Common Position (EC) No 4/2003 of 3 February 2003 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting 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)
Date: 2003-02-03
Institutions: Council of the European Union
Subjects: electrical energy, energy supply, energy transport, single market, transport network

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I

(Information)

COUNCIL

COMMON POSITION (EC) No 4/2003

adopted by the Council on 3 February 2003

with a view to adopting Regulation (EC) No . . ./2003 of the European Parliament and of the
Council of . . . on conditions for access to the network for cross-border exchanges in electricity

(2003/C 50 E/01)

(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 Commission (1),

Having regard to the Opinion of the European Economic and
Social Committee (2),

Having consulted the Committee of the Regions,

Acting in accordance with the procedure laid down in Article
251 of the Treaty (3),

Whereas:

(1) Directive 96/92/EC of the European Parliament and of the
Council of 19 December 1996 concerning common rules
in electricity (4) constituted an
for the internal market
important step towards the completion of the internal
market in electricity.

(2) 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.

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

(4) Fair, cost-reflective,

transparent and directly applicable
rules, taking account of a comparison between efficient
from structurally comparable areas
network operators

and supplementing the provisions of Directive 96/92/EC,
should be introduced with regard to cross-border tarifi-
cation and the allocation of available interconnection
capacities,
in order to ensure effective access to trans-
mission systems for the purpose of cross-border trans-
actions.

(5) In its Conclusions, the Energy Council of 30 May 2000
invited the Commission, Member States and national regu-
latory authorities and administrations to ensure timely
implementation of
congestion management measures
and,
in liaison with the European Transmission System
Operators (ETSO), rapid introduction of a robust tarifi-
cation system for the longer term which provides the
appropriate cost allocation signals to market participants.

(6) The European Parliament, in its Resolution of 6 July 2000
on the Commission's second report on the state of liberali-
sation 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.

(7) It is important that third countries that form part of the
European electricity
rules
contained in this Regulation and the guidelines adopted
under this Regulation in order to increase the effective
functioning of the internal market.

system comply with the

(8) 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.

(1) OJ C 240 E, 28.8.2001, p. 72 and OJ C 227 E, 24.9.2002, p. 440.
(2) OJ C 36, 8.2.2002, p. 10.
(3) Opinion of the European Parliament of 13 March 2002 (OJ C 47 E,
27.2.2003, p. 380), Council Common position of 3 February 2003
and Decision of the European Parliament of . . . (not yet published
in the Official Journal).
(4) OJ L 27, 30.1.1997, p. 20.

(9) In an open, competitive market,

transmission system
operators should be compensated for costs incurred as a
result of hosting cross-border flows of electricity on their
networks by the operators of the transmission systems
from which cross-border flows originate and the systems
where those flows end.

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(10) Payments

and receipts

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

by the Commission whilst ensuring the involvement of
Member States' regulatory authorities in this process.

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

(19) The Member States and the competent national authorities
should be required to provide relevant information to the
Commission. Such information should be treated confi-
dentially by the Commission. Where necessary,
the
Commission should have an opportunity to request
relevant information directly from undertakings concerned,
provided that
the competent national authorities are
informed.

(12) A proper system of long term locational signals would be
necessary, based on the principle that the level of the
the balance
network access
charges
region
between generation and consumption of
concerned, on the basis of a differentiation of
the
network access charges on producers and/or consumers.

should reflect

the

(13) It would not be appropriate to apply distance-related
tariffs, or, provided appropriate locational signals are in
place, a specific tariff to be paid only by exporters or
importers in addition to the general charge for access to
the national network.

(14) The precondition for effective competition in the internal
market is non-discriminatory and transparent charges for
network use including interconnecting lines in the trans-
mission system. The available capacities of
these lines
should be set at the maximum levels consistent with the
safety standards of secure network operation.

(15) It is important to avoid distortion of competition resulting
from different safety, operational and planning standards
used by transmission system operators in Member States.
Moreover,
transparency for market
participants concerning available transfer capacities and
the security, planning and operational
that
affect the available transfer capacities.

should be

standards

there

(16) There should be rules on the use of revenues flowing from
congestion-management procedures, unless the specific
an
the
nature of
exemption from these rules.

concerned justifies

interconnector

(17) 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 participants and are based on market mechanisms.

(18) 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
amongst other things tarification and capacity allocation

(20) National regulatory authorities should ensure compliance
with the rules contained in this Regulation and the
guidelines adopted on the basis of this Regulation.

(21) Member States

should lay down rules on penalties
applicable to infringements of the provisions of this Regu-
lation and ensure that
they are implemented. Those
penalties must be effective, proportionate and dissuasive.

(22) Since the objective 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 at Community
level, the Community may adopt measures in accordance
with the principle of subsidiarity as set out in Article 5 of
the Treaty. In accordance with the principle of propor-
tionality, as set out in that Article, this Regulation does
not go beyond what is necessary in order to achieve this
objective.

(23) The measures necessary for the implementation of this
adopted in accordance with
Regulation should be
Council Decision 1999/468/EC of 28 June 1999 laying
down the procedures for the exercise of implementing
powers conferred on the Commission (1),

HAVE ADOPTED THIS REGULATION:

Article 1

Subject-matter and scope

This Regulation aims at setting fair rules for cross-border
thus enhancing competition within
exchanges in electricity,
the internal electricity market, taking into account the speci-
ficities of national and regional markets. This will involve the
establishment of a compensation mechanism for cross-border
flows of electricity and the setting of harmonised principles on
allocation of
cross-border
available capacities of interconnections between national trans-
mission systems.

transmission charges

and the

(1) OJ L 184, 17.7.1999, p. 23.

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Article 2

Definitions

For

this Regulation,

the purpose of

1.
the definitions
contained in Article 2 of Directive 2003/. . ./EC concerning
in electricity and
the internal market
common rules
for
the
apply with
shall
repealing Directive
exception of the definition of ‘interconnector’ which shall be
replaced by the following:

96/92/EC (1)

‘ “interconnector” means a transmission line which crosses
or spans a border between Member States and which
the
connects
Member States;’

transmission systems of

the national

2.

The following definitions shall also apply:

(a)

‘regulatory authorities’ means the regulatory authorities
referred to in Article 23(1) of Directive 2003/. . ./EC;

(b) ‘cross-border flow’ means a physical flow of electricity on a
transmission network of a Member State that results from
the impact of the activity of producers and/or consumers
outside of that Member State on its transmission network.
In any case where transmission networks of two or more
Member States form part, entirely or partly, of a single
control block, the regulatory authorities of the Member
States concerned may decide that, for the purpose of the
(TSO) compensation
inter-transmission system operator
mechanism referred to in Article 3 of
this Regulation
only, the control block as a whole shall be considered as
forming part of the transmission network of one of the
in order to ensure that flows
Member States concerned,
within control blocks are not considered as cross-border
flows and do not give rise to compensation payments
under Article 3 of this Regulation;

(c)

‘congestion’ means a situation in which an interconnection
transmission networks, cannot accom-
linking national
modate all physical
flows resulting from international
trade requested by market participants, because of a lack
of capacity of the interconnectors and/or the national trans-
mission systems concerned;

(d) ‘declared export’ of electricity means the dispatch of elec-
tricity in one Member State on the basis of an underlying
contractual arrangement to the effect that the simultaneous
corresponding take-up (‘declared import’) of electricity will
take place in another Member State or a third country;

(e)

‘declared transit’ of electricity means a circumstance where
a ‘declared export’ of electricity occurs and where the
nominated path for the transaction involves a country in
which neither the dispatch nor the simultaneous corre-
sponding take-up of the electricity will take place;

(1) OJ L . . .

(f)

‘declared import’ of electricity means the take-up of elec-
tricity in a Member State or a third country simultaneously
with the dispatch of electricity (‘declared export’) in another
Member State;

(g)

‘new interconnector’ means
not
completed by the date of entry into force of this Regu-
lation.

interconnector

an

Article 3

Inter transmission system operator compensation
mechanism

Transmission system operators shall

1.
receive compen-
sation for costs incurred as a result of hosting cross-border
flows of electricity on their networks.

The compensation referred to in paragraph 1 shall be
2.
paid by the operators of national transmission systems from
which cross-border flows originate and the systems where
those flows end.

3.
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 costs actually incurred.

The first period of time for which compensation payments
shall be made shall be determined in the guidelines referred
to in Article 8.

Acting in accordance with the procedure referred to in
4.
Article 13(2), the Commission shall decide on the amounts of
compensation payments payable.

The magnitude of cross-border flows hosted and the
5.
flows designated as originating
magnitude of cross-border
and/or ending in national
shall be
transmission systems
determined on the basis of the physical flows of electricity
actually measured in a given period of time.

in new infrastructure,

6.
The costs incurred as a result of hosting cross-border
flows shall be established on the basis of the forward looking
long-run average incremental costs, taking into account losses,
investment
an appropriate
proportion of the cost of existing infrastructure, as far as infra-
structure is used for the transmission of cross-border flows, in
particular taking into account the need to guarantee security of
supply. When establishing the costs
recognised
standard-costing methodologies shall be used. Benefits that a
network incurs as a result of hosting cross-border flows shall
be taken into account to reduce the compensation received.

incurred,

and

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Article 4

Charges for access to networks

Charges applied by network-operators

1.
to
networks shall be transparent, take into account the need for
network security and reflect actual costs incurred insofar as
they correspond to those of an efficient and structurally
comparable network operator and applied in a non-discrimi-
natory manner. Those charges shall not be distance-related.

for access

the level of

2.
Producers and consumers (‘load’) may be charged for
access to networks. The proportion of the total amount of
the network charges borne by producers shall, subject to the
need to provide appropriate and efficient locational signals, be
lower than the proportion borne by consumers. Where appro-
priate,
the tariffs applied to producers and/or
consumers shall provide locational signals at European level,
and take into account
the amount of network losses and
congestion caused, and investment costs for infrastructure.
This shall not prevent Member States from providing locational
signals within their territory or from applying mechanisms to
ensure that network access charges borne by consumers (‘load’)
are uniform throughout their territory.

3. When setting the
following shall be taken into account:

charges

for network access

the

— Payments and receipts resulting from the inter-transmission

system operator compensation mechanism;

The safety, operational and planning standards used by
2.
transmission system operators shall be made public. The
information published 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 regulatory authorities.

3.
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 intervals before the day of transport and shall
include, in any case, week-ahead and month-ahead estimates, as
well as a quantitative indication of the expected reliability of
the available capacity.

Article 6

General principles of congestion management

Network congestion problems shall be addressed by
1.
means of non-discriminatory market based solutions which
give efficient economic signals to the market participants and
transmission system operators involved.

2.
Transaction curtailment procedures shall only be used in
emergency situations where the transmission system operator
in an expeditious manner and redispatching or
must act
countertrading is not possible. Any such procedure shall be
applied in a non-discriminatory manner.

— Actual payments made and received as well as payments
expected for future periods of time, estimated on the basis
of past periods.

in cases of

Except
‘force-majeure’, market participants who
have been allocated capacity shall be compensated for any
curtailment.

Providing that appropriate and efficient locational signals
4.
are in place,
in accordance with paragraph 2, charges for
access to networks applied to producers and consumers shall
be applied regardless of the countries of destination and, origin,
respectively, of the electricity, as specified in the underlying
commercial arrangement. This shall be without prejudice to
charges on declared exports and declared imports resulting
from congestion management referred to in Article 6.

There shall be no specific network charge on individual

5.
transactions for declared transits of electricity.

Article 5

Provision of information on interconnection capacities

1.
Transmission system operators shall put in place coor-
dination and information exchange mechanisms to ensure the
security of
context of congestion
management.

the networks

in the

3.
The maximum capacity of the interconnections and/or
the transmission networks affecting cross-border flows shall
be made available to market participants, complying with
safety standards of secure network operation.

4. Market participants shall inform the transmission system
operators concerned a reasonable time ahead of the relevant
operational period whether
they intend to use allocated
capacity. Any allocated capacity that will not be used shall
in an open, transparent and
be reattributed to the market,
non-discriminatory manner.

Transmission system operators shall, as far as technically
5.
possible, net the capacity requirements of any power flows in
opposite direction over the congested interconnection line in
order to use this line to its maximum capacity. Having full
regard to network security,
relieve the
congestion shall never be denied.

transactions

that

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Any revenues resulting from the allocation of intercon-
the following

6.
nection shall be used for one or more of
purposes:

Paragraph 1 shall apply also to significant increases of

3.
capacity in existing interconnectors.

(a) guaranteeing
capacity;

the

actual

availability of

the

allocated

(b) network investments maintaining or increasing intercon-

nection capacities;

4. (a) The regulatory authority may, on a case-by-case basis,
decide on the exemption referred to in paragraphs 1 and
2. However, Member States may provide that the regu-
latory authorities shall submit, for formal decision, to
the relevant body in the Member State its opinion on
for an exemption. This opinion shall be
the request
published together with the decision.

(c) as an income to be taken into account by regulatory auth-
orities when approving the methodology for calculating
network tariffs, and/or in assessing whether tariffs should
be modified.

(b)

(i) The exemption may cover all or part of the capacity
of the new interconnector, or of the existing inter-
connector with significantly increased capacity.

Article 7

New interconnectors

New direct current interconnectors may, upon request, be
1.
exempted from the provisions of Article 6(6) of this Regulation
and Articles 20 and 23(2), (3) and (4) of Directive 2003/. . ./EC
under the following conditions:

(a) the investment must enhance competition in electricity

supply;

(b) the level of risk attached to the investment is such that the
investment would not take place unless an exemption is
granted;

(c) the interconnector must be owned by a natural or legal
person which is separate at
its legal
form from the system operators in whose systems that
interconnector will be built;

in terms of

least

(d) charges are levied on users of that interconnector;

(ii) In deciding to grant an exemption, consideration
shall be given, on a case-by-case basis, to the need
to impose conditions regarding the duration of the
exemption and non-discriminatory access to the
interconnector.

(iii) When deciding on the conditions in (i) and (ii)
account
the
in particular, be
additional capacity to be built, the expected time
horizon of the project and national circumstances.

taken of

shall,

(c) When granting an exemption the relevant authority may
approve or fix the rules and/or mechanisms on the
management and allocation of capacity.

(d) The

exemption decision,

including any conditions
referred to in (b), shall be duly reasoned and published.

(e) Any exemption decision shall be taken after consultation
regulatory authorities

with other Member States or
concerned.

(e) since the partial market opening referred to in Article 19 of
Directive 96/92/EC, no part of the capital or operating
costs of the interconnector has been recovered from any
component of charges made for the use of transmission or
distribution systems linked by the interconnector;

The exemption decision shall be notified, without delay,
5.
by the competent authority to the Commission, together with
all the information relevant to the decision. This information
may be submitted to the Commission in aggregate form,
enabling the Commission to reach a well-founded decision.

(f)

the exemption is not to the detriment of competition or
the effective functioning of the internal electricity market,
the regulated system to
or the efficient
which the interconnector is linked.

functioning of

interconnectors provided that

Paragraph 1 shall apply also,

in exceptional cases, to
2.
alternating current
the costs
and risks of the investment in question are particularly high
when compared with the costs and risks normally incurred
when connecting two neighbouring national
transmission
systems by an alternating current interconnector.

In particular, the information shall contain:

— the detailed reasons on the basis of which the regulatory
authority, or Member State, granted the
exemption,
including the financial information justifying the need for
the exemption;

— the analysis undertaken of the effect on competition and
the effective functioning of the internal electricity market
resulting from the grant of the exemption;

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— the reasons for the time period and the share of the total
capacity of the interconnector in question for which the
exemption is granted;

(d) details of the methodology for determining the costs and
benefits incurred as a result of hosting cross-border flows,
in accordance with Article 3(6);

— the result of the consultation with the Member States or

regulatory authorities concerned;

after

receiving

the
Within two months
Commission may request that the regulatory authority or the
Member State concerned amend or withdraw the decision to
grant an exemption. The two months period may be extended
by one additional month where additional
information is
sought by the Commission.

a notification,

(e) details of the treatment in the context of the inter-TSO
compensation mechanism of electricity flows originating
or ending in countries outside the European Economic
Area;

(f)

the participation of national systems which are intercon-
in accordance with
nected through direct current
Article 3.

lines,

If the regulatory authority or Member State concerned does not
comply with the request within a period of four weeks, a final
decision shall be taken in accordance with the procedure
referred to in Article 13(3).

The Commission shall preserve
commercially sensitive information.

the

confidentiality

of

The guidelines shall also determine appropriate rules
3.
leading to a progressive harmonisation of the underlying prin-
ciples for the setting of charges applied to producers and
consumers (load) under national tariff systems, including the
reflection of
inter-TSO compensation mechanism in
national network charges and the provision of appropriate
and efficient locational signals,
in accordance with the prin-
ciples set out in Article 4.

the

Article 8

Guidelines

1. Where appropriate,
the Commission shall, acting in
accordance with the procedure referred to in Article 13(2),
adopt and amend guidelines on the issues
listed under
paragraph 2 and 3 and relating to the inter-transmission
system operator compensation mechanism,
in accordance
with the principles
in Articles 3 and 4. When
adopting these guidelines for the first time the Commission
shall ensure that they cover in a single draft measure at least
the issues referred to in paragraph 2(a) and (d), and paragraph
3.

set out

2.

The guidelines shall specify:

(a) details of

the procedure for determining which trans-
mission system operators are liable to pay compensation
for cross-border
the split
between the operators of national
transmission systems
from which cross-border flows originate and the systems
where those flows end, in accordance with Article 3(2);

including as

regards

flows

The guidelines
efficient harmonised locational signals at European level.

shall make provision for appropriate and

Any harmonisation in this respect shall not prevent Member
States from applying mechanisms to ensure that network
access charges borne by consumers (load) are comparable
throughout their territory.

transfer

capacity

interconnections

4. Where appropriate,
the Commission shall, acting in
accordance with the procedure referred to in Article 13(2),
amend the guidelines on the management and allocation of
available
between
of
national systems set out in the Annex,
in accordance with
the principles set out in Articles 5 and 6, in particular so as
to include detailed guidelines on all capacity allocation metho-
dologies applied in practice and to ensure that congestion
management mechanisms evolve in a manner compatible
with the objectives of the internal market. 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.

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

to be paid,

(c) details of methodologies for determining the cross-border
flows hosted for which compensation is to be paid under
Article 3, in terms of both quantity and type of flows, and
the designation of the magnitudes of such flows as orig-
inating and/or ending in transmission systems of individual
Member States, in accordance with Article 3(5);

When adopting or amending guidelines, the Commission shall
ensure that they provide the minimum degree of harmon-
isation required to achieve the aims of this Regulation and
do not go beyond what is necessary for that purpose.

When adopting or amending guidelines, the Commission shall
indicate what actions
to the
conformity of rules in third countries, which form part of
the European electricity system, with the guidelines in question.

taken with respect

it has

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Article 9

Regulatory authorities

The regulatory authorities, when carrying out their responsi-
bilities, shall ensure compliance with this Regulation and the
guidelines adopted pursuant to Article 8. Where appropriate to
fulfil the aims of this Regulation they shall cooperate with each
other and with the Commission.

Article 10

Provision of information and confidentiality

1. Member States and the regulatory authorities shall, on
request, provide to the Commission all information necessary
for the purposes of Articles 3(4) and 8.

In particular, for the purposes of Article 3(4) and 3(6), regu-
latory authorities shall provide on a regular basis information
transmission system
on costs actually incurred by national
operators, as well as data and all
information
relevant
relating to the physical flows in transmission system operators'
networks and the cost of the network.

The Commission shall fix a reasonable time limit within which
the information is to be provided, taking into account the
complexity of the information required and the urgency with
which the information is needed.

If the Member State or the regulatory authority concerned
2.
does not provide this information within the given time-limit
pursuant
the Commission may request all
information necessary for the purpose of Article 3(4) and 8
directly from the undertakings concerned.

to paragraph 1,

When sending a request for information to an undertaking, the
Commission shall at the same time forward a copy of the
request to the regulatory authorities of the Member State in
whose territory the seat of the undertaking is situated.

3.
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 12(2) for supplying
incorrect,
The
Commission shall
taking into
account the complexity of the information required and the
urgency with which the information is needed.

or misleading
fix a reasonable time limit

information.

incomplete

The owners of the undertakings or their representatives
4.
and,
in the case of legal persons, the persons authorised to
represent them by law or by their instrument of incorporation,
shall supply the information requested. Lawyers duly auth-
orised 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.

the Commission may by
supplies incomplete information,
decision require the information to be provided. The decision
shall specify what information is required and fix an appro-
priate time-limit within which it is to be supplied.
It shall
indicate the penalties provided for in Article 12(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 authorities of
the Member State
within the territory of which the residence of the person or
the seat of the undertaking is situated.

Information collected pursuant to this Regulation shall be

6.
used only for the purposes of Articles 3(4) and 8.

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

Article 11

Right of Member States to provide for more detailed
measures

This Regulation shall be without prejudice to the rights of
Member States
that
contain more detailed provisions than those set out in this
Regulation and the guidelines referred to in Article 8.

introduce measures

to maintain or

Article 12

Penalties

lay

applicable

down the

rules on penalties

1. Without prejudice to paragraph 2, the Member States
shall
to
infringements of the provisions of this Regulation and shall
take all measures necessary to ensure that they are imple-
effective,
mented. The penalties provided for must be
proportionate and dissuasive. The Member States shall notify
those provisions to the Commission by 1 July 2004 at the
latest and shall notify it without delay of any subsequent
amendment affecting them.

2.
The Commission may by decision impose on under-
takings fines not exceeding 1 % of the total turnover in the
preceding business year where,
intentionally or negligently,
incomplete or misleading information
they supply incorrect,
in response to a request made pursuant to Article 10(3) or
fail to supply information within the time-limit fixed by a
decision adopted pursuant
subparagraph of
Article 10(5).

to the

first

In setting the amount of a fine, regard shall be had to the
gravity of the failure to comply with the requirements of the
first subparagraph.

5. Where an undertaking does not provide the information
requested within the time-limit fixed by the Commission or

Penalties provided for pursuant

3.
to paragraph 1 and
decisions taken pursuant to paragraph 2 shall not be of a
criminal law nature.

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Article 13

Committee

1.

The Commission shall be assisted by a Committee.

2. Where reference is made to this paragraph, Articles 5 and
7 of Decision 1999/468/EC shall apply, having regard to the
provisions of Article 8 thereof.

The period laid down in Article 5(6) of Decision 1999/468/EC
shall be set at three months.

3. Where reference is made to this paragraph, Articles 3 and
7 of Decision 1999/468/EC shall apply, having regard to the
provisions of Article 8 thereof.

4.

The Committee shall adopt its own rules of procedures.

Article 14

Commission Report

the Regulation has been successful

the Council no more than three years after the entry into
force of this Regulation a report on the experience gained in
its application. In particular the report shall examine to what
in ensuring
extent
access
non-discriminatory
conditions for cross border exchanges of electricity in order
to contribute to customer choice in a well
functioning
internal market and to long-term security of supply, as well
as to what extent effective locational signals are in place. If
the report shall be accompanied by appropriate
necessary,
proposals and/or recommendations.

cost-reflective

network

and

Article 15

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 Union.

The Commission shall monitor the implementation of
Regulation.

this
It shall submit to the European Parliament and

It shall apply from 1 July 2004.

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

Done at . . .

For the European Parliament

The President

For the Council

The President

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GUIDELINES ON THE MANAGEMENT AND ALLOCATION OF AVAILABLE TRANSFER CAPACITY OF
INTERCONNECTIONS BETWEEN NATIONAL SYSTEMS

ANNEX

General

1. Congestion management method(s)

implemented by Member States shall 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.

2. The TSOs, or, where appropriate, Member States, shall 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, shall be described in publicly available documents.

3. Different treatment of the different types of cross-border transactions, whether they are physical bilateral contracts or
bids into foreign organised markets, shall 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.

4. Price signals that result from congestion management systems shall be directional.

5. TSOs shall offer to the market transmission capacity that is as ‘firm’ as possible. A reasonable fraction of the capacity
may be offered to the market under the condition of decreased firmness, but at all times the exact conditions for
transport over cross-border lines shall be made known to market participants.

6. Considering the fact that the European continental network is a highly meshed network and that the use of inter-
connection 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, is
devised unilaterally.

Position of long-term contracts

1. Priority access rights to an interconnection capacity shall not be assigned to those contracts which breach Articles 81

and 82 of the EC Treaty.

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

Provision of information

1. TSOs shall implement appropriate coordination and information-exchange mechanisms to guarantee security of the

network.

2. TSOs shall 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 shall be published by the TSOs at several time
intervals before the day of transport. At least accurate week-ahead estimates shall 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
shall be included.

3. The TSOs shall 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 shall be subject to approval by
the regulators of the Member States concerned. The safety standards and the operational and planning standards shall
form an integral part of the information that TSOs shall publish in publicly available documents.

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Principles governing methods for congestion management

1. Network congestion problems shall preferentially be solved with non-transaction based methods, i.e. methods that do

not involve a selection between the contracts of individual market participants.

2. Cross-border co-ordinated redispatching or counter trading may be used jointly by the TSOs concerned. The costs

that TSOs incur in counter-trading and redispatching must, however, be at an efficient level.

3. The possible merits of a combination of market splitting, or other market based mechanisms, for solving ‘permanent’
congestion and counter-trading for solving temporary congestion shall be immediately explored as a more enduring
approach to congestion management.

Guidelines for explicit auctions

1. 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 which capacities are auctioned for differing durations and with
different characteristics (e.g. with respect to the expected reliability of the available capacity in question).

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

3. The explicit auction procedures shall 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.

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

5. In order to offer as much capacity to the market as possible, the financial risks related to the netting of flows, shall

be attributed to those parties causing those risks to materialise.

6. Any auction procedure adopted shall be capable of sending directional price signals to market participants. Transport
in a direction against the dominant power flow relieves the congestion thus resulting in additional transport capacity
over the congested tie line.

7. In order not to risk creating or aggravating problems related to any dominant position of market participant(s),
capping of the amount of capacity that can be bought/possessed/used by any single market participant in an auction
shall be seriously considered by the competent regulatory authorities in the design of any auction mechanisms.

8. To promote the creation of liquid electricity markets, capacity bought at an auction shall be freely tradeable until the

TSO is notified that the capacity bought will be used.

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STATEMENT OF THE COUNCIL'S REASONS

I. INTRODUCTION

1. On 2 May 2001, the Commission presented a proposal (1) based on Article 95 of the Treaty.

2. The Economic and Social Committee delivered its Opinion (2) on 3 October 2001. The Committee

of the Regions decided not to deliver an Opinion.

3. The European Parliament adopted its Opinion (3) at first reading on 13 March 2002, approving 34
amendments. In the light of this opinion the Commission presented a modified proposal on 10 June
2002 (4).

4. on 3 January 2003, the Council adopted its Common Position in accordance with Article 251 of

the Treaty.

II. OBJECTIVE OF THE PROPOSAL

5. The objective of the proposal, which is part of a package together with the Directives on the
internal market in electricity and gas, is to establish fair, cost-reflective, transparent and directly
applicable rules with regard to tarification and the allocation of available interconnection capacities
for cross-border exchanges in electricity. It includes the following provisions:

— with regard to tarification, provision for compensation payments to be received by trans-
mission system operators (TSOs) hosting cross-border flows of electricity on their network,
financed through contributions of those TSOs causing the transit flows

— setting of harmonised principles of cross-border transmission charges

— principles regarding the allocation of available interconnection capacities between national

transmission systems

— establishment of guidelines detailing further relevant principles and methodologies with regard

to tarification and congestion management.

III. ANALYSIS OF THE COMMON POSITION

6. The main changes introduced by the Council are as follows:

7. (a) The Regulation shall apply to cross-border flows of electricity (instead of transit flows), reflecting
i.a. the work achieved in the context of the European Electricity Regulator Forum (Florence
Forum) (Art. 1). Moreover Art. 2(b) clarifies that this definition applies to physical flows on a
transmission network of a Member State resulting from the impact of the activity of generators
and/or consumers outside of that Member State on its transmission network.

(1) OJ C 240 E, 28.8.2001 p. 72.
(2) OJ C 36, 8.2.2002, p. 10.
(3) OJ C 47 E, 27.2.2003, p. 380.
(4) OJ C 227 E, 24.9.2002, p. 440.

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(b) With regard to Art. 2 and definitions in general, the Council added the definition of new

interconnector and made clear that

— regulatory authorities are to be understood as per Art. 23(1) of the (common position on the)

new Electricity Directive (Art. 2(a))

— where transmission networks of two or more Member States form part of a single control
block, Member States concerned may decide that
the control block as a whole be
considered as forming part of the transmission system of one of the Member States
concerned (Art. 2(b))

— congestion and lack of capacity may occur with an interconnector as well as with the

national transmission system concerned (Art. 2(c))

— declared export (Art. 2(d)) and declared import (Art. 2(f)) of electricity mean the dispatch of
electricity in one and the simultaneous take-up of electricity in another Member States

— declared transit of electricity involves a country where neither the dispatch nor the simul-

taneous take-up of electricity takes place.

8. In relation to the compensation mechanism described in Art. 3, the Council considered necessary
to provide for payments to be made by both exporting and importing TSOs (Art. 3(2)).
Furthermore,
the method to calculate costs resulting from hosting cross-border flows was
described in greater detail (Art. 3(6)). This is also reflecting work achieved in the context of the
Florence Forum.

9. Access charges shall be transparent and reflect the costs incurred in so far as corresponding to an
efficient and structurally comparable network (Art. 4(1)), which notably reflects amendments made
by the European Parliament.

10. The Council underscored the importance of providing appropriate and efficient locational signals at
European level when considering access charges (Art. 4(2) and (4)), charges which shall be applied
independently of the country of destination/origin of the electricity.

11. With regard to the principles of congestion management (Article 6):

— curtailment procedures have to be applied in a non-discriminatory manner (Art. 6(2))

— market participants must inform the relevant TSOs a reasonable time ahead of the operational
period whether they intend to use allocated capacity (Article 6(4)), and allocated capacity not
used shall be reattributed to the market in an open, transparent and non-discriminatory manner

— transactions that relieve the congestion shall be taken under due consideration of security of

supply (Art. 6(5)).

The attribution of revenues from the allocation of interconnection has been clarified in so far as it
may also be taken into account as an income by regulatory authorities when approving the
methodology for calculating network tariffs (Art. 6(6)).

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12. In order to facilitate new infrastructure investments, the Council made clear, by analogy with the
relevant provisions of the common position on the (new) Gas Directive, that new direct current
interconnectors may, under certain strict conditions, be granted exemptions from Art. 6(6), from
the requirements of third party access and the fixing of tariffs/methodologies by regulatory auth-
orities. The provision also strengthens the Commission's role in vetting Member States' decisions
on exemptions. The restrictive way of interpreting these provisions is confirmed by a Commission
statement (Art. 7).

13. In relation to the content of the Guidelines (Art. 8):

— details of methodologies have to be set as regards the quantity of cross-border flows hosted and

the designation of the amounts of such flows (Art. 8(1c))

— details of the treatment in the context of the inter-TSO compensation mechanism of electricity

flows originating or ending in countries outside the EEA have to be set (Art. 8(1e))

— they shall make provision for appropriate and efficient harmonised locational signals at

European level (Art. 8(3)).

14. The Council clarified the role of the Member States in the further development of the Regulation
(Art. 3, 7 and 13) by retaining a regulatory procedure for the adoption and amendment of various
guidelines, related to the mechanism of compensation between TSOs, capacity allocation, harmon-
isation of the principles for the setting of charges.

15. Furthermore, the Commission (Art. 14) shall monitor closely the implementation of this Regu-
lation, in particular as regards non-discriminatory and cost-reflective network access conditions and
the putting into place of effective locational signals.

16. Finally, the Council considered that this Regulation shall apply from the same date as the first stage
of market opening provided for in the common position on the Gas and Electricity Directives, i.e.
1 July 2004.

IV. AMENDMENTS ACCEPTED

17. Of the 34 Parliament amendments, the Council accepted the following 12, some of them in

substance, partially or in principle.

Recitals:

— Amendment 1: specifies that rules should take account of comparisons between operators from

structurally comparable areas (recital 4)

— Amendment 2 (partially): indicates the need for a certain degree of harmonisation in order to

avoid distortion of trade (recital 12)

— Amendment 3 (partially): specifies that tariffs are paid in addition to the general charge for

network access (recital 14)

— Amendment 4: stresses that non-discriminatory and transparent charges for network use are

paramount for effective competition (recital 15)

— Amendment 6:

indicates that Member States and competent authorities should provide the

information needed to the Commission (recital 20)

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Articles:

— Amendment 8: indicating that congestion can result from a lack of capacity of the intercon-

nectors and/or the national transmission systems concerned (Art. 2(c))

— Amendment 10 (in principle): definition of declared exports of electricity (Art. 2(2d))

— Amendment 12: in correlation to amendment 1 (Art. 4(1))

— Amendment 13 (in substance): indicates that a certain harmonisation of mechanisms applied by

Member States could be useful at national level (Art. 4(2))

— Amendment 14: specifies that additional charges on exports or imports may result

from

congestion management (Art. 4(4))

— Amendment 18: allows for exemption from the provisions of Art. 6(6) in order to facilitate new

infrastructure investments (Art. 7)

— Amendment 34: provides for a review by the Commission on the experience gained in the

application of this Regulation (Art. 14)

— Amendment 35: provides for an entry into force of the Regulation from the date of entry into

force of the (new) Gas and Electricity Directives

V. AMENDMENTS NOT INTEGRATED

18. The Council considered that amendments 5, 7, 9, 15, 16, 17, 19 to 33 were either not consistent
with the proposed Gas and Electricity Directives (e.g. 5, 7, 16, 20, 22, 23, 24, 25), too restrictive
(e.g. 19), not within the scope of the Regulation (e.g. 8, 9, 21, 26, 27 to 33), or already covered by
existing provisions (e.g. 17), and decided therefore not to integrate them in its common position.
The Commission has rejected amendments 2, 5, 7, 13, 15, 16, 17, 19, 20, 22 to 26 and 35. With
regard to amendments 21 and 27-33,
in the explanatory
intends to create the group of
memorandum to its amended proposal,
European Energy regulators envisaged in these amendments through a Commission Decision
and not, as suggested by the Parliament, in this Regulation.

it is recalled that the Commission,

indicated that

it