(e)

Member States shall also implement appropriate measures to protect vulnerable
customers.

1

2

OJ L 144, 4.6.1997, p. 19.
OJ L 95, 21.4.1993, p. 29.

62

(f)

Member States shall ensure that transparent, simple and inexpensive procedures are
available for dealing with final customer complaints. Member States shall adopt
measures to ensure that such procedures enable disputes to be settled fairly and
promptly with provision, where warranted, for a system of reimbursement and/or
in
compensation. They should follow, wherever possible,
Commission Recommendation 98/257/EC3."

the principles set out

3

OJ L 115, 17.4.1998, p. 31.

63

ANNEX II

"Annex

(Article 3)

prejudice

Without
Directive 97/7/EC of
the
Council Directive 93/13/EC2:

to Community

rules

European

on
Parliament

consumer
and

protection,
of

the

in

particular
and

Council1

(a)

Member States shall ensure that final customers have a right to a contract with their
gas service provider that specifies:

–

–

–

–

–

–

–

the identity and address of the supplier;

services provided, the service quality levels offered, as well as the time for the
initial connection;

the types of maintenance service offered;

the means by which up-to-date information on all applicable tariffs and
maintenance charges may be obtained;

the duration of the contract, the conditions for renewal and termination of
services and of the contract;

any compensation and the refund arrangements which apply if contracted service
quality levels are not met; and

the method of initiating procedures for settlement of disputes in accordance with
point (e).

Member States shall ensure that final customers shall be given adequate notice of any
intention to modify contractual conditions and shall be free to withdraw from contracts
if they do not accept the new conditions.

Member States shall ensure that transparent information on applicable prices and
tariffs, and on standard terms and conditions, in respect of access to and use of gas
services is available to the public, and particularly to final customers.

Member
vulnerable customers.

States

shall

also

implement

appropriate measures

to

protect

(b)

(c)

(d)

1

2

OJ L 144, 4.6.1997, p. 19.
OJ L 95, 21.4.1993, p. 29.

64

(e) Member States shall ensure that transparent, simples and in-expensive procedures are
available for dealing with final customers complaints. Member States shall adopt
measures to ensure that such procedures enable disputes to be settled fairly and
promptly with provision, where warranted, for a system of reimbursement and/or
in
compensation. They should follow, wherever possible,
Commission Recommendation 98/257/EC3."

the principles set out

3

OJ L 115, 17.4.1998, p. 31.

65

REGULATION ON CONDITIONS FOR ACCESS TO THE NETWORK FOR
CROSS-BORDER EXCHANGES IN ELECTRICITY

EXPLANATORY MEMORANDUM

I.

Introduction

The ultimate objective of the Electricity Directive is the creation of a real integrated single
market, as opposed to a situation characterised by fifteen more or less liberalised but largely
national markets. This objective has not yet been achieved. It is true that cross-border trade –
in terms of physical exchanges of electricity between countries – has been progressing over
time and is currently equivalent to around 8% of total electricity production. However, this
figure is still relatively modest when compared to other sectors of the economy.

There are strong indications that whilst nearly all Member States have implemented the
Directive and transmission capacity would be in most cases physically available, for many
eligible customers, it still remains organisationally and economically difficult to choose a
supplier situated in another Member State.

As regards tariffs, each transmission system operator ("TSO") concerned will require a
transmission fee, which is not necessarily coordinated with the transmission fees already
payable to other TSOs. As a consequence, due to differences in the structure of the tarification
system applied in Member States, the actual amount payable for cross-border access to the
system can vary considerably, depending on the TSOs involved and without necessarily a link
to the costs actually incurred. Furthermore, in cases were several Member States have to be
transited, this situation can lead to “pancaking” of tariffs, if in all systems concerned the
operators charge a tariff.

The second key aspect in this context is the limited capacity of the interconnections between
national transmission systems. It is expected that
the
international borders will remain a major limiting factor to free electricity trade between
certain regions of Europe. This will result not only from an increasing volume of flows but
also from a changing pattern of flows. Therefore, the number of interconnections between
systems and the capacity of the existing installations need to be extended.

in the next decade congestion at

Given the limitations of interconnection capacities, the principles of allocation of this capacity
to market operators will be important in determining which players will profit from the
trading possibilities that the internal market offers. Discrimination between market players
will occur if no transparent, non-discriminatory rules are set. Incumbents might ward off new
market entry, in particular if substantial parts of this capacity are tied up under long-term
contracts. This will hinder the development of trade resulting in significantly less advantages
from the internal market.

In view of this situation, a harmonised Community framework on tariffs for cross-border
transactions and on the allocation of available interconnection capacities is necessary.

The Electricity Directive does not contain specific rules for cross-border transactions.
However, this does not mean that this issue can be solved by relying exclusively on national
measures. It was in the logic of a gradual approach to implementing the internal electricity
market that specific issues remain to be addressed after the principal strategic implementation
choices have been made by the Member States. Experience has confirmed the assessment

66

made by the Commission already at an early stage that the issue needs to be addressed
through joint action at the Community level.

a

first

response,

in 1998,

the Commission,

As
the
European Regulatory Forum for electricity, the so called “Florence Forum”. The Forum
brings together representatives of the Commission, of the national administrations, of the
European Parliament, of the Council of European Regulators and of the Association of
European Transmission System Operators (ETSO). Producers, consumers and operators on
the market are also represented. Its objective has been to clarify and discuss possible solutions
with all key players, in particular on cross-border tarification and congestion management.

initiated the

creation of

The Florence Forum has proven a highly effective tool in developing consensus on highly
complicated, rapidly evolving and controversial issues. Whilst it will remain an important
instrument in this respect, in particular because it ensures the representation of industry and
consumers, recent experience has demonstrated that the process suffers from a number of
disadvantages when it is necessary to reach concrete decisions on specific issues :

• the process is an informal one, based on bi-annual meetings lasting two days. As such it is
inappropriate to take concrete decisions on very detailed issues that require in-depth
discussions;

• to make progress on any issue requires full consensus of all parties;

• any decisions reached can only be implemented if all parties respect them; there are no

procedures to ensure implementation;

• certain issues such as the calculation of the correct level of inter-TSO payments require
regular detailed decisions to be taken. The Forum is not able to appropriately address
such issues.

In this light, the Commission has concluded that for making final progress on the issues of
cross-border transmission tarification and congestion management on interconnections it is
now necessary to adopt a legislative instrument for a clear decision-making process, building
on the progress achieved at the Forum,.

this background,

Against
the objective of the draft Regulation is to establish a robust
framework for cross-border trade in electricity. The rules contained in the Regulation are as
simple as possible and are limited to what is necessary to regulate in EC legislation, in
compliance with the principle of subsidiarity. The main objective is to ensure that costs
actually incurred by transmission system operators are accurately reflected in charges for
access to the system, including interconnections, whilst at the same time excluding excessive
transactions costs for cross-border operations.

II.

Basic structure of the draft Regulation

With regard to tarification, the system envisaged is based on the principle of compensations
between TSOs for transit flows of electricity that they cause one another, including for transit
flows commonly denominated as “loop-flows” or “parallel-flows”. The draft Regulation
provides,
therefore, for compensation payments to be received by transmission system
operators hosting transit flows of electricity on their network, financed through contributions
of those TSOs causing these transit flows. Furthermore, the Regulation provides for a certain
degree of harmonisation of charges for access to national systems, as far as such

67

harmonisation is necessary in order to exclude possible distortive effects stemming from
different national approaches.

As regards the allocation of available interconnection capacity, the Regulation lays down the
main principles, which shall be respected when such allocation is made. In an Annex to the
Regulation, further technical details are outlined.

In addition to the basic principles with regard to tarification and congestion management, the
draft Regulation provides for the subsequent adoption of guidelines detailing further relevant
principles and methodologies. These guidelines can be adopted and amended without
changing the Regulation in order to allow rapid adaptation to changed circumstances. In fact,
for instance, on issues such as cost calculation methodologies and the concrete identification
and measurement of physical flows, there has been continuous progress in the past and further
refinements and improvements can be expected in future.

The Regulation empowers the Commission with certain regulatory competencies, as far as
this is necessary to ensure the functioning of the internal market. Thus, the Commission
adopts and amends the above mentioned guidelines and determines, on a regular basis, the
level of the compensation payments to be made between TSOs. In order to ensure the
involvement of Member States’ regulatory authorities in this process, the Commission would
take these decisions after consultation of a committee made up of representatives of
Member States, created in accordance with Council Decision 1999/468 laying down the
procedures for
implementing powers conferred on the Commission
(“Comitologie”). For the purpose of the determination of the level of the compensation
payments, the draft Regulation foresees an advisory committee1, to allow rapid decisions,
whereas for the purpose of the adoption of the guidelines, a regulatory committee2 is foreseen.

the exercise of

Regarding the representation of Member States in the committee, it is important to note that
Article 22 of the Electricity Directive, after its amendment proposed by the Commission3,
stipulates that national regulatory authorities shall, inter alia, have the sole responsibility at
national level with respect to the definition of methodologies for cross-border transmission,
including the setting of tariffs.

III. Main contents of the rules contained in the draft Regulation

1.

Compensations for transit flows of electricity

Unlike in other sectors involving transport, such as rail and road transport, tariffs for the
transmission of electricity cannot be fixed with reference to the distance between the producer
and the consumer of the electricity. In fact, the physical flows of electricity do not necessarily
coincide with the contractual relationship between the seller and the buyer: if a generator in
northern Europe sells electricity to a consumer in southern Europe, this does not mean that the
electrons produced by the generator will actually flow from north to south. It will rather mean
a shift of the power balance towards the south.

1

2

3

Before taking a decision, the Commission consults the committee, which delivers an opinion of which
the Commission shall take utmost account.
Unlike in case of an advisory committee, under a regulatory committee procedure the Commission can
be forced to incorporate the committee’s opinion in the intended decision.
Proposal from the Commission for a Directive of the European Parliament and of the Council amending
Directives 96/92/EC and 98/30/EC concerning common rules for the internal market in electricity and
natural gas.

68

However, even if not clearly attributable to individual economic transactions,
trade in
electricity gives rise to physical flows within and between transmission systems. It implies in
practice that a certain amount of power is injected into the transmission system of the
exporting Member States while at the same time the same amount of power is extracted for
is thus
consumption from the transmission system of the importing Member State. It
appropriate and generally accepted that exporters and/or importers pay the national network
charges applicable to generation in the exporting country and/or to consumption in the
importing country.

However, in the interconnected European electricity system, exports of electricity not only
affect the networks of the exporting and the importing countries. Export transactions are
susceptible to cause flows of electricity also in countries where the electricity is neither
injected into the network nor taken out for consumption. This seems plausible in case of a
transaction between non-neighbouring countries, i.e. where the “direct path” to the consumer
necessarily leads through the transmission system of a third. In addition, however, due to the
laws determining the “behaviour” of electricity on the network, export
physical
transactions often cause physical flows in countries which are not on the – theoretical – direct
path of the electricity4. Such transit flows are commonly denominated as “loop-flows” or
“parallel-flows”.

In a liberalised, competitive market, transmission system operators need to be compensated
for costs incurred by such transit flows of electricity. Otherwise, the local network users
would be burdened with those costs, despite the fact that the flows of electricity concerned are
entirely caused by market actors located in other transmission system areas.

Against this background, the draft Regulation contains a system based on three elements:

First, it stipulates that transmission system operators shall receive compensations for costs
incurred by hosting transit flows of electricity on their network (Article 3(1)).

Secondly, it sets rules on the determination of the costs incurred from transits. In fact, whilst a
compensation for such costs is necessary, it must be ensured that these compensations are
indeed cost-reflective. The costs actually incurred by such flows need to be accurately
determined, in order to avoid windfall profits and excessive transaction costs.

The draft Regulation opts in this respect for a model under the forward looking long-run
average incremental costs that a network bears from hosting transits are identified and taken
into account, compared to a situation without transits.

The reasoning underlying this approach is the prevention of "windfall contributions" by TSOs
hosting transits, in practice to the benefit of TSOs of those Member States which are located
in the centre of the European electricity system and at the expense of those in peripheral
countries. In fact, the core horizontal network of every national network is constructed for the
service of domestic customers. This core network must be constructed irrespective of the
existence of transits.On the other hand, TSOs may have additional costs in taking specific
measures to deal with transits. This may involve, for example, additional administrative
measures, additional operational requirements for the management of transits, arrangements

4

In a simulation, it has been shown, for instance, that in case of a transport of 1 000 MW from
Northern France only around 60% of the electricity reaches Italy “directly”,
i.e. by crossing the
French-Italian border or through Switzerland. The remainder reaches Italy “indirectly” causing flows on
the network in Belgium, the Netherlands, Germany, Austria and Slovenia.

69

regarding losses, and additional investment through new lines or the reinforcement of existing
lines. Such costs are clearly specific costs incurred by transits and TSOs must be able to
recover them. It will be necessary to ensure adequate return on investment for new
installations needed to host transits, in order to provide appropriate incentives for operators to
make such investment. Finally, in order to be cost-reflective, benefits stemming from transits
should also be taken into account, for instance in case transit flows contribute to the overall
stabilisation of a national network.

Finally, the appropriate way of financing the compensations must be determined. In this
context, it must be taken into account that transits are caused by export/import transactions.
However, apart from exceptional cases, it is technically not – yet – possible to identify
whether and to what extent an individual exporter/importer causes transits. Therefore, the
draft Regulation does not foresee a mechanism whereby individual exporters or importers are
directly held responsible for transit
the operators of
flows. Instead,
transmission systems from which transits originate and/or the operators of the systems where
these flows end (exporting and/or importing TSOs) shall – on a pro rata basis – pay the
compensations (Article 3(2)).

it stipulates that

the decisions on these compensation payments

In order to ensure accurate and rapid decisions on the level of the compensations to be made
and received between TSOs, the draft Regulation stipulates that the Commission would make,
on a regular basis,
(Article 3(3)).
Member States’ regulatory authorities would, however, be involved in this process through an
advisory committee made up of representatives of Member States, created in accordance with
Council Decision 1999/468/EC laying down the procedures for the exercise of implementing
powers conferred on the Commission. (“Comitologie”), which the Commission would consult
prior to making its final decision.

It should be noted that the Community budget will not be affected by these compensation
payments since they would be made directly between TSOs concerned.

In order to recuperate the payments made to finance the compensations, the TSOs are required
to adapt their national tariff system accordingly (Article 4(3)).

As regards the manner in which this adaptation is made, one possibility could be to charge
this is the fair and
exporters and/or importers with these costs, on the grounds that
cost-reflective solution since the exporters and/or importers cause the flows in question.

However, such a solution would result in some important disadvantages. First, as already
explained, it is in general impossible to determine whether and to what extent individual
export transactions lead to physical transit and loop-flows. Commercial export transactions
may not lead to any physical flows, namely in case of two cross-border transactions involving
counterflows between systems. To require in such a situation exporters to pay a specific
charge could not be considered fair or cost-reflective. Also, participants of an internationally
operating power exchange would not know the exact amount of due cross-border charges
before the daily close of exchange, because only after that, the exchange could determine the
traded energy per TSO area. This would lead to the unpredictability of transmission charges
and, thus, prices of electricity. Finally, low transaction costs and the resulting potential for
trade benefit all consumers and generators in the internal market. It
leads to increased
competition and a bigger market for generators, which is particularly important in case of
over-capacities at the national level.

70

In view of these considerations, the draft Regulation stipulates that whilst payments and
receipts resulting from the compensation mechanism shall be taken into account when setting
network tariffs, this shall not lead to a specific tariff to be paid only by exporters or importers
(Article 4(4)).

2.

Harmonisation of national network charges

As explained, exporters and/or importers pay the national network charges applicable to
generation in the exporting country and/or to consumption in the importing country. If these
charges, in particular those on generation, differ considerably between Member States, the
market will be distorted. In fact, since generators will have to incorporate in their power
pricing the costs arising from the network charges they have to pay, generators with low
network charges will have a competitive advantage compared to those with high charges.

The levels of the network charges depend on the general structure of the national tariff
system, the cost calculation principles applied and, of course, the particularities of the national
networks concerned.

An important element of the structure of national tariff systems in the context of cross-border
trade is therefore the ratio between the costs allocated to generation and the costs allocated to
consumption. It is clear, for instance, that generators in a country where all network costs are
paid by consumers are in a better position than a producer from a country where generators
are charged a proportion of these costs when competing in the internal market. Therefore, this
ratio and/or the absolute level of the network charges applied to generation need to be
harmonised in order to ensure competitive neutrality.

In view of these considerations, the draft Regulation foresees that the network costs shall
mainly be recovered through charges imposed on consumption (Article 4(2)). However, a
lower proportion of the total costs charged on network users may be recovered through a
charge on generation. This enables national regulatory authorities to include locational signals
in the tariff structure, in order to send signals on the most appropriate and inappropriate zones
to locate new generation, e.g. in view of local circumstances with regard to network losses
and network congestion. The draft Regulation stipulates that, where appropriate, charges
should contain elements providing such locational signals. Such locational signals, for
example, will need to be in place as an integral part of the cross-border tarification system
established by this Regulation, and in particular taking into account of Article 4(4).

Even if a sufficient degree of harmonisation of the ratio between generation and consumption
charges and/or of the absolute level of the charges applied to generation is achieved,
considerable differences in the level will persist
if cost accounting principles differ
significantly. On the other hand, the specific circumstances prevailing in each national system
need to be taken into account. Therefore, complete harmonisation of the level of the charges
would not be appropriate However, basic principles should be identical in all Member States.
Therefore,
the draft Regulation stipulates that access charges shall be cost-reflective,
transparent, approximated to those of an efficient network operator and be applied in a
non-discriminatory manner. They shall also not be related to the distance between the
generator and the consumer.

As regards the payments and receipts resulting from the compensation mechanism for transits,
the draft Regulation stipulates that they shall be taken into account when setting the charges.
In fact, in order to ensure a maximum of cost-reflectiveness of the charges actually applied
and fixed in advance, i.e. before the precise result of the compensation mechanism is known,

71

is necessary to anticipate, as far as reasonably possible,

it
mechanism (Article 4(3)).

the likely outcome of the

3.

Guidelines on details with regard to principles and methodologies (Article 7)

The draft Regulation contains in Article 3 and 4 the main principles with regard to
cross-border tarification.

However, in order to ensure that these basic principles are applied in a consistent manner
throughout the Community, it may prove necessary to provide more detail with regard to
those principles. On the other hand, in particular with regard to technical details, such as cost
calculation methodologies and technical possibilities to identify and measure physical flows,
there has been continuous progress in the past and further refinements and improvements can
be expected in future.

In view of these considerations, the draft Regulation does not fix these details but provides for
their determination in guidelines (Article 7). These guidelines must be in compliance with the
principles laid down in the Regulation. They would be adopted and amended by the
Commission, after consultation of a regulatory committee made up of Member States’
experts, created in accordance with Council Decision 1999/468 laying down the procedures
for the exercise of implementing powers conferred on the Commission (“Comitologie”), in
order to ensure involvement of Member States regulatory authorities in this process, in
particular their National Regulator.

The guidelines would be adopted, where appropriate, with regard to the following issues:

(a)

With regard to the inter-transmission system operator compensation mechanism
mentioned in Article 3 of the Regulation:

–

–

–

–

–

the precise details of methodologies to determine the amount of transits hosted
and exports/imports of electricity made, in accordance with the principles
mentioned in Article 3(5) of the Regulation;

the methodology to determine the costs incurred by hosting transits of
electricity, in accordance with the principles mentioned in Article 3(6) of the
Regulation;

details on the determination of the TSOs which have to pay the compensations
for transit flows, in accordance with Article 3(2) of the Regulation;

in accordance with the
details of the payment procedure to be followed,
principles mentioned in Article 3(3) of
including the
determination of the first period of time for which compensations shall
be made;

the Regulation,

details on the participation of national systems which are interconnected
in the inter-transmission system operator
through direct current
compensation mechanism.

lines

72

(b) With regard to national tariff systems mentioned in Article 4 of the Regulation:

–

details regarding the harmonisation of the levels of tariffs applied to generators
and consumers (load) under national tariff systems, in accordance with the
principles mentioned in Article 4(2) of the Regulation.

National regulatory authorities would ensure that national tariffs are set and applied in
compliance with the principles laid down in this Regulation and the guidelines
adopted (Article 8).

4.

Allocation of interconnection capacity (Articles 5 and 6)

Congestion in the sense of the draft Regulation is a situation in which the capacity of an
interconnection between national transmission systems is insufficient to accommodate all
transactions resulting from international trade by market operators5. In such a situation, it is
important that the limited available capacity is allocated to undertakings under conditions
compatible with the competitive circumstances that now prevail on the internal electricity
market. At the same time, special measures need to be taken to ensure system security.

The draft Regulation lays down the main principles, which shall be respected when meeting
these requirements. In order to maintain the reliability of the European network, information
exchange and cooperation between transmission system operators
is of primordial
importance, in particular in view of the changing patters of transactions and thus physical
flows under the new circumstances of an open market. Transmission system operators have to
know in advance the flows that they can expect on their network. Therefore, the draft
Regulation contains in Article 5(1) an obligation to implement coordination and information
exchange mechanisms for this purpose. In order to allow an optimal use of the available
interconnection capacity, information regarding the capacity actually available must be made
public to market parties. Currently, the transfer capacities on the interconnections in Europe
are being published for winter and summer values. However, to ensure an optimal use of the
available capacities, its publication must be more regular than that, i.e. at several time
intervals before the day of transport, which is therefore required by the draft Regulation
(Article 5(3)). Furthermore, it contains an obligation on TSOs to publish their security
standards and their operational and planning standards in open and public documents, in order
to ensure full transparency of the methodologies used by TSOs when establishing the amount
of available capacity (Article 5(2)).

The draft Regulation also stipulates that the maximum capacity of the interconnections shall
be made available to market operators, that complies with the safety standards of secure
network operation, and that any allocated capacity that is not used by a market actor should be
reattributed to the market.

As regards the allocation of interconnection capacity by TSOs in case of network congestion
problems, the draft Regulation stipulates that market-based solution shall be applied which
give efficient economic signals to market operators and transmission system operators
involved (Article 6(1)). There are several specific methodologies, which comply with this
requirement. An examination of the current state of the European markets leads to the
conclusion that in Continental Europe the – in practice – most feasible methods seem to be for

5

It should be noted that in the technical jargon the term “congestion” is often also used to describe a
situation of lack of capacity within a national transmission system.

73

the moment
implicit and explicit auctions combined with cross border coordinated
limitations of this
redispatching. Recent experience, however,
approach. Thus, further improvements in this respect and continued re-examination of
alternative approaches are necessary. In particular, regarding the medium term, it is widely
recognised that a very efficient and transparent way to deal with scarce interconnection
capacity is the system of market splitting6 currently operated in the Nordpool. Its introduction
as soon as possible should be envisaged, however adapted to the network topology and
market circumstances of Continental Europe.

illustrates the significant

As regards the revenues from congestion management, the Regulation stipulates that they
shall be used to guarantee the reliability of the allocated capacity, towards investment into the
network maintaining or increasing the capacity of the interconnection, or towards the
lowering of the network tariffs. In any event, the congestion revenues shall not constitute a
source of extra profit (Article 6(6)).

Based on the above rules and principles, detailed technical provisions and requirements
regarding the management and allocation of interconnection capacities, based on the
guidelines agreed between the Commission, national regulators and Member States at the
Florence Forum, are contained in an Annex to the draft Regulation. In order to allow that
experience which is constantly being developed can be taken into account in a flexible
manner, for instance with regard to various allocation methods, the Commission would amend
these guidelines, after consultation of the regulatory committee made up of Member States’
experts, which the draft regulation provides for (see above under point 3 and Article 7(2) of
the draft regulation).

National regulatory authorities would ensure that methodologies for congestion management
are designed and applied in compliance with the principles laid down in the Regulation and
the guidelines (Article 8).

5.

Provision of information and confidentiality (Article 9)

In order to adopt the guidelines and decide on the compensations to be made for transits
between TSOs, the Commission needs to have access to the relevant information and data.
Consequently, the draft Regulation stipulates that this information shall be provided by
Member States and national regulatory authorities, on request.

The Commission shall in turn ensure that this information is treated confidentially.

In addition,
undertakings concerned, where necessary to fulfil its tasks under the Regulation.

the Commission may obtain all necessary information directly from the

6.

Conclusions

The adoption of this draft Regulation is an important part of the Community strategy to
complete the internal electricity market. Through the provision of fair, cost-reflective,
transparent and directly applicable rules with regard to tarification and the allocation of
available interconnection capacities – completing the provisions contained in the Electricity
Directive,
the purpose of
cross-border transactions.

it will ensure efficient access to transmission systems for

6

Under a system of market splitting, the optimal use of the interconnection is determined on the basis of
a comparison of market prices prevailing in the interconnected markets concerned.

74

Its entry into force at this time, i.e. together with the revision of the Electricity Directive
providing for complete market opening, will ensure that such market opening translates into
effective cross-border trade in practice. The Regulation is thus a key instrument to promote
the creation of a real internal electricity market, as opposed to a situation characterised by
fifteen more or less liberalised but largely national markets.

The financial implications of the Regulation for the Community budget would amount to
around EUR 850 000 per year. In the year 2002, these financial needs would be made
available under the Energy Framework Programme (ETAP programme). As regards the
subsequent years, a proposal for a new Energy Framework Programme, succeeding the
current one which expires in 2002, will be made in 2001, in accordance with the work
programme of the Commission for 2001. This new proposal will take into account the
financial needs for the action in the coming years.

75

2001/0078 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on conditions for access to the network for cross-border exchanges in electricity

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular
Article 95 thereof,

Having regard to the proposal from the Commission1,

Having regard to the opinion of the Economic and Social Committee2,

Having regard to the opinion of the Committee of the Regions3,

Acting in accordance with the procedure laid down in Article 251 of the Treaty4,

Whereas:

(1)

(2)

(3)

(4)

1

2

3

4

5

Directive 96/92/EC of
the Council of
the European Parliament
19 December 1996 concerning common rules for the internal market in electricity5
constituted an important step in the completion of the internal market in electricity.

and of

At its meeting in Lisbon on 23 and 24 March 2000, the European Council called for
rapid work to be undertaken to complete the internal market in both the electricity and
gas sectors and to speed up liberalisation in these sectors with a view to achieving a
fully operational internal market in these areas.

The creation of a real internal electricity market should be promoted through an
intensification of trade in electricity, which is currently underdeveloped compared to
other sectors of the economy.

Fair, cost-reflective,
transparent and directly applicable rules, completing the
provisions of Directive 96/92/EC, should be introduced with regard to cross-border
tarification and the allocation of available interconnection capacities,
in order
to ensure effective access to transmission systems for the purpose of cross-border
transactions.

OJ C
OJ C
OJ C
OJ C
OJ L 27, 30.1.1997, p. 20; Directive as amended by Directive …/…/EC (OJ L …, …, p. …).

76

(5)

(6)

(7)

(8)

(9)

(10)

In its Conclusions, the Energy Council of 30 May 2000 invited the Commission,
Member States and national regulatory authorities/administrations to ensure a rapid
introduction of a robust tarification system and methodology to allocate available
interconnection capacity for the longer term.

The European Parliament, in its Resolution of 6 July 2000 on the Commission’s
second report on the state of liberalisation of energy markets, called for conditions for
using networks in Member States that do not hamper cross-border trade in electricity
and called on the Commission to submit specific proposals geared to overcoming all
the existing barriers to intra-Community trade.

This Regulation should lay down basic principles with regard to tarification and
capacity allocation, whilst providing for the adoption of guidelines detailing further
relevant principles and methodologies, in order to allow rapid adaptation to changed
circumstances.

In an open, competitive market, transmission system operators should be compensated
for costs incurred as a result of hosting transit flows of electricity on their networks by
the operators of the transmission systems from which transits originate or for which
they are destined.

Payments and receipts resulting from compensation between transmission system
operators should be taken into account when setting national network tariffs.

The actual amount payable for cross-border access to the system can vary
considerably, depending on the transmission system operators involved and as a result
of differences in the structure of the tarification systems applied in Member States. A
certain degree of harmonisation is therefore necessary in order to avoid distortions
of trade.

(11)

It would not be appropriate to apply distance-related tariffs, or a specific tariff to be
paid only by exporters or importers.

(12) Competition on the internal market can only truly develop if access to the lines
interconnecting the different national systems is granted in a non-discriminatory and
transparent way. The available capacities of these lines should be set at the maximum
complying with the safety standards of secure network operation.Any discrimination
in the allocation of available capacities should be shown not to unreasonably distort or
hinder the development of trade.

(13)

There should be transparency for market actors concerning available transfer
capacities and the security, planning and operational standards that affect the available
transfer capacities.

(14) Any revenues flowing from congestion-management procedures should not constitute

a source of extra profit for the transmission system operators.

(15)

It should be possible to deal with congestion problems in various ways as long as the
methods used provide correct economic signals to transmission system operators and
market parties and are based on market mechanisms.

77

(16)

To ensure the smooth functioning of the internal market, provision should be made for
procedures which allow the adoption of decisions and guidelines with regard to
tarification and capacity allocation by the Commission whilst ensuring the
involvement of Member States’ regulatory authorities in this process.

(17) National authorities should be required to provide relevant

information to the
Commission. Such information should be treated confidentially by the Commission.
Where necessary, the Commission should have the possibility to request relevant
information directly from undertakings concerned.

(18) National regulatory authorities should ensure compliance with the rules contained in

this Regulation and the guidelines adopted on the basis of this Regulation.

(19) Member States should lay down rules on penalties applicable to infringements of the
provisions of this Regulation and ensure that they are implemented. Those penalties
must be effective, proportionate and dissuasive.

(20)

(21)

In accordance with the principles of subsidiarity and proportionality as set out in
Article 5 of the Treaty, the objectives of the proposed action, namely the provision of
a harmonised framework for cross-border exchanges of electricity, cannot be achieved
by the Member States and can therefore, by reason of the scale and effect of the action,
be better achieved by the Community. This Regulation confines itself to the minimum
required in order to achieve those objectives and does not go beyond what is necessary
for that purpose.

In accordance with Article 2 of Council Decision 1999/468/EC of 28 June 1999 laying
down the procedures for the exercise of implementing powers conferred on the
Commission6, measures for the implementation of this Regulation should be adopted
by use of the regulatory procedure provided for in Article 5 of Decision 1999/468/EC,
or by use of the advisory procedure provided for in Article 3 of that Decision,
according to the nature of the measures to be adopted,

HAVE ADOPTED THIS REGULATION:

Article 1

Subject-matter and scope

stimulating cross-border exchanges in electricity and thus
This Regulation aims at
competition within the internal electricity market,
through the establishment of a
compensation mechanism for transit flows of electricity and the setting of harmonised
principles on cross-border transmission charges and the allocation of available capacities of
interconnections between national transmission systems.

Article 2

Definitions

For the purpose of this Regulation,
Directive 96/92/EC shall apply.

the definitions contained in Article 2 of

OJ L 184, 17.7.1999, p. 23.

78

1.

6

2.

The following definitions shall also apply:

(a)

(b)

"transit" means a physical flow of electricity hosted on the transmission
system of a Member State, which was neither produced nor is destined for
flows which are
consumption in that Member State,
commonly denominated as "loop-flows"or "parallel-flows";

including transit

"congestion" means a situation in which an interconnection linking national
transmission networks cannot accommodate all transactions resulting from
international trade by market operators due to a lack of capacity.

Article 3

Inter transmission system operator compensation mechanism

Transmission system operators shall receive compensation for costs incurred as a
result of hosting transit flows of electricity on their network.

The compensation referred to in paragraph 1 shall be paid by the operators of
national transmission systems from which transit flows originate and/or the systems
where those flows end.

Compensation payments shall be made on a regular basis with regard to a given
period of time in the past. Ex-post adjustments of compensation paid shall be made
where necessary to reflect actual costs incurred.

The first period of time with regard to which compensation payments shall be made
shall be determined in the guidelines referred to in Article 7.

Acting in accordance with the procedure referred to in Article 13(2), the Commission
shall decide on the amounts of compensation payments payable.

The amounts of transit hosted and the amounts of transit flows originating and/or
ending in national transmission systems shall be determined on the basis of the
physical flows of electricity actually measured in a given period of time.

The costs incurred as a result of hosting transit flows shall be established on the basis
of the forward looking long-run average incremental costs (reflecting costs and
benefits that a network bears from hosting transit flows compared to the costs it
would bear in the absence of such flows).

Article 4

Charges for access to networks

Charges applied by national network-operators for access to national networks shall
reflect actual costs incurred, and shall be transparent, approximated to those of an
efficient network operator and applied in a non-discriminatory manner. They shall
not be distance-related.

1.

2.

3.

4.

5.

6.

1.

79

2.

3.

4.

5.

1.

2.

3.

1.

Generators and consumers (load) may be charged for access to national networks.
The proportion of the total amount of the network charges borne by generators shall
be lower than the proportion borne by consumers. Where appropriate, the level of the
tariffs applied to generators and/or consumers shall provide locational signals, and
take into account the amount of network losses and congestion caused.

Payments and receipts resulting from the inter-transmission system operator
compensation mechanism shall be taken into account when setting the charges for
network access. Actual payments made and received as well as payments expected
for future periods of time, estimated on the basis of past periods, shall be taken into
account.

Subject to paragraph 2, charges for access to national networks applied to generators
and consumers shall be applied independently of the country of destination and
respectively origin of the electricity, as specified in the underlying commercial
arrangement. Exporters and importers shall not be charged any specific charge in
addition to the general charge for access to national networks.

There shall be no specific network charge on individual transactions for transits of
electricity covered by the inter-transmission system operator compensation
mechanism.

Article 5

Provision of information on interconnection capacities

in place by
Coordination and information exchange mechanisms shall be put
transmission system operators to ensure the security of the networks in the context of
congestion management.

The safety, operational and planning standards used by transmission system
operators shall be made public. This publication shall include a general scheme for
the calculation of the total transfer capacity and the transmission reliability margin
based upon the electrical and physical features of the network. Such schemes shall be
subject to the approval of the national regulatory authority.

Transmission system operators shall publish estimates of available transfer capacity
for each day, indicating any available transfer capacity already reserved. These
publications shall be made at specified time intervals before the day of transport and
shall include, in any case, week-ahead and month-ahead estimates.

The data published shall include a quantitative indication of the expected reliability
of the available capacity.

Article 6

General principles on congestion management

Network congestion problems shall be addressed with non-discriminatory market
based solutions which give efficient economic signals to the market participants and
transmission system operators involved.

80

2.

3.

4.

5.

6.

Transaction curtailment procedures shall only be used in emergency situations where
in an expeditious manner and
the transmission system operator must act
redispatching or countertrading is not possible.

Market participants who have been allocated capacity shall be compensated for any
curtailment of this capacity.

The maximum capacity of
marketparticipants, complying with safety standards of secure network operation.

the interconnections shall be made available to

Any allocated capacity that will not be used shall be reattributed to the market.

Transmission system operators shall, as far as technically possible, net the capacity
requirements of any power
the congested
interconnection line in order to use this line to its maximum capacity. In any event,
transactions that relieve the congestion shall never be denied.

flows in opposite direction over

Any rents resulting from the allocation of interconnection capacities shall be used for
one or more of the following purposes:

(a)

guaranteeing the actual availability of the allocated capacity;

(b)

network investments maintaining or increasing interconnection capacities;

(c)

reduction of network charges.

These rents may be put into a fund that is managed by transmission system operators.
They shall not constitute a source of extra profit for the transmission system
operators.

Article 7

Guidelines

1.

Where appropriate, the Commission shall, acting in accordance with the procedure
referred to in Article 12 (2), adopt and amend guidelines on the following issues with
regard to the inter-transmission system operator compensation mechanism:

(a)

(b)

(c)

(d)

(e)

details of the determination of the transmission system operators liable to pay
compensations for transit flows, in accordance with Article 3(2);

details of the payment procedure to be followed, including the determination
in
of the first period of time for which compensations are to be paid,
accordance with the second subparagraph of Article 3(3);

details of methodologies to determine the amount of transits hosted and
exports/imports of electricity made, in accordance with Article 3(5);

details of the methodology to determine the costs incurred as a result of
hosting transits of electricity, in accordance with Article 3(6);

the participation of national systems which are interconnected through direct
current lines, in accordance with Article 3.

81

2.

3.

The guidelines shall also determine details of the harmonisation of the charges
in
applied to generators and consumers (load) under national
accordance with the principles set out in Article 4(2).

tariff systems,

Where appropriate, the Commission shall, acting in accordance with the procedure
referred to in Article 12(2), amend the guidelines on the management and allocation
of available transfer capacity of interconnections between national systems set out in
the Annex, in accordance with the principles set out in Articles 5 and 6. Where
appropriate, in the course of such amendments common rules on minimum safety
and operational standards for the use and operation of the network, as referred to in
Article 5(2) shall be set.

Article 8

National regulatory authorities

tariffs and methodologies for
National regulatory authorities shall ensure that national
congestion management are set and applied in accordance with this Regulation and the
guidelines adopted pursuant to Article 7.

Article 9

Provision of information and confidentiality

1.

.

2.

3.

4.

Member States and national regulatory authorities shall, on request, provide to the
Commission all information necessary for the purpose of Articles 3(4) and 7.

In particular, for the purpose of Article 3(4), national regulatory authorities shall
provide on a regular basis, costs actually incurred by national transmission system
operators associated with hosting transit flows as well as the amount of exports and
imports made in a given period. They shall also provide the relevant data and
information used for the calculation of those figures.

Member States shall ensure that national regulatory authorities and administrations
are able and entitled to provide the information required pursuant to paragraph 1.

The Commission may also request all information necessary for the purpose of
Article 3(4) and Article 7 directly from undertakings and associations of
undertakings.

When sending a request for information to an undertaking or an association of
undertakings, the Commission shall at the same time forward a copy of the request to
the regulatory authority, established pursuant to Article 22 of Directive 96/92/EC of
the Member State in whose territory the seat of the undertaking or the association of
undertakings is situated.

In its request for information, the Commission shall state the legal basis of the
request, the time-limit within which the information is to be provided, the purpose of
the request, and also the penalties provided for in Article 11(2) for supplying
incorrect, incomplete and misleading information.

82

5.

6.

The owners of the undertakings or their representatives and, in the case of legal
persons, companies of firms, or of associations having no legal personality, the
persons authorised to represent them by law or by their constitution, shall supply the
information requested. Lawyers duly authorised to act may supply the information on
behalf of their clients, in which case the client shall remain fully responsible if the
information supplied is incomplete, incorrect or misleading.

Where an undertaking or association of undertakings does not provide the
information requested within the time-limit fixed by the Commission or supplies
incomplete information, the Commission shall by decision require the information to
be provided. The decision shall specify what information is required and fix an
appropriate time-limit within which it is to be supplied. It shall indicate the penalties
provided for in Article 11(2). It shall also indicate the right to have the decision
reviewed by the Court of Justice of the European Communities.

The Commission shall at the same time send a copy of its decision to the regulatory
authority referred to in the second subparagraph of paragraph 3 of the Member State
within the territory of which the residence of the person or the seat of the undertaking
or the association of undertakings is situated.

7.

Information collected pursuant to this Regulation shall be used only for the purposes
of Articles 3(4) and 7.

The Commission shall not disclose information acquired pursuant to this Regulation
of the kind covered by the obligation of professional secrecy.

Article 10

Right of Member States to provide for more detailed measures

This Regulation is without prejudice to the rights of Member States to maintain or introduce
measures that contain more detailed provisions than those set out in this Regulation and the
guidelines referred to in Article 7.

1.

2.

Article 11

Penalties

The Member States shall lay down the rules on penalties applicable to infringements
of the provisions of this Regulation and shall take all measures necessary to ensure
that
they are implemented. The penalties provided for must be effective,
proportionate and dissuasive. The Member States shall notify those provisions to the
Commission by [indicate date] at the latest and shall notify it without delay of any
subsequent amendment affecting them.

The Commission may by decision impose on undertakings or associations of
undertakings fines not exceeding 1% of the total turnover in the preceding business
year where,
incomplete or
misleading information in response to a request made pursuant to Article 9(3) or fail
to supply information within the time-limit fixed by a decision adopted pursuant to
the first subparagraph of Article 9(6).

intentionally or negligently,

they supply incorrect,

83

3.

1.

2.

3.

1.

2.

In setting the amount of a fine, regard shall be had both to the gravity and to the
duration of the infringement.

Penalties provided for pursuant to paragraph 1 and decisions taken pursuant to
paragraph 2 shall not be of criminal law nature.

Article 12

Regulatory committee

The Commission shall be assisted by a committee composed of the representatives of
the Member States and chaired by the representative of the Commission.

Where reference is made to this paragraph, the regulatory procedure laid down in
Article 5 of Decision 1999/468/EC shall apply, in compliance with Article 7 and
Article 8 thereof.

The period provided for
two months.

in Article 5(6) of Decision 1999/468/EC shall be

Article 13

Advisory committee

The Commission shall be assisted by a committee composed of the representatives of
the Member States and chaired by the representative of the Commission.

Where reference is made to this paragraph, the advisory procedure laid down in
Article 3 of Decision 1999/468/EC shall apply, in compliance with Article 7 and
Article 8 thereof.

Article 14

Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities.

It shall apply from [indicate date].

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the European Parliament

For the Council

The President

The President

84

ANNEX

Guidelines on the management and allocation of available transfer capacity of
interconnections between national systems

General

1.

2.

3.

4.

5.

6.

7.

8.

9.

Congestion management method(s) implemented by Member States should deal with
short-run congestion in an economically efficient manner whilst simultaneously
providing signals or incentives for efficient network and generation investment in the
right locations.

In order to minimise the negative impact of congestion on trade, the current network
should be used at the maximum capacity that complies with the safety standards of
secure network operation.

The TSOs should provide non-discriminatory and transparent standards, which
describe which congestion management methods they will apply under which
circumstances. These standards, together with the security standards, should be
described in open and publicly available documents.

Different treatment of the different types of cross-border transactions, whether they
are physical bilateral contracts or bids into foreign organised markets, should be kept
to a minimum when designing the rules of specific methods for congestion
management. The method for allocating scarce transmission capacity must be
transparent. Any differences in how transactions are treated must be shown not to
distort or hinder the development of competition.

Price signals that result from congestion management systems should be directional.

Every effort should be made to net the capacity requirements of any power flows in
opposite direction over the congested tie line in order to use the congested tie line to
its maximum capacity. In any adopted congestion management scheme, transactions
that relieve the congestion should never be denied.

Any unused capacity must become available to other agents (the use-it-or-lose-it
principle). This may be implemented by devising notification procedures.

Any rents resulting from the allocation of interconnection capacities may be used for
redispatching or counter trading in order to comply with the firmness of the capacity
that was allocated to market parties. In principle, any remaining rents should be spent
on network investments for relieving the congestion or on reducing the total network
tariff. TSOs may manage these funds, but cannot retain them.

TSOs should offer transmission capacity to the market as ‘firm’ as possible. A
reasonable fraction of the capacity may be offered to the market under condition of
decreased firmness, but at all
transport over
cross-border lines should be made known to market parties.

times the exact conditions for

85

10.

Considering the fact that the European continental network is a highly meshed
network and that the use of interconnection lines has an effect on the power flows on
at least two sides of a national border, national Regulators shall ensure that no
congestion management procedure with significant effects on power flows in other
networks, be devised unilaterally.

Position of long-term contracts

1.

2.

Priority access rights to an interconnection capacity can not be assigned to those
contracts which violate Articles 81 and 82 of the EC Treaty.

Existing long-term contracts shall have no pre-emption rights when they come up
for renewal.

Provision of information

1.

2.

3.

TSOs should implement appropriate coordination and information exchange
mechanisms to guarantee security of the network.

TSOs should publish all relevant data concerning the cross-border total transfer
capacities. In addition to the winter and summer ATC values, estimates of transfer
capacity for each day should be published by the TSOs at several time intervals
before the day of transport. At least accurate week-ahead estimates should be made
available to the market and the TSOs should also endeavour to provide month-ahead
information. A description of the firmness of the data should be included.

The TSOs should publish a general scheme for calculation of the total transfer
capacity and the transmission reliability margin based upon the electrical and
physical realities of the network. Such a scheme should be subject to approval by the
regulators of the involved Member States concerned. The safety standards and the
operational and planning standards should form an integral part of the information
that TSOs should publish in open and public documents.

Preferred methods for congestion management

1.

2.

3.

4.

Network congestion problems should in principle be addressed with market-based
solutions. More specifically, congestion management solutions are preferred which
give appropriate price signals to the market parties and the TSOs involved.

Network congestion problems should preferentially be solved with non-transaction
based methods, i.e. methods that do not involve a selection between the contracts of
individual market parties.

The system of market splitting, as used in the Nordpool area, is the congestion
management procedure that, in principle, best meets this requirement.

the

short

In
in
Continental Europe that may be used are implicit and explicit auctions and
cross-border coordinated redispatching.

congestion management

however, methods

term,

for

86

5.

6.

7.

Cross-border coordinated redispatching or counter trading may be used jointly by the
concerned TSOs. The costs that TSOs incur in counter-trading and redispatching
must, however, be at an efficient level.

Transaction curtailment, following pre-established priority rules, should be left only
for emergency situations where the TSOs must act in an expeditious manner and
redispatching is not possible.

The possible merits of a combination of market splitting for solving ‘permanent’
congestion and counter
trading for solving temporary congestion should be
immediately explored as a more permanent approach to congestion management.

Guidelines for explicit auctions

1.

2.

3.

4.

5.

6.

7.

8.

The auction system must be designed in such a way that all available capacity is
being offered to the market. This may be done by organising a composite auction in
auctioned for differing duration and with different
which capacities
characteristics (e.g. with respect to the expected reliability of the available capacity
in question).

are

Total interconnection capacity should be offered in a series of auctions, which, for
instance, might be held on a yearly, monthly, weekly, daily and intra-daily basis,
according to the needs of the markets involved. Each of these auctions should
allocate a prescribed fraction of the available transfer capacity plus any remaining
capacity that was not allocated in previous auctions.

The explicit auction procedures should be prepared in close collaboration between
the national regulatory authority and the TSO concerned and designed in such a way
as to allow bidders to participate also in the daily sessions of any organised market
(i.e. power exchange) in the countries involved.

The power flows in both directions over congested tie lines should in principle be
netted in order to maximise the transport capacity in the direction of the congestion.
However, the procedure for netting of flows should comply with safe operation of
the power system.

In order to offer as much capacity to the market as possible, the financial risks
related to the netting of flows, should be attributed to those parties causing those
risks to materialise.

Any auction procedure adopted should be capable of sending directional price signals
to market participants. Transports in a direction opposite the dominant power flow
relieve the congestion and should therefore result in additional transport capacity
over the congested tie line.

player(s),

In order not to risk creating or aggravating problems related to any dominant position
can be
the
of market
bought/possessed/used by any single market player in an auction should be seriously
considered by the competent regulatory authorities in the design of an auction
mechanisms.

capacity that

capping of

amount of

To promote the creation of liquid electricity markets, capacity bought at an auction
should be freely tradeable before the moment of notification.

87

LEGISLATIVE FINANCIAL STATEMENT

Policy area(s): Energy and Transport

Activity(ies): Energy Industry and Internal Market

Title of action: Regulation of the European Parliament and of the Council on conditions for

access to the network for cross-border exchanges in electricity

1.

2.

2.1.

2.2.

BUDGET LINE(S) + HEADING(S)

In 2002: Chapter B4-10, Article B4-1040 (ETAP)

OVERALL FIGURES

Total allocation for action (Part B): EUR 5 million (1998 – 2002)

Period of application:

20021

2.3.

Overall multiannual estimate on expenditure:

(a)

Schedule of commitment appropriations/payment appropriations
(financial intervention) (see point 6.1.1)

EUR million (to 3rd decimal place)

1998

1999

2000

2001

2002

Total

Commitments

1.449

0.869

1.635

Payments

1.1442

1.160

1.207

0.5

1.2

0.6

0.5

5.053

5.2112

1

2

In accordance with the work programme of the Commission for 2001, a proposal for a new
Energy Framework programme succeeding the current one, which expires in 2002, will be made this
year. This new proposal will include the financial needs for the action in the coming years.
Including payments for commitments made prior to 1998.

88

administrative

assistance

and

support

expenditure

(b)

and
Technical
(see point 6.1.2)

Non-Applicable

Commitments

Payments

Subtotal a+b

Commitments

1.449

0.869

1.635

Payments

1.1442

1.160

1.207

0.5

1.2

0.6

0.5

5.053

5.2112

(c) Overall

financial

impact of human resources and other administrative

expenditure (see points 7.2 and 7.3)

Commitments/
payments

TOTAL a+b+c

0.258

Commitments

1.449

0.869

1.635

Payments

1.1442

1.160

1.207

0.5

1.2

0.858

5.311

0.758

5.4692

2.4.

Compatibility with the financial programming and the financial perspective
(cid:1)

Proposal compatible with the existing financial programming

(cid:1)

(cid:1)

This proposal will entail reprogramming of the relevant heading in the
financial perspective

may

This
Interinstitutional Agreement.

entail

application

of

the

provisions

of

the

89

2.5.

Financial impact on revenue3:
(cid:1)

No financial implications (involves technical aspects regarding implementation
of a measure)

or
(cid:1)

Financial impact – the effect on revenue is as follows:

Budget line

Revenue

EUR million (to 1 decimal place)

Situation following action

n+1

n+2

n+3

n+4

n+5

Prior to
action
(Year n-1)

Year
n

(a) Revenue in absolute

terms

(b) Change in Revenue

D

3.

BUDGET CHARACTERISTICS

Type of expenditure

New

EFTA
participation

Participation applicant
countries

Heading
Financial
Perspective

Comp/Non-comp

Diff/Non-diff

YES/NO

YES/NO

YES/NO

No 3

Non-Comp

Diff

Yes

Yes

No

4.

LEGAL BASIS

The Treaty establishing the European Community, in particular Article 95.

Council Decision 1999/21/EC, Euratom of 14 December 1998 adopting a
multiannual framework programme for actions in the energy sector (1998 to 2002)
and connected measures (OJ L 7, 13.1.1999, p. 16).

Council Decision 1999/22/EC of 14 December 1998 adopting a multiannual
programme of studies, analyses, forecasts and other related work in the energy sector
(1998 to 2002) (OJ L 7, 13.1.1999, p. 20).

3

For further information, see a separate guidance paper.

90

5.

5.1.

DESCRIPTION AND GROUNDS

Need for Community intervention4

5.1.1. Objectives pursued

The Electricity Directive progressively opens up national electricity markets to
competition. However, in order to create a real integrated internal market, effective
trading rules are necessary, and notably a harmonised approach on cross-border
tarification for transmission tariffs and commonly implemented mechanisms for
dealing with congestion at borders. In order to deal with this, the Commission
launched the “Florence process”, a Forum composed of the Commission, national
Regulators, Member States and industry. Much progress has been made, but no final
agreement has been reached or mechanisms put in place. To deal with this the
Commission will propose, on 7 March 2001, a Regulation which (a) sets out the
basic principles according to which cross-border
tarification and congestion
management must be dealt with (b) permits the Commission, subject to a comitology
procedure, to adopt binding guidelines on the precise mechanism according to which
the harmonised rules on tarification and congestion will enter into force, and
(c) calculate and implement, on the basis of data provided by national regulators,
cross-border tariffs. Thus, the Commission takes on new executive responsabilites,
acting in many respects as a European regulator regarding cross-border electricity
trade.

The objectives pursued by the Regulation are, therefore, the rapid entry into force of
cost-reflective mechanisms on tariffs and congestion permitting trade to function
freely. It is expected that the Regulation may enter into force in late 2001/early 2002.
A new tarification system through guidelines should therefore be in place by
september 2002. Tariffs should then be adopted by end 2002. Finally, common rules
on congestion management will enter into force on the adoption of the Regulation, as
they are contained in Annex to the legislative text. These will need to be reviewed
and, if necessary, amended by end 2002. The objectives pursued by this financial
action is to provide the Commission with the means to effectively carry out these
new responsibilities.

5.1.2. Measures taken in connection with ex ante evaluation

To prepare the adoption of the proposed Regulation, the Commission set up the
Florence Forum. This has now met five times. Equally, the results of the Forum have
been discussed on four occasions by the energy Council which has underlined the
importance of the rapid introduction of such measures. On the basis of the work at
the Commission adopted on 16 May 2000 a Communication on
the Forum,
“recent progress with building the internal electricity market”. Furthermore, this
issue was addressed at a Public Hearing organised by the Commission on
14 September 2000. Furthermore, this issue was examined in the Green Paper on
securtity of supply (COM(2000) 769).

4

For further information, see a separate guidance paper.

91

The discussions at the Florence Forum and at Council, as well as the reaction to the
Commission’s Communication on this subject, has shown that the introduction of
effective rules on cross-border
is a
fundamental requirement for the creation of a real internal market for electricity. It
the development of such rules is technically extremely
has also shown that
complex, and
is
determined, calculation of costs relating to cross-border trade will be difficult and
time-consuming. In this light, a Regulation has been viewed as necessary to deal with
the issues effectively.

tarification and congestion management

controversial. Furthermore,

robust methodology

once

a

5.1.3. Measures taken following ex post evaluation

It is believed that a detailed review of the effectiveness of the approach set out in the
Regulation in developing common rules, as well as the effectiveness of the financial
actions taken by the Commission to support this effort, should take place two years
after the entry into force of the Regulation.

5.2.

Actions envisaged and arrangements for budget intervention

tarification and congestion
The adoption of common rules on cross-border
management would lead to increased competition throughout the EU and thus lower
electricity prices, thus benefiting all consumers, both domestic and industrial. The
financial actions envisaged are to prepare the entry into force of such rules, and are
thus highly technical and specific in nature, and would thus be of interest to national
regulators, Member States, the European Parliament and relevant industry.

–

the specific objectives set for the programming period

The specific objectives of the Regulation are the entry into force, by end 2002 of a
harmonised system for cross-border transmission tarification based on principles of
simplicity, cost-reflectiveness and non-discrimination. Also they are the entry into
force of common rules on congestion management at the adoption of the Regulation
and, if necessary in the light of experience, their revision by end 2002. The specific
objectives of the financial actions are thus to (i) complete the studies leading to
the entry into force of a detailed guidelines on tarification by september 2002,
(ii) the fixing and entry into force of actual tariffs through the verification of data
submitted by national Regulators by end 2002 and (iii) the entry into force of any
revision of the guidelines on congestion management, on the basis of necessary
study, by end 2002. Thereafter,
the specific objective is the revision of these
guidelines, if necessary, on the basis of additional studies on an annual basis, and the
recalculation and re-adoption of tariffs.

–

the concrete measures to be taken to implement the action

First, the launch of studies leading to the adoption and agreement of guidelines on
cross-border tarification (to September 2002); secondly, the adoption of a decision
on actual tariffs (end 2002) on the basis of figures submitted by Regulators and
received by the Commission, thirdly, the re-examination of guidelines on congestion
management contained in the Regulation on the basis of necessary study work
(end 2002).

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To achieve these objectives, two financial actions are envisaged:

Action 1: In order to develop the detailed guidelines with respect to tarification upon
which the new system will be based, considerable preparatory work is necessary,
often technical (engineering) and financial (accounting) in nature. This also applies
to the question whether and how the guidelines contained in the Regulation on
congestion management are amended. To achieve this, it is cost effective to prepare
the guidelines through expert studies.

Action 2: Once the guidelines on cross-border tarification have been adopted,
national Regulators will forward calculations on the costs/benefits to their network
resulting from electricity trade. The Commission must determine whether these
figures are correctly calculated, and on the basis of these, calculate the individual
payments between systems to compensate for
require very
specialised auditing skills, for a limited period every year. The most cost-effective
manner of carrying out much of this verification work is therefore to engage outside
expertise.

trade. This will

–

the immediate outputs of each action, and their contribution to

The expected outcome is the entry into force, and subsequent maintenance and
refinement of a system of cross-border tarification and congestion management
permitting electricity trade to function effectively.

–

1.

2.

the expected outcomes solving needs or problems

The Commission should adopt and amend guidelines which further detail the
basic principles with regard to tarification and congestion management
contained in the draft Regulation These guidelines can be adopted and
amended without changing the Regulation in order to allow rapid adaptation to
changed circumstances. This is necessary since issues, such as cost calculation
methodologies and the concrete identification and measurement of physical
flows, develop continuously and,
it must be possible to make
refinements and improvements in future.

therefore,

The Commission determines, on a regular basis, the level of compensation
payments to be made between transmission system operators for transit flows
of electricity hosted. The main objective of this action is to ensure that
transmission system operators are accurately compensated for costs incurred,
in particular with a view to exclude overcompensation and thus excessive
transaction costs.

Member States alone cannot resolve this issue: to develop an effective tarification
system a harmonised approach is imperative and cannot be developed at national
level. As demonstrated above, an informal collaborative approach will not lead to the
implementation of an appropriate system with necessary procedural and democratic
safeguards. Such a proposal is therefore wholly in line with the subsidiarity principle,
and indeed is made necessary by it.

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However, Member States’ regulatory authorities need to be involved in this process.
The Commission would therefore take these decisions after consultation of a
committee made up of representatives of Member States, created in accordance with
Council Decision 1999/468 laying down the procedures for
the exercise of
implementing powers conferred on the Commission (“Comitologie”).

5.3.

Methods of implementation

The financial actions seek to provide the Commission with the resources necessary to
effectively carry out the new executive functions accorded to it by the adoption of
the proposed Regulation on cross-border tarification and congestion. The Regulation
provides three new tasks: the adoption via a comitology committee of detailed rules
on cross-border tarification,
the fixing and imposition of those tariffs, and the
amendment,
through a comitology procedure, of guidelines contained in the
Regulation on congestion management.

Much of this work will be carried out internally by the Commission, preparing the
final text of guidelines, ensuring their adoption through the comitology procedure,
and adopting decisions on actual tariff levels. However, in preparing this work:

Action1: In developing and improving the guidelines, it will be necessary to have
recourse to external studies providing economic, accounting and technical expertise.

the
Action 2: once the methodology is established and guidelines adopted,
Commission will have to calculate exact tariff levels. This will be done on the basis
of data provided by national regulators, calculated in accordance with the guidelines.
The Commission has the role of verifying the data provided at national level. As this
is highly specialised audit work, needed for a relatively short period each year, it is
cost efficient that this verification is carried out by external expertise.

6.

FINANCIAL IMPACT

6.1.

Total financial impact on Part B – (over the entire programming period)

6.1.1.

Financial intervention

Breakdown

1998

1999

2000

2001

2002

Total

Commitments in EUR million (to 3rd decimal place)

Action 1: Studies to prepare

guidelines

Action 2: Verification of
financial data

Etc.

TOTAL

0.234

0.370

0.604

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6.1.2.

Technical and administrative assistance, support expenditure and IT expenditure
(Commitment appropriations)

Year N

N + 1

N + 2

N + 3

N + 4

Total

N + 5 and
subs.
Years

Non-Applicable

1.

Technical and
administrative assistance

(a) Technical assistance

offices

(b) Other technical and

administrative assistance:

– intra muros:

– extra muros:

of which for
construction and
maintenance of
computerised
management systems

Subtotal 1

2.

Support expenditure

(a) Studies

(b) Meetings of experts

(c)

Information and
publications

Subtotal 2

TOTAL

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6.2.

Calculation of costs by measure envisaged in Part B (over the entire
programming period)5

Breakdown

Action 1

Commitments in EUR million (to 3rd decimal place)

Type
of outputs
(projects, files)

Number of
outputs

Average unit
cost

(total for years
1…n)

Total cost

(total for years
1…n)

1

2

3

4 = (2 X 3)

Studies to prepare guidelines

Studies

2

0.117

0.234

Action 2

Verification of financial data

Studies/analysis

1

0.370

0.370

Etc.

TOTAL COST

0.604

If necessary, explain the method of calculation

Explanation of the method of calculation:

Action 1: Studies to assist the Commission in preparing guidelines on cross-border
tarification and congestion management,

Two studies per year are necessary in order to prepare the adoption and/or
amendment of the guidelines: per study 130 man/days at EUR 900 (average rate of
auditors and other experts) = 2 x 117 000 = EUR 234 000

Action 2: Verification of cost-calculations regarding the costs of transits incurred by
national transmission system operators.

–

verification of documents
submitted and benchmarking exercise: Cost
per Member State: 20 man/days at EUR 1 000 (average rate of auditors) =
EUR 300 000

5

For further information, see a separate guidance paper.

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–

following the benchmarking exercise: On-spot verification with regard to
seven Member States (estimate). Cost per Member State: 10 man/days
per Member State at EUR 1 000 = EUR 70 000

Since the above calculations are based on estimates, an indicative amount of
EUR 600 000 needs to be foreseen.

7.

IMPACT ON STAFF AND ADMINISTRATIVE EXPENDITURE

7.1.

Impact on human resources

Types of post

Staff to be assigned to management of the
action using existing and/or additional
resources

Total

Number of
permanent posts

Number of
temporary posts

Permanent
officials or
Temporary staff

A

B

C

Other human resources

Total

2

2

Description of tasks deriving from
the action

1

2.

Preparation of guidelines on
cross-border tarification and
congestion management

Preparation of decisions on the
level of compensation payments
for transit

7.2.

Overall financial impact of human resources

Type of human resources

Amount (EUR)

Method of calculation *

Officials

Temporary staff

Other human resources

216 000

2 x EUR 108 000

(give budget line)

Total

216 000

The amounts are total expenditure for twelve months.

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7.3.

Other administrative expenditure deriving from the action

Budget line

(number and heading)

Overall allocation (Title A7)

A0701 – Missions

A07030 – Meetings

Amount (EUR)

Method of calculation

A07031 – Compulsory committees(1)

42 000

4 meetings of the committee per year x
15 experts x EUR 700

A07032 – Non-compulsory committees(1)

A07040 – Conferences

A0705 – Studies and consultations

Other expenditure (state which)

Information systems (A-5001/A-4300)

Other expenditure – Part A (state which)

Total

42 000

The amounts are total expenditure for twelve months.
___________________________

(1)

Specify the type of committee and the group to which it belongs.

I.

II.

Annual total (7.2 + 7.3)

Duration of action

EUR 258 000

not limited

III.

Total cost of action (I x II)

EUR 258 000/year

The requirements in terms of human and other administrative resources are to be met
within the resources made available to DG TREN in the framework of the annual
allocation process.

8.

FOLLOW-UP AND EVALUATION

8.1.

Follow-up arrangements

The result of the measures foreseen in the draft Regulation will be assessed in the
light of the future development of intra-Community trade in electricity, as of the
relevant Eurostat Statistics.

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8.2.

Arrangements and schedule for the planned evaluation

Two years following the entry into force of the Regulation it is intended to carry out
an internal evaluation of the success in adopting the necessary guidelines and rules
permitting a tarifiaction and harmonised congestion management system to enter into
force. The success of this system will be evaluated in terms of its ability to reduce
transaction costs for electricity consumers. The use and value of the study work
carried out in achieving this will also be evaluated as well as the accuracy of the
individual country tariffs and the
audit work carried out on calculations of
cost-effectiveness of the approach.

9.

ANTI-FRAUD MEASURES

Reimbursement of experts and payment of experts for studies carried out will be
made in compliance with applicable financial rules.

99

IMPACT ASSESSMENT FORM

THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE
TO SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

TITLE OF PROPOSAL

–

–

–

Communication from the Commission to the Council and the European Parliament:
Completing the internal energy market

Proposal for a Directive of the European Parliament and of the Council amending
Directives 96/92/EC and 98/30/EC concerning common rules for the inernal market in
electricity and natural gas

Proposal for a Regulation of the European Parliament and of the Council on
conditions for access to the network for cross-border exchanges in electricity

DOCUMENT REFERENCE NUMBER

COM(2001) 125 of …..

THE PROPOSAL

1.

Taking account of the principle of subsidiarity, why is Community legislation
necessary in this area and what are its main aims?

The creation of the internal energy market forms part of the objective of creating a fully
operational
in the European Union, with a view to encouraging the
possibilities of growth and of employment to the benefit of the citizens of the Union.

internal market

The main goals of the proposals are:

–

–

–

the complete opening of the markets of electricity and of gas in 2005, accompanied
with guarantees on non-discriminatory access to the tranmission and distribution
networks;

additional guarantees for
public service;

the European citizens as regards energy supply and

the guarantee of a genuine European market, and not 15 open national markets,
thanks, in particular, to a regulation on the cross-border tarification of electricity and
management of congestions.

These objectives cannot be carried out, or be achieved adequately by the Member States and
can, owing to the dimensions and owing to the effects of the envisaged action, better be
achieved at the Community level.

100

THE IMPACT ON BUSINESS

2.

What areas of business will be affected by the proposal?

General competitiveness of the European companies

With regard to the electricity price, the degree of competition already reached in this sector
made it possible to lower the prices considerably. The proposed measures will make it
possible to maintain and improve the general competitiveness of the European companies. At
the time when the opening of the markets progresses quickly in the majority of the countries
where the principal competitors of the European companies are situated, the completion of the
internal market is essential in order not to fall behind on this point.

Reduction of the inequalities between the industrial and private energy users

All the companies will have the possibility of choosing their electricity suppliers as from 2003
and as from 2004 also their gas supplier. This aspect is particularly important for small and
medium-sized enterprises which for the moment are often handicapped in relation to the large
industrial consumers, in particular if they are still captive customers in their Member State.
This denies them the benefit that competition is creating for eligible customers, in terms of
competitive prices and of tailor-made energy services. Moreover, the opening of the market in
all the companies will end the distortions of competition induced by the eligibility of the
distributors in certain Member States, while they are not eligible in others.

Innovation and development of new technologies

The total opening of the market also encourages innovation and the development of new
technologies. The techniques of energy production are in full development, in particular with
regard to the renewables and micro-power stations and to fuel cell technology.

Improvement of the quality of services

The increasing opening of the markets should also improve the quality of the services
rendered to the consumers, especially to the final consumers. The quality of services offered
concerns, for example, repairs, new services and billing arrangements, which constitute some
of the sectors where companies are exposed to competition. This development is already
observed in the countries where markets are completely open.

Facilitate the introduction of competition within the gas sector itself

The completion of the internal market would make it possible to facilitate the introduction of
competition within the gas sector (gas-to-gas competition). At the present time, the natural
gas price in mainland Europe is linked to the oil price. It will be beneficial therefore for the
EU companies to continue developing competition inside the gas sector, so as to gradually
eliminate the link between oil prices and gas prices, because that will improve the diversity of
energy supply in the EU and increase the competitiveness of the supplies as well.

–

Which sectors of companies are affected?

All the European companies consuming electricity and gas, as well as the electric and
gas sectors.

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Are there in the Community individual geographical areas where these companies
are established?

–

No.

3.

What measures will companies have to take to conform to the proposal?

Aspects relating to legal unbundling of distribution activities of electricity and gas companies
in particular.

4.

–

Which economic effects is the proposal likely to have:

on employment

The energy price reduction, as well as the new outlets for new technologies following the
introduction of competition into the energy sector will bring increased employment
in
European industry as a whole.

Nevertheless, with regard to the short-term development, the introduction of competition is
likely to result in a reduction of manpower following the adaptation to competition of the old
national monopolistic companies. Until now, however, no forced redundancies have been
made by energy companies due to the introduction of competition.

During the last years, the technical jobs for semi-skilled and skilled employees, as well as the
use of junior staff and the related administrative jobs were reduced gradually. New job
profiles appeared in fields such as marketing, services to customers, information technology
and services for the companies. Moreover, the appearance of new economic activities, such as
the exchanges in the field of energy, created new jobs.

5.

Does the proposal contain measures aiming to take account of the specific
situation of
(reduced or different
requirements, etc.)?

small and medium-sized enterprises

The draft proposal for a Directive envisages legal unbundling for electricity and gas
distribution network operators. Insofar as distribution is often ensured by communal services
having small structures, the unbundling requirement could prove to be disproportionate in
relation to their size. This is why, the proposal for a Directive enables the Member States to
exonerate from this obligation the companies having less than 100 000 consumers.

CONSULTATION

6.

List of the organisations which were consulted on the proposal and statement of
the essential elements of their position

A public hearing on the completion of the internal energy market was organised on
14 September 2000, in which almost 120 professional organisations and undertakings took
part (social partners, undertakings of distribution and of supply, traders, gas and electricity
companies,
governmental
environmental organisations, power exchanges).

network managers, SME,

associations,

consumers'

non

102

The complete list of the organisations and their comments are available on the site europa at
the following address:

http://europa.eu.int/comm/energy/en/elec_single_market/hearing/index_en.htm

103