2007/141/EC: Commission Decision of 26 February 2007 establishing that Article 30(1) of Directive 2004/17/EC of the European Parliament and of the Council coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors applies to the supply of electricity and gas in England, Scotland and Wales (notified under document number C(2007) 559) (Text with EEA relevance )
Date: 2007-02-26
Institutions: European Commission
Subjects: England, Scotland, Wales, award of contract, competition, electrical energy, gas

1.3.2007

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Official Journal of the European Union

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(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 26 February 2007

establishing that Article 30(1) of Directive 2004/17/EC of the European Parliament and of the
Council coordinating the procurement procedures of entities operating in the water, energy,
transport and postal services sectors applies to the supply of electricity and gas in England,
Scotland and Wales

(notified under document number C(2007) 559)

(Only the English text is authentic)

(Text with EEA relevance)

(2007/141/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Whereas:

Having regard to the Treaty
Community,

establishing the European

(1)

the European
Having regard to Directive 2004/17/EC of
Parliament and of the Council of 31 March 2004 coordinating
the procurement procedures of entities operating in the water,
energy, transport and postal services sectors (1), and in particular
Article 30(4) and (6) thereof,

that
Article 30 of Directive 2004/17/EC provides
contracts intended to enable the performance of one of
the activities to which the Directive applies shall not be
subject to the Directive if, in the Member State in which
it is carried out, the activity is directly exposed to compe-
tition on markets to which access is not restricted. Direct
exposure to competition is assessed on the basis of
objective criteria, taking account of the specific charac-
teristics of the sector concerned. Access is deemed to be
unrestricted if the Member State has implemented and
applied the relevant Community legislation opening a
given sector or a part of it.

Having regard to the request submitted by the United Kingdom
by e-mail of 24 October 2006 and confirmed by a signed fax of
the same date, and to the additional information requested by
Commission staff by e-mail of 17 November 2006 and
submitted by the United Kingdom by e-mail of 27 November
2006,

(2)

Having regard to the conclusions of the independent national
the Gas and Electricity Markets
authority,
(OFGEM), that the conditions for the applicability of Article
30(1) of Directive 2004/17/EC would be met,

the Office of

legislation is

This
listed in Annex XI of Directive
2004/17/EC, which, for the electricity sector, refers to
Directive 96/92/EC of the European Parliament and of
the Council of 19 December 1996 concerning common
rules for the internal market in electricity (2). Directive
Directive
96/92/EC
has
2003/54/EC of
the
Council of 26 June 2003 concerning common rules
in electricity and repealing
for
Directive 96/92/EC (3), which requires an even higher

the European Parliament and of

the internal market

superseded

been

by

(1) OJ L 134, 30.4.2004, p. 1. Directive as last amended by Council

Directive 2006/97/EC (OJ L 363, 20.12.2006, p. 107).

(2) OJ L 27, 30.1.1997, p. 20.
(3) OJ L 176, 15.7.2003, p. 37. Directive as

last amended by
Commission Decision 2006/653/EC (OJ L 270, 29.9.2006, p. 72).

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degree of market opening. In respect of the gas sector,
Annex XI refers to Directive 98/30/EC of the European
the Council of 22 June 1998
Parliament and of
concerning common rules for the internal market
in
natural gas (4). Directive 98/30/EC has been superseded
by Directive 2003/55/EC of the European Parliament and
of the Council of 26 June 2003 concerning common
rules
and
repealing Directive 98/30/EC (5), which requires an even
higher degree of market opening.

internal market

in natural gas

the

for

(3)

(4)

(5)

Under Article 62(2)(2) of Directive 2004/17/EC, Title III
of that Directive setting out the rules on service design
contests does not apply to contests organised for the
in the Member State concerned, of an activity
pursuit,
the
to which the applicability of Article 30(1) of
a Commission
Directive has been established by
decision or has been deemed applicable under
the
second or third subparagraph of Article 30(4) or the
fourth subparagraph of Article 30(5).

The request submitted by the United Kingdom concerns
the supply, both wholesale and retail, of electricity and
gas in England, Scotland and Wales. Although there may
be some similarities,
in
substitutability,
particular
nevertheless render it appropriate to consider that there
are two different product markets, one for gas and one
for electricity,
for
‘energy’.

the respective characteristics,

the very limited degree of

than one product market

rather

In respect of gas,

Given the unified character of the markets for electricity
of the three geographical areas concerned by the present
request and the limited capacity (6) of the connections
between the United Kingdom networks and those of
other areas of the Community, England, Scotland and
Wales should be considered to constitute the relevant
market for electricity for the purposes of evaluating the
laid down in Article 30(1) of Directive
conditions
2004/17/EC.
should also be
concluded that the relevant geographic market is Great
Britain, since, as noted by the British Office of Fair Trade,
‘this is the limit of the gas trading regime: although gas is
traded with continental Europe through the Bacton-
Zeebrugge interconnector, quantities traded are relatively
small.’ The same applies to quantities traded between
Great Britain and Northern Ireland (not covered by this
Decision) and Ireland. These conclusions are consistent
with one of the findings of the Communication from the
Commission to the Council and the European Parliament:

it

(4) OJ L 204, 21.7.1998, p. 1.
(5) OJ L 176, 15.7.2003, p. 57.
(6) Of the order of approximately 4 % of peak demand in the case of

electricity.

(6)

(7)

(8)

(9)

Report on progress in creating the internal gas and elec-
tricity market (7), hereinafter referred to as the ‘2005
Report’, that ‘in economic terms … electricity and gas
markets in the EU remain national in economic scope’.

contained in this
This assessment, and any other
is made solely for the purposes of Directive
Decision,
2004/17/EC and is without prejudice to the application
of the rules on competition.

In respect of electricity, the United Kingdom has imple-
mented and applied not only Directive 96/92/EC but also
Directive 2003/54. Concerning gas, the United Kingdom
has also implemented not only Directive 98/30/EC, but
also Directive 2003/55/EC. Consequently,
in
accordance with the first subparagraph of Article 30(3),
access to the market should be deemed not
to be
restricted, both in respect of electricity and gas.

and

Direct exposure to competition should be evaluated on
the basis of various indicators, none of which are, per se,
decisive. In the 2005 Report, the Commission stated that
‘many national markets display a high degree of concen-
impeding the development of
tration of the industry,
effective competition’ (8). Consequently,
it considered
‘one indicator for the degree of competition on
that
national markets
the
the total market
biggest
and wholesale
suppliers (gas)’ (9). According to the latest available infor-
mation, the aggregate market share of the three largest
electricity generators of the total production is 39 % (10),
while the aggregate market share of the three largest gas
shippers
is
36 % (11). Both these levels must be considered to be at
a satisfactorily low level and should be taken as an indi-
cation of direct exposure to competition.

the wholesale market

in percentage of

three producers

(electricity)

share of

is

The degree of liquidity is also a good indicator of compe-
tition, as the conditions of competition in electricity and
gas supply are greatly influenced by liquidity in wholesale
markets. The United Kingdom wholesale market for elec-
tricity is characterised by being a bilateral trading market,
with brokered deals. There is also more than one power
exchange, although UKPX has the largest volume. Some
of the principal actors on the wholesale market are the
owners of generation capacity, with ownership of
generation capacity being rather diverse with eight

(7) COM(2005) 568 final of 15.11.2005.
(8) See p. 2. See also the ‘Report from the Commission: Annual Report
On The Implementation Of The Gas And Electricity Internal
Market’, COM(2004) 863 final of 5.1.2005, p. 4.

(9) See the 2005 Report, p. 7.
(10) See Commission Staff Working Document, Technical Annex to the
2005 Report, SEC(2005)1448, p. 44, table 4.1. Hereafter referred
to as Technical Annex.

(11) Technical Annex, p. 55, table 5.1.

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Official Journal of the European Union

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to

three

around

the gas sector,

liquidity multiple
times
liquidity
it
i.e.

companies sharing around 70 % of capacity. For the
term trading
United Kingdom,
amounts
amount
the
consumed (12). This degree of
should be
is such as to
considered as being satisfactory,
constitute an indicator of a well-functioning and compe-
titive wholesale market. For
liquidity
multiple term trading should also be considered to be
at a satisfactory level, as it also amounts to two to three
times total consumption (13). At the retail levels as well,
there are a sufficient number of actors, as there are six
main suppliers active in the household market with addi-
tional companies active in the large user sector. (14) The
gas markets are also characterised by a sufficient number
of active players and can be summarised as follows: ‘The
(United Kingdom) gas market has a high level of compe-
tition with around 10 companies active in the wholesale
market. As with electricity, six companies account for the
majority of the domestic supply market … (of which) …
five are new entrants to the gas supply market. Larger
users buy direct from the wholesale market, which also
includes many major oil companies’ (15). These factors
should therefore be taken as an indication of direct
exposure to competition.

(10)

The workings of the balancing markets should also be
in respect of
considered as
indicators, not only
production but
and retail
the wholesale
also for
‘any market participant who cannot
In fact,
markets.
easily match its generation portfolio to the characteristics
of its customers may find itself exposed to the difference
between the price at which the TSO (transmission system
operator) will sell
imbalance energy, and the price at
which it will buy back excess production. These prices
may either be directly imposed by the regulator on the
TSO; or alternatively a market based mechanism will be
used in which the price is determined by bids from other
to regulate their production upwards or
producers
downwards … a key difficulty for small market parti-
cipants arises where there is the risk of a large spread
between the buying price from the TSO and the selling
price. This occurs in a number of Member States and is
likely to be detrimental to the development of compe-
tition. A high spread may be indicative of an insufficient
level of competition in the balancing market which may
be dominated by only one or two main generators. Such
difficulties are made worse where network users are
unable to adjust their positions close to real time’ (16).
Since the introduction of the British Electricity Trading
and Transmission Arrangements (BETTA) there has been

(12) See the Preliminary Report of the Sector Inquiry into Competition
in Gas and Electricity Markets (in the following referred to as
‘Preliminary Report’), Figure 42, p. 113.

(13) Preliminary Report, point 64, p. 25.
(14) Technical Annex, p. 177.
(15) Technical Annex, p. 178.
(16) Technical Annex, p. 67.

exposure

its main characteristics

a unified balancing market for England, Scotland and
Wales. Furthermore,
(market
based pricing, half-hourly gate closures and a fairly low
spread) are such that it should be taken as an indicator of
to competition. Similarly for gas,
direct
balancing prices are derived on the basis of a market
mechanism operated by the TSO. Imbalances are settled
on a daily basis and there is not usually a significant
spread between the buy and sell price. This non discri-
to
minatory mechanism does not act as a barrier
suppliers.

indirectly,

(11) Given the characteristics of the products concerned here
(electricity and gas) and the scarcity or unavailability of
suitable substitutable products or services, price compe-
tition and price formation assume greater importance
when assessing the competitive state of the electricity
and gas markets. The number of customers switching
supplier is an indicator of genuine price competition
‘a natural
and, thus,
indicator of the effec-
tiveness of competition. If few customers are switching,
there is likely to be a problem with the functioning of
the market, even if the benefits from the possibility of
renegotiating with the historical supplier should not be
ignored’ (17). Furthermore, ‘the existence of regulated end-
user prices is clearly a key determinant of customer
behaviour … Although the retaining of controls may
these will
be
increasingly cause distortions as the need for investment
approaches’ (18).

justified in a period of

transition,

(12)

in

of

respect

electricity

In the UK, the degree of switching for the three cate-
gories of users of electricity — large and very large
industrial users, small and medium-sized industrial and
business, and very small business and household users —
is above 70 % for the first two groups and close to 50 %
for the last category (19) and end-user price control was
2002 (20).
abolished
Concerning gas, the degree of switching for the three
categories of users — large and very large industrial
users including power plants, small and medium-sized
industrial and business, and very small business and
households — is above 70 % for the first two groups
and close to 50 % for the last category (21). Price controls
for all end users have been removed since 2002. The
situation in the United Kingdom is therefore satisfactory
as
switching and end-user price control are
concerned and should be taken as an indicator of
direct exposure to competition.

far as

in

(17) 2005 Report, p. 9.
(18) Technical Annex, p. 17.
(19) 2005 Report p. 10.
(20) Technical Annex p. 177.
(21) 2005 Report p. 10.

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(13)

(14)

(15)

the extent

In view of these indicators and given the overall picture
this sector in England, Scotland and Wales — in
of
particular
to which networks have been
unbundled from generation/supply and the effective regu-
lation of network access — that emerges from the infor-
mation submitted by the United Kingdom,
the 2005
Report and the Technical Annex thereto as well as
from the Preliminary Report,
the condition of direct
exposure to competition laid down in Article 30(1) of
Directive 2004/17/EC should be considered to be met in
respect of electricity and gas supply in England, Scotland
and Wales. As noted in recital 7, the further condition of
free access to the activity must be deemed to be met.
Consequently, Directive 2004/17/EC should not apply
when contracting entities award contracts intended to
enable the supply of electricity and/or gas generation to
be carried out in these geographical areas nor when they
organise design contests for the pursuit of such an
activity there. It is recalled that contracts awarded for
the pursuit of other activities, such as the distribution
of electricity and gas, continue to be subject
to the
provisions of Directive 2004/17/EC.

This Decision is based on the legal and factual situation
as of November 2006 as it appears from the information
submitted by the United Kingdom, the 2005 Report and
the Technical Annex thereto. It may be revised, should
significant changes in the legal or factual situation mean
that the conditions for the applicability of Article 30(1)
of Directive 2004/17/EC are no longer met.

HAS ADOPTED THIS DECISION:

Article 1

Directive 2004/17/EC shall not apply to contracts awarded by
contracting entities and intended to enable them to carry out
electricity and/or gas supply in England, Scotland and Wales.

Article 2

This Decision is based on the legal and factual situation as of
November 2006 as it appears from the information submitted
by the United Kingdom, the 2005 Report and the Technical
Annex thereto. It may be revised, should significant changes in
the facts or the legal situation mean that the conditions for the
applicability of Article 30(1) of Directive 2004/17/EC are no
longer met.

Article 3

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

Done at Brussels, 26 February 2007.

The measures provided for
accordance with
Committee for Public Contracts,

the

opinion

in this Decision are in
the Advisory

of

For the Commission

Charlie McCREEVY
Member of the Commission