Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/54/EC concerning common rules for the internal market in electricity {SEC(2007) 1179} {SEC(2007) 1180}
Date: 2007-09-19
Institutions: European Commission
Subjects: approximation of laws, electrical energy, energy distribution, energy production, energy supply, energy transport, single market

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.9.2007 
COM(2007) 528 final 

2007/0195 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 2003/54/EC concerning common rules for the internal market in 
electricity 

(presented by the Commission) 

{SEC(2007) 1179} 
{SEC(2007) 1180} 

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EXPLANATORY MEMORANDUM 

Electricity  and  gas  are  at  the  heart  of  the  Europe’s  well-being.  Without  a  competitive  and 
efficient European electricity and gas market, Europe’s citizens will pay excessive prices for 
what  is  one  of  their  most  fundamental  daily  needs.  The  electricity  and  gas  market  is  also 
essential for Europe’s competitiveness as energy is an important input for European industry.  

Furthermore, a competitive and efficient electricity and gas market is a pre-condition to tackle 
climate  change.  Only  with  a  functioning  market  is  it  possible  to  develop  an  effectively 
functioning emissions trading mechanism and a renewable energy industry that will meet the 
ambitious objective, agreed by the European Council of ensuring that the EU's energy mix is 
sourced 20% from renewable energy sources by 2020. 

Finally, a competitive EU-wide electricity and gas market is crucial to ensure the security of 
Europe’s  energy  supply,  as  only  a  Europe-wide  and  competitive  market  generates  the  right 
investment signals and offer fair network access for all potential investors, and provides real 
and  effective  incentives  to  both  network  operators  and  generators  to  invest  the  billions  of 
Euros that will be needed in the EU over the next two decades. 

The process of liberalising the electricity and gas market started about 10 years ago. During 
these  10  years,  many  of  Europe's  citizens  have  benefited  from  more  choice  and  more 
competition,  with  improved  service  and  security.  The  assessment  carried  out  by  the 
Commission  and  Europe's  energy  regulators  has  however  demonstrated  that  the  process  of 
developing  real  competitive  markets  is  far  from  complete.  In  practice,  far  too  many  of  the 
EU's  citizens  and  businesses  lack  a  real  choice  of  supplier.  Market  fragmentation  along 
national borders, a high degree of vertical integration and high market concentration are at the 
root of the lack of a truly internal market.  

Since  the  entry  into  force  of  the  present  electricity  and  gas  Directives  in  July  2003,  the 
Commission  has  constantly  monitored  their  implementation  and  their  effects  on  the  market, 
and  it  has  been  in  regular  contact  with  all  stakeholders  concerned.  In  particular,  the 
Commission has, every year, published its benchmarking report on the implementation of the 
internal  electricity  and  gas  market.  It  has  organised  the  Electricity  Regulatory  Forum  of 
Florence  and  the  Gas  Regulatory  Forum  of  Madrid  bringing  together  on  a  regular  basis 
ministries,  national  regulatory  authorities,  the  Commission,  transmission  system  operators, 
suppliers, traders, consumers, trade unions, network users and power exchanges.  

At the end of 2005, the Hampton Court European Council called for a true European Energy 
Policy. In response to this call the Commission published on 8 March 2006 a Green Paper on 
developing  a  common,  coherent  European  Energy  Policy.  The  public  consultation  yielded 
1 680 responses. Already in 2005, the Commission started an inquiry into competition in gas 
and electricity markets. The energy inquiry responded to concerns voiced by consumers and 
new entrants in the sector about the development of wholesale gas and electricity markets and 
limited  choice  for  consumers.  The  Final  Report  of  the  inquiry  was  adopted  by  the 
Commission together with a comprehensive package of measures, to propose a new Energy 
Policy for Europe on 10 January 2007.  

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The  Commission  Communication  of  10  January  2007  entitled  "An  Energy  Policy  for 
Europe"1  highlighted  the  importance  of  completing  the  internal  market  in  electricity  and 
natural gas. It was backed by a comprehensive internal market report, the final results of the 
competition sector inquiry and in-depth reviews of the situation of the national electricity and 
gas market. In parallel, the Commission has carried out an impact assessment to assess policy 
options  related  to  the  completion  of  the  internal  gas  and  electricity  market.  The  impact 
assessment included a stakeholder consultation. A total of 339 questionnaires were filled out 
by  organisations  having  their  roots  in  19  countries.  In  addition  73  questionnaires  were 
received  by  organisations  not  connected  to  a  particular  country.  Interviews  were  conducted 
with 56 additional stakeholders, mainly companies which could be affected by the unbundling 
of their assets or increased transparency requirements.  

The 2007 Spring European Council invited the Commission to propose further measures, such 
as:  

•  the  effective  separation  of  supply  and  production  activities  from  network 

operation;  

•  the  further  harmonisation  of  the  powers  and  enhanced  independence  of  the 

national energy regulators;  

•  the  establishment  of  an  independent  mechanism  for  cooperation  among  national 

regulators;  

•  the  creation  of  a  mechanism  for  transmission  system  operators  to  improve  the 
coordination of networks operation and grid security, cross-border trade and grid 
operation; and  

•  greater transparency in energy market operations.  

The European Council also underlined the need to strengthen security of supply in a spirit of 
solidarity between Member States.  

In its Resolution on Prospects for the internal gas and electricity market adopted on 10 July 
2007,  the  European  Parliament  expressed  strong  political  support  for  a  common  energy 
policy,  considering  that  "transmission  ownership  unbundling  is  the  most  effective  tool  to 
promote investments in infrastructures in a non-discriminatory way, fair access to the grid for 
new  entrants  and  transparency  in  the  market".  Parliament  underlined,  however,  that  other 
measures were also necessary and that the differences between the electricity and gas markets 
might  call  for  differing  implementation  arrangements.  Parliament  also  called  for  enhanced 
"cooperation  between  national  regulators  at  EU  level,  through  an  EU  entity,  as  a  way  to 
promote a more European approach to regulation on cross-border issues".  

The  Council  of  European  Energy  Regulators  (CEER)  welcomed  the  Commission’s 
Communication of 10 January, and strongly endorsed the call for new EU legislation to put 
the  single  energy  market  project  back  on  track.  On  6  June  2007,  the  European  Energy 
Regulators published a set of six papers taking position on the main issues in the new energy 
legislation.  They  supported  in  particular  the  Commission's  proposals  for  a  strengthened 

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independent regulatory oversight at national and EU level, and for effective unbundling of the 
transmission  networks.  The  regulators  clearly  recommended  that  ownership  unbundling  of 
transmission  should,  in  principle,  be  the  model  required  in  new  EU  legislation  and  should 
apply to both electricity and gas.  

These elements were taken fully into consideration in drawing up the current proposals, which 
are summarised below. 

1. 

1.1. 

EFFECTIVE SEPARATION OF SUPPLY AND PRODUCTION ACTIVITIES FROM NETWORK 
OPERATIONS 

Existing  unbundling  provisions  are  not  sufficient  to  ensure  a  well-functioning 
market 

Existing  legislation  requires  that  network  operations  be  legally  and  functionally  separated 
from supply and generation or production activities. Member States have complied with this 
requirement  by  applying  different  organisational  structures.  Several  Member  States  have 
created  a  totally  separate  company  for  network  operation,  while  others  have  created  a  legal 
entity  within  an  integrated  company.  The  requirements  of  legal  and  functional  unbundling 
have made a positive contribution to the emergence of competitive electricity and gas markets 
in several Member States. 

However, experience has shown that where the transmission system operator is a legal entity 
within an integrated company, three types of problems arise. 

Firstly,  the  transmission  system  operator  may  treat  its  affiliated  companies  better  than 
competing third parties. In fact, integrated companies may use network assets to make entry 
more difficult for competitors. The underlying reason is that legal and functional unbundling 
do  not  solve  the  fundamental  conflict  of  interest  within  integrated  companies,  whereby  the 
supply  and  production  interests  aim  to  maximise  their  sales  and  market  share  while  the 
network operator is obliged to offer non-discriminatory access to competitors. This inherent 
conflict of interest is almost impossible to control by regulatory means as the independence of 
the  transmission  system  operator  within  an  integrated  company  is  impossible  to  monitor 
without an excessively burdensome and intrusive regulation.  

Secondly,  under  the  current  unbundling  rules,  non-discriminatory  access  to  information 
cannot  be  guaranteed  as  there  is  no  effective  means  of  preventing  transmission  system 
operators  releasing  market  sensitive  information  to  the  generation  or  supply  branch  of  the 
integrated company.  

Thirdly,  investment  incentives  within  an  integrated  company  are  distorted.  Vertically 
integrated  network  operators  have  no  incentive  for  developing  the  network  in  the  overall 
interests of the market and hence for facilitating new entry at generation or supply levels; on 
the contrary, they have an inherent interest to limit new investment when this will benefit its 
competitors  and  bring  new  competition  onto  the  incumbent's  "home  market".  Instead,  the 
investment decisions made by vertically integrated companies tend to be biased to the needs 
of supply affiliates. Such companies seem particularly disinclined to increase interconnection 
or gas import capacity and thereby boosting competition in the incumbent’s home market to 
the detriment of the internal market.  

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To  sum  up,  a  company  that  remains  vertically  integrated  has  an  in-built  incentive  both  to 
under-invest in new networks (fearing that such investments would help competitors to thrive 
in “its” home market) and - wherever possible - to privilege its own sales companies when it 
comes to network access. This damages the EU's competitiveness and its security of supply 
and prejudices the attainment of its climate change and environmental objectives.  

Investment  figures  from  recent  years  show  this:  vertically  integrated  companies  have,  for 
example, reinvested significantly less of their receipts from cross-border congestion rents in 
new  interconnectors  than  fully  unbundled  ones.  Effective  unbundling  removes  the  kind  of 
distorted investment incentives typical of vertically integrated transmission system operators. 
It thus promotes security of supply. The Commission has observed that effective unbundling 
of  transmission  system  operators  promotes  TSO  investment  activity.  The  Member  States 
concerned  have  subsequently  attracted  new  infrastructure  investors  that,  for  example,  build 
terminals for liquefied natural gas (LNG). 

Moreover, the price of electricity on different markets  in recent years shows  the  benefits  of 
ownership  unbundling:  over  the  last  10  years,  vertically  integrated  companies  have  raised 
prices more, and maintained higher prices, than fully unbundled ones.  

1.2.  More effective unbundling of transmission system operators is therefore clearly 

necessary 

The  concrete  proposal  in  this  respect  makes  it  clear  that  the  preferred  option  of  the 
Commission remains ownership unbundling. In practice this means that Member States must 
ensure that the same person or persons cannot exercise control over a supply undertaking and, 
at the same time, hold any interest in or exercise any right over a transmission system operator 
or  transmission  system.  This  provision  also  applies  vice  versa,  that  is,  control  over  a 
transmission system operator precludes the possibility of holding any interest in or exercising 
any right over a supply undertaking.  

This option allows for a situation in which the same person, for example a pension fund, holds 
non-controlling  minority  interests  in  both  a  transmission  system  operator  and  a  supply 
undertaking.  However,  such  a  minority  shareholder  cannot  have  blocking  rights  in  both 
undertakings, nor can it appoint members of their boards, nor can any person be a member of 
the  boards  of  both  undertakings.  This  option,  making  a  clear  ownership  separation  between 
transmission system  operators  and  any supply  undertakings,  is  the  most  effective  and  stable 
way  of  achieving  effective  unbundling  of  the  transmission  network  and  thus  of  solving  the 
inherent conflict of interest.  

In  order  to  implement  this  option,  Member  States  may  choose  the  following  arrangement 
which  may  help  to  fully  preserve  the  interests  of  the  shareholders  of  vertically  integrated 
companies. The shares of the vertically integrated company may be divided into shares of the 
company owning the transmission system on the one hand and shares of the supply company 
on  the  other.  Subsequently,  these  shares  may  be  attributed  to  the  shareholders  of  the 
previously vertically integrated company.  

Whilst the Commission considers that ownership unbundling remains the preferred option it 
does however provide an alternative option for Member States that choose not to go down this 
path.  This  option  must,  however,  provide  the  same  guarantees  regarding  independence  of 
action of the network in question and the same level of incentives on the network to invest in 
new  infrastructure  that  may  benefit  competitors.  This  option,  a  derogation  from  the  basic 

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ownership unbundling approach, is known as the "Independent System Operator". This option 
enables  vertically  integrated  companies  to  retain  the  ownership  of  their  network  assets,  but 
requires that the transmission network itself is managed by an independent system operator - 
an  undertaking  or  entity  entirely  separate  from  the  vertically  integrated  company  -  that 
performs  all  the  functions  of  a  network  operator.  In  addition,  to  ensure  that  the  operator 
remains  and  acts  truly  independently  of  the  vertically  integrated  company,  regulation  and 
permanent regulatory monitoring must be put in place.  

In some instances, vertically integrated energy companies may be forced to dispose of some 
of  their  assets,  notably  their  transmission  networks,  or  to  hand  over  the  operation  of  such 
assets  to  a  third  party,  in  order  to  comply  with  the  proposed  requirements  of  effective 
unbundling. But there does not appear to be any alternative to the options proposed if we are 
to ensure the full independence of the TSOs. 

The  two  options  apply  in  the  same  manner  to  the  electricity  and  gas  sector.  Although  the 
Commission  recognises  that  progress  towards  ownership  unbundling  generally  speaking  is 
currently  more  advanced  in  the  electricity  sector  in  the  EU,  the  Commission  has  found  no 
convincing  argument  to  justify  different  treatment  of  the  two  sectors.  In  particular,  the 
fundamental conflict of interest between the supply and production activities on the one hand 
and  network  operation  and  development  on  the  other  applies  equally  to  both  sectors. 
Moreover, the key to concluding long-term supply agreements with upstream gas producers is 
not  the  ownership  of  the  network  but  the  existence  of  a  strong customer  base.  The  EU  will 
undoubtedly  remain  a  highly  attractive  gas  supply  market  irrespective  of  the  ownership 
structure  of  the  purchasing  companies  which,  once  effectively  unbundled,  will  be  able  to 
compete  for  gas  on  an  equal  footing.  The  Commission  recognises,  moreover,  that  gas 
transportation, as opposed to electricity transmission, involves the physical movement of gas 
molecules through pipelines. The TSO therefore has a greater degree of control in defining the 
direction  of  flows  and  the  capacity  utilisation  in  the  system.  This  means  that  effective 
unbundling of the gas networks is at least as important as for the electricity networks.  

However, with a view to encouraging investment in new energy infrastructures by supply and 
production companies, the present proposal includes the possibility of a temporary derogation 
to ownership unbundling rules for the construction of new infrastructure. This exemption will 
be  applied  on  a  case  by  case  basis,  taking  into  account  in  the  economics  of  the  new 
investment, the internal market objectives and the security of supply objective. 

In  keeping  with  Article  295  EC,  the  proposal  applies  in  the  same  way  to  publicly  and 
privately  owned  companies.  This  means  that  irrespective  of  its  public  or  private  nature,  no 
person or group of persons would be able alone or jointly to influence the composition of the 
boards, the voting or decision making of either transmission system operators or the supply or 
production  companies.  This  ensures  that  where  supply  or  production  activities  are  in  public 
ownership,  the  independence  of  a  publicly  owned  transmission  system  operator  is  still 
guaranteed; but these proposals do not require state owned companies to sell their network to 
a privately owned company. For instance, to comply with this requirement, any public entity 
or  the  State  could  transfer  the  rights  (which  provide  the  “influence”)  to  another  publicly  or 
privately  owned  legal  person.  The  important  thing  is  that  in  all  cases  where  unbundling  is 
carried  out,  the  Member  State  in  question  must  demonstrate  that  in  practice,  the  results  are 
truly effective and that the companies operate entirely separate from one another, providing a 
real level-playing field across the whole of the EU. 

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Finally,  for  Member  States  that  have  no  gas  or  electricity  transmission  networks  but  only  a 
distribution network, the provisions on the ownership unbundling of transmission networks do 
not apply 

1.3. 

Third country aspects 

The present proposal requires the effective unbundling of transmission system operators and 
supply and production activities not only at national level but throughout the EU. It means in 
particular  that  no  supply  or  production  company  active  anywhere  in  the  EU  can  own  or 
operate  a  transmission  system  in  any  Member  State  of  the  EU.  This  requirement  applies 
equally to EU and non-EU companies.  

The  package  contains  safeguards  to  ensure  that  in  the  event  that  companies  from  third 
countries wish to acquire a significant interest or even control over an EU network, they will 
have  to  demonstrably  and  unequivocally  comply  with  the  same  unbundling  requirements  as 
EU companies. The Commission can intervene where a purchaser cannot demonstrate both its 
direct and indirect independence from supply and generation activities.  

Furthermore, well functioning markets and networks are essential for the competitiveness of 
the  economy  and  for  the  well-being  of  the  citizens.  The  goal  of  the  current  proposal  is  to 
promote competition in the European energy markets and to promote the proper functioning 
of  these  markets.  In  this  light  it  is  imperative  -  without  prejudice  to  the  international 
obligations  of  the  Community  –  to  ensure  that  all  economic  operators  active  on  European 
energy markets respect and act in accordance with market investor principles. Therefore, the 
Commission  proposes  a  requirement  that  third  country  individuals  and  countries  cannot 
acquire  control  over  a  Community  transmission  system  or  transmission  system  operator 
unless  this  is  permitted  by  an  agreement  between  the  EU  and  the  third  country.  The  aim  is 
guarantee that companies from third countries respect the same rules that apply to EU based 
undertakings  in  both  letter  and  spirit  -  not  to  discriminate  against  them.  Finally,  the 
Commission  will  also  hold  a  rapid  and  in-depth  review  of  the  wider  aspects  of  the  EU’s 
external policy in energy, and will make the results of that work public.  

Concluding  on  the  important  question  of  unbundling,  the  present  proposals  for  effective 
unbundling are a necessary and decisive step to achieving EU-wide market integration. It may 
ultimately help to create supra-national transmission system operators as the operators are no 
longer  held  back  by  mutual  distrust.  But  at  the  same  time,  if  supra-national  transmission 
operators  were  created  without  ensuring  their  full  independence,  competition  between 
affiliated  supply  and  production  companies  would  likely  be  weakened  due  to  the  risk  of 
collusion. In the absence of effective unbundling such cooperation would therefore give rise 
to competition concerns. Notably, the present proposals include several additional measures to 
promote  EU  market  integration,  relating  in  particular  to  improved  cooperation  among 
transmission system operators. 

2. 

ENHANCED POWERS AND INDEPENDENCE OF NATIONAL REGULATORS 

2.1. 

Strong national regulators to oversee the running of electricity and gas markets 

The  existing  electricity  and  gas  Directives  require  Member  States  to  establish  regulatory 
authorities. In several Member States, Regulatory authorities are well-established bodies with 
substantial powers and resources, allowing them to ensure proper market regulation. In other 

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Member  States,  regulatory  authorities  have  only  recently  been  established  and  their  powers 
are weaker or dispersed over different bodies. The comprehensive country reviews carried out 
by the Commission have revealed this lack of uniformity and in many cases the weakness of 
the regulatory authority.  

The  experience  of  Member  States  whose  markets  have  been  open  for  several  years,  and  of 
other utility sectors open to competition, clearly indicates that strong regulators are necessary 
for a properly functioning market, in particular as regards the use of network infrastructures. 

For  these  reasons,  the  present  proposal  aims  to  strengthen  the  powers  of  the  regulatory 
authorities. First, they would be given a clear mandate to cooperate at European level, in close 
cooperation with the Agency for the Cooperation of Energy Regulators and the Commission, 
to  ensure  competitive,  secure  and  environmentally  sustainable  internal  electricity  and  gas 
markets  within  the  European  Union,  and  effective  market  opening  for  all  consumers  and 
suppliers. 

Second,  it  is  proposed  to  strengthen  their  market  regulation  powers,  in  particular  in  the 
following areas: 

–  monitoring compliance of transmission and distribution system operators with third party 
rules,  unbundling  obligations,  balancing  mechanisms,  congestion  and 

access 
interconnection management; 

–  reviewing the investment plans of the transmission system operators, and providing in its 
annual report an assessment of how far the transmission system operators' investment plans 
are  consistent  with  the  European-wide  10-year  network  development  plan;  monitoring 
network security and reliability, and reviewing network security and reliability rules; 

–  monitoring transparency obligations; 

–  monitoring  the  level  of  market  opening  and  competition,  and  promoting  effective 

competition, in cooperation with competition authorities; and 

–  ensuring that consumer protection measures are effective. 

Electricity  and  gas  differ  fundamentally  from  other  traded  goods  because  they  are  network-
based  products  that  are  impossible  or  costly  to  store.  This  makes  them  sensitive  to  market 
abuse and regulatory oversight over undertakings active in the electricity and gas market need 
to  be  increased.  Regulators  therefore  need  to  have  access  to  information  on  the  operational 
decisions  of  the  companies.  It  is  proposed  to  oblige  companies  to  keep  record  of  the  data 
related  to  their  operational  decision  for  five  years  at  the  disposal  of  national  regulatory 
authorities, as well as at the disposal of competition authorities and the Commission, so that 
these authorities are able to control effectively allegations of market abuse. This will limit the 
scope  of  market  abuse,  increase  the  trust  in  the  market,  and  thereby  stimulate  trade  and 
competition.  

Some  types  of  traders  (e.g.  banks)  already  have  such  obligations  under  the  Markets  in 
Financial Instruments Directive, and they should not have double obligations. Therefore the 
record keeping obligations should be without prejudice to, and compatible with, the existing 
Community  legislation  on  financial  markets.  Regulators  of  the  energy  market  and  the 
financial markets, need to cooperate in order to enable each other to have an overview over 

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the markets concerned. Prior to adoption of guidelines defining record keeping requirements, 
the  Agency  for  the  Cooperation  of  Energy  Regulators  and  the  Committee  of  European 
Securities  Regulators  (CESR)  are  invited  to  cooperate  and  advise  the  Commission  on  the 
content of the guidelines.  

To enable them to perform their duties, regulatory authorities would be given the powers to 
investigate, to request all necessary information and to impose dissuasive sanctions. They are 
also  requested  to  take  full  account  of  energy  efficiency  objectives  while  performing  their 
regulatory functions.  

2.2. 

Demonstrable independence of regulators brings market confidence 

The  independence  of  regulatory  authorities  is  a  key  principle  of  good  governance  and  a 
fundamental  condition  for  market  confidence.  Existing  legislation  calls  for  regulatory 
authorities  to  be  wholly  independent  of  the  interests  of  the  gas  and  electricity  industry. 
However,  it  does  not  specify  how  such  independence  can  be  demonstrably  ensured,  and  it 
does not guarantee independence from short-term political interests.  

As  underlined  by  the  2007  Spring  European  Council  conclusions  and  by  the  European 
Parliament, strengthening national energy regulators' independence is therefore a priority.  

It is proposed that the regulatory authority be legally distinct and functionally independent of 
any  other  public  or  private  entity,  and  that  its  staff  and  any  member  of  its  decision-making 
body act independently of any market interest and neither seek nor take instruction from any 
government or other public or private entity. For that purpose, it is proposed that regulatory 
authorities  have  legal  personality,  budgetary  autonomy,  appropriate  human  and  financial 
resources and independent management.  

3. 

3.1. 

AN  INDEPENDENT  MECHANISM  FOR  NATIONAL  REGULATORS  TO  COOPERATE  AND 
TAKE DECISIONS: THE AGENCY FOR THE COOPERATION OF ENERGY REGULATORS 

The positive experience of ERGEG needs to develop into a formal cooperation 
structure  

Although the internal market for energy has developed considerably, a regulatory gap remains 
on cross-border issues. In order to tackle this issue, the Commission initiated self-regulatory 
forums like the Florence (electricity) forum and the Madrid (gas) forum. These forums bring 
stake holders together in order to strengthen cooperation. 

In  addition,  an  independent  advisory  group  on  electricity  and  gas,  called  the  "European 
Regulators Group for Electricity and Gas" (ERGEG) was established by the Commission in 
2003 to facilitate consultation, coordination and cooperation between the national regulatory 
authorities in the Member States, and between these authorities and the Commission, with a 
view to consolidating the internal market in electricity and natural gas. ERGEG is composed 
of representatives of the national regulatory authorities.  

ERGEG activities over recent years have made a very positive contribution to the completion 
of the internal market in gas and electricity by issuing non-binding guidelines and addressing 
recommendations  and  opinions  to  the  Commission.  Nevertheless,  the  initiation  of  self-
regulatory  forums  and  setting  up  of  ERGEG  has  not  resulted  in  the  real  push  towards  the 
development  of  common  standards  and  approaches  that  is  necessary  to  make  cross-border 

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trade and the development of first regional markets, and ultimately, a European energy market 
a reality.  

As  time  has  progressed  the  energy  sector  has  become  more  complex  and  detailed,  and 
involves to a greater extent different financial interests. The present approach within ERGEG, 
which  in  practice  usually  requires  the  agreement  of  27  regulators  and  more  than  30 
transmission  system  operators  to  reach  agreement,  is  not  producing  sufficient  results.  It  has 
lead to a number of non-binding codes and efforts to reach agreement on common approaches 
through  "gradual  convergence"  but  has  not  lead  to  real  decisions  on  the  difficult  issues  that 
now need to be taken.  

At  present  the  technical  rules  that  electricity  companies  must  operate  under,  "grid-codes", 
differ  enormously  between  Member  States  and  often  even  within  a  single  Member  State. 
These need to undergo a process of convergence and then harmonisation if we are to integrate 
energy markets in the EU. .  

The  Commission  has  evaluated  the  different  options  for  organising  the  required  tasks, 
including  whether  the  Commission  would  be  able  to  pursue  these  tasks  itself.  Harmonising 
these issues, as well as making progress on new infrastructure, is not a task that typically falls 
within the Commission's sphere of activities. The Commission has actually never carried out 
such  an  activity.  It  requires  the  specialist  expertise  in  the  27  national  regulatory  agencies 
(NRAs) to work together; it is they that need to agree on amending their national grid codes. 
In practice, only a body emanating from the national regulators can catalyse all the necessary 
resources of national regulators that is fundamental to achieving success on these issues. The 
Agency  can  through  its  Regulatory  Board  –  which  consists  of  NRAs-  call  upon  the  staff  of 
these NRAs. The Commission is not in that position.  

The  Commission  has  concluded  that  the  tasks  required  could  be  best  fulfilled  by  a  separate 
entity, independent and outside the Commission. Both the European Council in the spring of 
2007 as well as recent European Parliament resolutions, endorsed this conclusion2.  

The  creation  of  a  more  powerful  network  of  national  energy  regulators  was  therefore 
considered. The network of competition authorities created in 2004 under Council Regulation 
(EC)  No  1/2003  provides  a  model.  Nevertheless,  this  would  necessitate  the  creation  of 
autonomous  powers  for  the  Commission  in  the  energy  sector  (currently  these  powers  only 
exist  in  the  area  of  competition  rules).  The  powers  of  the  NRAs  should,  in  any  event,  be 
reinforced and harmonised.  

Furthermore, the model of the system of European Central Banks could be applicable, but it 
lacks  a  legal  basis  in  the  Treaty.  Such  a  model  would  simply  require  an  amendment  of  the 
Treaty. 

2 

The European Council agrees in its conclusions to the establishment of an independent mechanim for 
national  regulators  to  cooperate  and  take  decisions  on  important  cross-border  issues,  whereas  the 
adopted  Vidal  Quadras  report  states  that  the  EP  "Welcomes  the  Commission's  proposal  to  enhance 
cooperation between national regulators at EU level, through a EU entity, as a way to promote a more 
European approach to regulation on cross-border issues; underlines that the Commission should play a 
determining role, whilst not undermining the independence of regulators; believes that decisions by the 
regulators should be made on specifically defined technical and trade issues and on an informed basis 
considering,  when  appropriate,  the  views  of  TSOs  and  other  relevant  stakeholders,  and  should  be 
legally binding;".  

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The  Commission  therefore  came  to  the  conclusion  that  if  an  independent  body  should  be 
established  which  can  make  proposals  to  the  Commission  regarding  decisions  that  involve 
substantive  decisions  and  take  individual  regulatory  decisions  which  are  binding  on  third 
parties  concerning  detailed  technical  issues  that  are  delegated  to  them,  the  only  solution 
would be to establish an Agency.  

The main proposed tasks would complement at European level the regulatory tasks performed 
by the national regulators. The structure should provide a framework for national regulators to 
cooperate, a regulatory review of the cooperation between transmission operators and scope 
for  taking  individual  decisions  concerning  infrastructure  in  the  territory  of  more  than  one 
Member  State.  This  analysis  reflects  the  principles  defined  by  the  Commission  in  the  draft 
inter-institutional  agreement  on  the  operating  framework  for  the  European  regulatory 
agencies3, in particular as regards the power to adopt individual decisions which are legally 
binding on third parties. 

The following proposal draws also on the "ERGEG+" option mentioned in the Commission 
Communication of 10 January 2007 "An Energy Policy for Europe"4.  

3.2.  Main tasks of the proposed Agency for the Cooperation of Energy Regulators 

The Agency would complement at European level the regulatory tasks performed at national 
level by the regulatory authorities by:  

–  Providing a framework for national regulators to cooperate. It is proposed to improve the 
handling of cross-border situations. The Agency will lay down procedures for cooperation 
between national regulators,  in  particular as regards the exchange  of information  and the 
apportionment  of  competence  where  more  than  one  Member  State  is  involved.  This 
framework will also promote regional cooperation between national regulators. 

–  Regulatory  oversight  of  the  cooperation  between  transmission  system  operators.  The 
Agency  will  have  responsibility  for  monitoring  and  reviewing  the  activities  of  the 
European Network of Transmission System Operators for Electricity and of the European 
Network of Transmission System Operators for Gas. In particular, it will be involved in the 
setting of priorities through the Networks' work programme, in the review of their 10-year 
investment plan, and in the preparation of technical and market codes. The review of the 
investment  plan  is  without  prejudice  to  the  transmission  system  operators’  liability  for 
technical failures as defined under national law. As regards the technical and market codes, 
the Agency will be empowered to ask transmission system operators to modify their drafts 
or  to  tackle  more  specific  issues  in  detail.  It  will  also  be  able  to  recommend  that  the 
Commission  make  these  codes  legally  binding  where  voluntary  implementation  by 
transmission system operators proves to be insufficient or not suited to certain issues. The 
Agency  may  recommend  modifying  the  transmission  operators'  draft  or  recommend 
additional provisions to the Commission. In practice, this mechanism will take the form of 
a constructive and continuous dialogue between the Agency, transmission system operators 
and  the  Commission.  The  involvement  of  the  Agency  will  be  the  key  to  ensuring  that 
cooperation among transmission system operators proceeds in an efficient and transparent 
way to the benefit of the internal market.  

3 
4 

COM(2005) 59. 
OJ C , , p. . 

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–  Individual  decision  powers.  With  a  view  to  handling  specific  cross-border  issues,  it  is 
proposed  to  vest  the  Agency  with  individual  decision  powers  on  exemption5  requests 
concerning  infrastructure  assets  of  European  interest  and  to  decide  on  the  regulatory 
regime applicable to infrastructure within the territory of more than one Member State. In 
addition, the Agency would be able to take specific decisions on individual technical issues 
when  these  are  granted  to  the  Agency  under  specific  Guidelines  adopted  pursuant  to  the 
gas and electricity Directives, under a comitology procedure.  

–  General  advisory  role.  The  Agency  would  in  general  have  an  advisory  role  vis-à-vis  the 
Commission as regards market regulation issues and could issue non-binding guidelines to 
publicise good practices among the national regulators. On a case-by-case basis, it would 
also  have  the  power  to  review,  in  the  light  of  implementing  measures  adopted  by  the 
Commission in application of Community legislation in the gas and electricity sector, any 
decisions  taken  by  a  national  regulatory  authority  that  directly  impact  on  the  internal 
market and provide an opinion to the Commission. 

Even though its powers cannot be extended to cover normative decisions (such as the formal 
adoption  of  obligatory  guidelines)  the  new  Agency  will  overall  play  a  crucial  role  in  the 
development and implementation of European gas and electricity market rules. 

3.3. 

Governance of the proposed Agency for the Cooperation of Energy Regulators 

The  institutional  setting  and  governance  principles  of  the  Agency  for  the  Cooperation  of 
Energy  Regulators  are  in  principle  based  on  standard  rules  and  practices  for  Community 
regulatory agencies.  

However, the necessary independence of regulatory functions needs to be taken into account. 
For  that  purpose,  besides  the  Administrative  Board  responsible  for  all  administrative  and 
budgetary  matters,  it  is  proposed  to  create  a  Board  of  Regulators,  responsible  for  all 
regulatory matters and decisions. The Director, appointed by the Administrative Board, after 
consulting the Regulatory Board, will be chosen from a shortlist adopted by the Commission. 
The  Director  will  represent  the  Agency  and  shall  be  responsible  for  the  day-to-day 
management. In addition, the structure of the Agency foresees in a Board of Appeal, which is 
competent to handle appeals against decisions adopted by the Agency. 

3.4. 

Financial aspects 

It  is  proposed  that  the  Agency  should  have,  given  its  tasks,  a  limited  staff  of  40-50  people. 
This  assessment  is  based  on  an  extensive  analysis  of  the  staff  requirements  of  national 
regulatory authorities and a careful analysis of the minimum resources necessary to carry out 
the  tasks  proposed,  in  particular  in  the  light  of  possibilities  for  synergies  in  harnessing  the 
resources within national regulatory authorities to assist the work of the agency. The proposed 
staff is in line with these authorities' needs6. As mentioned above, if the Commission were to 
endeavour to perform the Agencies' tasks, the number of staff required would be much higher.  

The total annual costs of the Agency are estimated at approximately € 6-7 million per year, of 
which € 5 million for staff expenditure (taking as the average per person the cost of European 
Commission staff, i.e. € 0.117 million per year, which includes expenditures associated with 

5 
6 

As defined in Article 22 of Directive 2003/55/EC and in Article 7 of Regulation (EC) No 1228/2003 
An organigram will be attached to the Explanatory Memorandum.  

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buildings  and  related  administrative  expenditures),  €  1  million  operational  costs  (meetings, 
studies, as well as translation, publication and public relations costs) and the rest for capital 
expenditures (relating to the acquisition of movable property and associated expenditure) and 
mission expenditures.  

The  Agency’s  annual  costs  will  be  covered  by  Community  grants.  The  Agency  has  limited 
revenues stemming from fees to be paid by third parties which are charged when the Agency 
takes certain decisions. 

3.5. 

The role of the Commission 

There are in principle three different safeguards to secure the Commission's position and role 
as a guardian of the Treaty.  

First of all, if the Agency takes a decision, such a decision would only be binding for specific 
technical situations explicitly foreseen in the Regulation and Directives or provided on a case-
by-case basis by binding Guidelines. The Agency would have no political discretion outside 
this framework.  

Secondly,  if  TSO  cooperation  or  decisions  by  NRAs  threaten  effective  competition  and  the 
efficient  functioning  of  the  market,  the  Commission  shall  immediately  be  informed  by  the 
Agency  and  can  adopt  subsequently  the  necessary  measures  to  remedy  the  situation.  The 
Commission may also choose to act on its own initiative.  

Third,  where  a  substantive  decision  needs  to  be  taken,  this  can  only  be  done  by  the 
Commission.  In  these  cases  the  Agency  has  a  preparatory  and  advisory  role  only.  The 
Commission Legal Service has scrutinised the text carefully in this respect to ensure that the 
Agency has no power of discretionary substantive decision.  

Furthermore, it would be for the Commission, through the adoption of binding Guidelines to 
further specify and lay down the role of the Agency. 

4. 

EFFICIENT COOPERATION BETWEEN TRANSMISSION SYSTEM OPERATORS 

4.1. 

Strong  cooperation  between  transmission  system  operators  is  necessary  for 
electricity and gas market integration 

For  market  integration  to  take  place,  there  also  needs  to  be  effective  cooperation  among 
transmission system operators (TSOs) and a clear and stable regulatory framework, including 
regulatory  coordination.  Network  access  rules  and  operational  rules  need  to  be  compatible, 
there has to be effective exchange of information between transmission system operators and 
a  good  coordination  of  new  investment  to  increase  interconnection  capacities.  Transmission 
system  operators  in  gas  and  electricity  already  cooperate  voluntarily  in  existing  structures 
such as the European Transmission System Operators (ETSO) and Gas Transmission Europe 
(GTE).  They  cooperate  on  operational  issues  at  regional  level  and  participate  in  technical 
bodies such as the Union for the Co-ordination of Transmission of Electricity (UCTE) and the 
European Association for the Streamlining of Energy Exchange (EASEE-Gas). These multi-
layer  cooperation  initiatives  have  made  a  significant  contribution  to  the  internal  market  and 
have boosted the efficiency and the safety of the networks. 

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However, this voluntary cooperation has shown its limits for example in the form of network 
incidents and electricity black-outs due to poor coordination of network operation or missing 
links  in  the  electricity  and  gas  networks,  and  difficulties  in  proposing  or  agreeing  common 
technical  standards.  It  is  therefore  proposed  to  task  the  transmission  operators  with 
strengthening  their  cooperation  in  a  number  of  key  areas,  focusing  on  the  following  main 
issues. 

–  Development  of  market  and  technical  “codes”.  For  the  integration  of  the  electricity  and 
gas markets a coherent set of technical and market codes are needed. Today, these codes 
exist  on  a  national  basis  or  through  recommendations  of  organisations  such  as  UCTE  or 
EASEE-gas. The problem with the current situation is threefold: firstly the existing rules 
do  not  cover  all  areas  that  need  to  be  harmonised  in  order  to  make  an  integrated  market 
function, secondly the national codes are often not compatible with each other and thirdly 
they  are  often  not  legally  binding  or  enforceable.  Examples  of  these  codes  are  UCTE 
operational  handbook  for  security  and  reliability  of  the  electricity  transmission  networks 
and EASEE-gas recommendations on gas qualities.  

–  The  proposal  preserves  the  voluntary  process  of  the  transmission  system  operators  as  a 
pragmatic  way  of  developing detailed  technical  and  market  codes.  These  codes  are  often 
technically  complicated  and  there  needs  to  be  an  efficient  process  to  amend  them  when 
necessary.  The  proposal  adds  a  strong  regulatory  oversight  on  the  content  and  on 
monitoring  of  compliance  and  enforcement  of  these  rules  by  national  regulatory 
authorities, the Agency, and/or the Commission, depending on the nature of the proposal in 
question.  In  case  the  transmission  system  operators  are  not  able  to  agree  on  necessary 
technical  and  market  codes  or  do  not  implement  them,  these  rules  can  be  proposed  and 
adopted through the comitology procedure on the proposal of the Commission.  

–  In  total,  the  present  proposal  defines eleven main  areas of cooperation. The annual work 
programmes of the European Network of transmission system operators (see Chapter 1.2), 
prepared in consultation with all stakeholders and the new Agency for the Cooperation of 
Energy  Regulators  (see  Chapter  3),  will  set  priorities  and  specify  in  more  detail  what 
technical  and  market  codes  are  needed.  Cooperation  between  transmission  system 
operators  should  also  include  implementation  monitoring  of  the  technical  and  market 
codes.  

–  Research and innovation activities of common interest: TSO cooperation should establish a 
framework  to  identify,  finance  and  manage  research  and  innovation  activities  necessary 
driving the sound technical development and evolution of the European electricity and gas 
networks, in particular to promote security of supply and energy efficiency and to enable 
penetration of low carbon technologies. 

–  Coordination  of  grid  operation.  TSO  cooperation  includes  the  common  operation  of 
networks according to the agreed market and technical codes. It also refers to the exchange 
of  network  operational  information  and  the  coordinated  publication  of  information  on 
network access, for example through a common transparency platform.  

–  Investment  planning.  So  as  to  make  sufficient  transmission  capacity  available  to  meet 
demand and to integrate national markets, network operators would need coordinated long-
term  planning  of  system  development  with  a  view  to  planning  network  investments  and 
monitoring  the  development  of  transmission  network  capacities.  The  idea  is  that  the 
European  Networks  of  transmission  system  operators  will  publish  network  development 

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plans,  to  include  the  integrated  network  modelling,  scenario  development  and  an 
assessment of the resilience and deliverability of the integrated system. These development 
plans should be sufficiently forward looking (e.g. at least 10 years) so as to allow for the 
early  identification  of  investment  gaps,  more  especially  with  cross  border  capacities  in 
mind.  

For the last two of these tasks in particular, regional initiatives play a positive role in market 
integration.  The  cooperation  of  transmission  system  operators  at  European  level  should 
indeed be complemented at regional level, in order to ensure real practical progress, optimum 
management  of  the  network7  and  appropriate  investment  planning  and  delivery.  The 
regulatory  framework  should  promote,  coordinate  and  develop  regional  initiatives  between 
transmission  system  operator  and  regulatory  authorities,  as  happens  with  the  Regional 
Initiatives led by ERGEG and initiatives such as the Pentalateral forum in Northwest Europe 
and as recommended by major stakeholders like Eurelectric.  

4.2. 

An improved cooperation mechanism 

It  is  important  for  the  transmission  system  operators'  cooperation  structures  to  be  fully 
recognised  at  European  level  as  having  the  authority  to  carry  out  the  above  tasks.  For  that 
purpose,  the  Commission  will  formally  designate  the  European  Networks  of  (gas  and 
electricity) transmission system operators in charge of these tasks.  

As  companies,  transmission  system  operators  must  be  transparent  about  the  way  they 
cooperate. They may build on existing structures such as GTE and ETSO. However, the tasks 
and  responsibilities  required  of  the  transmission  system  operators  will  mean  a  need  for  a 
central and permanent cooperation structure both in terms of organisation and practical tools 
for planning and operating the networks.  

The  Agency  for  the  Cooperation  of  Energy  Regulators  will  monitor  how  the  European 
Network of transmission system operators carries out the tasks conferred upon it.  

Involvement  and  consultation  of  stakeholders,  such  as  producers,  suppliers,  customers  and 
distribution  system  operators  will  be  developed  as  standard  practice  by  the  transmission 
system  operators  from  the  beginning  of  their  work  on  a  specific  subject.  For  that  purpose, 
stakeholders  will  be  consulted  on  any  draft  market  and  technical  code  prepared  by  the 
transmission  system  operators  and  they  will  be  able  to  comment  on  the  annual  work 
programme of the transmission system operators. The Agency will oversee that consultation is 
done properly. 

5. 

IMPROVING THE FUNCTIONING OF THE MARKET 

The present proposal also aims at improving the legislative framework to facilitate third party 
access  to  key  infrastructures,  to  increase  transparency  on  the  market,  to  enhance  market 
integration and to improve access to retail customers. 

7 

For example, in electricity, it is clear that the setting of technical codes needs to be determined for each 
synchronous area for some issues.  

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5.1. 

Exemption regime 

The  current  legislation  allows  major  new  infrastructure  to  be  exempt  from  regulated  third 
party access rules for a pre-determined period. Several infrastructures have been completed or 
are  under  way,  including  gas  and  electricity  interconnectors  and  LNG  facilities  that  have 
made use of this possibility. This has helped to take forward projects which benefit security of 
supply  and  competition.  At  the  same  time,  experience  so  far  shows  that  project  developers, 
regulators and the Commission could benefit  from a streamlined procedure  for applying for 
and granting  exemptions  as well as  a clarification  of  some  of  the  conditions. Therefore,  the 
Commission proposes to formulate guidelines to assist applicants and regulators in applying 
the conditions for an exemption. To ensure that exempted infrastructure can nevertheless be 
used optimally by the market, it is proposed to make general the minimum requirements for 
the  allocation  of  capacity  and  congestion  management  provisions  for  the  new  infrastructure 
that have so far been applied on a case-by-case basis. 

5.2. 

Transparency 

The internal electricity and gas market is suffering from a lack of liquidity and transparency 
hindering the efficient allocation of resources, limiting risk hedging possibilities and blocking 
new entrants. Trust in the market, its liquidity and the number of market participants need to 
increase, by increasing the information that is available to the market. 

Current requirements on transparency focus on publication of capacity of the network, so that 
market participants are able to see if capacity is available and if all available capacity is being 
offered  to  the  market.  However,  market  participants  also  need  to  have  equal  access  to 
information that determines wholesale price movements.  

Currently, incumbents who are responsible for the largest part of the gas and electricity flows, 
and  who  own  the  majority  of  the  assets  in  the  market,  have  more  and  better  access  to 
information than new entrants. In electricity, there are requirements in the form of guidelines 
attached  to  the  regulation  setting  out  transparency  requirements  on  the  generation  of 
electricity, but they are not sufficient, and in gas no such requirements exist at the moment. 
Therefore it is proposed to extend the transparency requirements to cover gas stocks, forecasts 
of demand and supply, costs for balancing the network and trading.  

The correct and full application of these requirements needs to be controlled and monitored 
by the national regulatory authorities, so their powers need to be strengthened accordingly. 

On the issue of transparency regarding derivatives and financial instruments with respect to 
which  these  proposals  do  not  provide  for  additional  requirements  on  the  companies 
concerned, the Commission will examine this issue in detail and reach a conclusion towards 
the middle of 2008. The Agency for the Cooperation of Energy Regulators and the Committee 
of European Securities Regulators are invited to cooperate to further investigate and advise on 
the  question  whether  transactions  in  gas  and  electricity  supply  contracts  and  gas  and 
electricity derivatives should be subject to pre and/or post-trade transparency requirements.  

5.3. 

Access to storage 

The existing Directive on the internal gas market provides that where storage is an essential 
facility in order to be able to supply customers, storage operators have to give access to third 
parties.  Member  States  have  the  choice  to  ensure  access  to  these  storage  facilities  either 

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through  conditions  defined  by  the  regulator  or  by  obliging  storage  system  operators  to 
negotiate access conditions with customers. The requirements in the Directive are limited to 
the  principles,  and  leave  a  great  deal  of  freedom  to  the  Member  States  in  defining  their 
regulatory  framework.  Body  was  subsequently  given  to these principles through  the Madrid 
Forum, where all stakeholders agreed to voluntary 'Guidelines for Good Third Party Access 
Practice  for  Storage  System  Operators'  (GGPSSO).  However,  ERGEG  has  concluded  that 
overall implementation of these guidelines is poor.  

For them to be effectively applied, the Commission proposes four measures: 

–  Make the principles in the guidelines legally binding and allow for detailed implementation 

of the guidelines through comitology; 

–  Establish  legal  and  functional  unbundling  of  storage  system  operators  who  are  part  of 

supply undertakings; 

–  Enhance the powers of national regulatory authorities to oversee access to storage; 

–  Require clarity on the regulatory regime that is applied to storage facilities. 

To make the guidelines legally binding, the Regulation will be extended to define how storage 
system operators must offer third party access services, and how they should allocate capacity 
and  manage  congestion.  It  will  also  define  the  transparency  requirements  and  propose 
measures  to  enable  a  secondary  market  in  storage  capacity  to  develop.  These  rules  should 
ensure  that  all  storage  that  is  available  to  third  parties  is  offered  to  the  market  in  a  non-
discriminatory  and  transparent  manner,  and  that  capacity-hoarding  is  strongly  discouraged. 
These rules shall also serve to ensure consistency with the proposed minimum requirements 
on exempted infrastructure.  

By requiring legal and functional unbundling of storage system operators, effective access to 
storage  will  be  greatly  enhanced.  The  fact  that  currently,  when  suppliers  need  storage,  they 
have  to  contact  their  competitors  to  contract  their  storage  need,  does  not  enhance  market 
confidence  and  is  a  serious  barrier  for  new  entrants.  Requiring  unbundled  storage  operators 
will  improve  this  situation  and  it  will  enable  competitors  and  regulators  to  check  that  all 
available storage capacity is offered to the market.  

The  Commission  proposes  to  erase  the  ambiguity  that  exists  on  the  proportion  of  storage 
capacity that is offered to the market, requiring that all Member States need to define criteria 
when  and  how  third  party  access  to  storage  applies  and  this  has  to  be  made  public.  The 
regulator  consequently  has  the  task  to  control  if  these  criteria  are  applied  correctly  to  all 
storages.  

5.4. 

Access to LNG terminals 

The  role  of  LNG  in  the  supply  of  gas  to  the  European  Union  is  becoming  ever  more 
important, and a lot of investment in LNG terminals is planned or under way. For that reason, 
transparent rules on access to LNG terminals are needed. Regulators have identified the need, 
and  ERGEG  has  prepared  guidelines  with  a  goal  create  a  common  approach  to  third  party 
access for LNG terminals.  

Although many LNG terminals constructed have used the possibilities to be exempted from 
third party access and regulatory intervention under Article 22 of the Directive, there are also 

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LNG  terminals  for  which  third  party  access  rules  apply.  Since  the  current  Directive  only 
imposes a general requirement that access has to be regulated, this leaves room to diverging 
interpretations  among  Member  States.  Moreover,  an  exemption  under  Article  22  is  always 
temporary, and when the exempted period has passed, LNG terminals will become regulated. 
Therefore the Commission proposes to impose more clearly defined third party access rules to 
LNG  terminals.  To  make  the  guidelines  legally  binding,  the  Regulation  will  be  extended  to 
define  how  LNG  terminal  operators  should  offer  third  party  access  services,  and  how  they 
should  allocate  capacity  and  manage  congestion.  It  will  also  define  the  transparency 
requirements  and  propose  measures  to  enable  a  secondary  market  in  terminal-capacity  to 
develop.  These  rules  shall  also  serve  to  ensure  consistency  with  the  proposed  minimum 
requirements on exempted infrastructure.  

5.5. 

Long-term supply agreements 

Downstream bilateral supply agreements provide an opportunity to energy intensive industries 
to obtain more predictable prices. However, such agreements risk foreclosing the downstream 
market  by  preventing  consumers  from  switching  and  thus  limiting  competition.  To  reduce 
uncertainty on the market, the Commission will, in the coming months, provide guidance in 
an appropriate form on the compliance of downstream bilateral long-term supply agreements 
with EC competition law. 

5.6. 

A framework for the gradual establishment of a European retail market 

Neither  in  the  electricity  nor  the  gas  market  is  it  yet  possible  to  speak  of  a  European  retail 
market  (households  and  small  enterprises),  as  customers,  assuming  they  have  a  choice,  are 
still obliged to choose a supplier established in the same country. Establishing a true European 
end-user market is the ultimate goal of the internal electricity and gas markets: it is necessary 
for creating competitive markets and for achieving maximum efficiency. Liberalisation in the 
retail market is important to ensure that all EU citizens are able to benefit from competition. If 
liberalisation applied only to large customers, European households would end up subsidising 
their industry and investment signals for new generation and supply would be distorted. From 
1 July 2007, all retail markets in the EU have opened up to competition, but in practice many 
consumers are tied to their historic suppliers because an appropriate legal framework had not 
been  put  in  place  as  required.  A  European  retail  market  can  only  be  created  gradually.  To 
stimulate this process the Commission is considering setting up a retail forum by analogy with 
the positive experience of the Florence and Madrid Forums. This forum would allow to focus 
on specific retail issues, and it should serve as a platform for all stakeholders to promote the 
establishment  of  an  EU  wide  retail  market.  The  forum  would  provide  guidance  for  the 
proposed  obligations  on  the  Member  States  and  the  regulatory  authorities  to  establish  clear 
rules  on  competition  in  the  retail  market,  with  a  view  to  gradually  harmonising  the  market 
rules to allow cross-border retail markets.  

Well-functioning  retail  markets  will  also  play  a  very  important  role  in  increasing  people's 
awareness of domestic energy consumption and the cost of energy, as all measures to reduce 
CO2-emissions  and  increase  energy  efficiency  require  action  from  households.  Competition 
over  supply  to  households  will  enhance  people's  energy-awareness.  However,  current 
practices whereby consumers only receive the final bill for their consumption after a year do 
not  create  such  awareness,  neither  does  it  enable  suppliers  to  develop  competitive  services 
that  distinguish  between  households  with  specific  needs.  Suppliers  therefore  need  to  give 
more  information  to  ensure  that  customers  get  more  frequent  information  on  their  energy 
consumption and costs. 

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It is obvious that freedom of choice for consumers must be accompanied by strong guarantees 
on the rights of the customers. Vulnerable customers have already a high degree of protection 
in the current directive to ensure that they will have access to the energy they need to lead a 
normal life. These measures have however been incorrectly applied in some countries, and to 
clarify  the  framework,  the  Commission  proposes  to  define  binding  guidelines.  At  the  same 
time,  the  Commission  proposes  to  strengthen  the  rights  of  all  customers,  among  others  by 
giving them the right to change supplier at any time and requiring energy companies that bills 
are settled within a month after a consumer switches supplier. 

Finally, the Commission has come  to the  conclusion that for Distribution System Operators 
(DSOs) the current legal and functional unbundling rules are sufficient. It does not therefore 
propose to extend the ownership unbundling rules outlined in Chapter 4 above to DSOs. 

6. 

COOPERATION TO REINFORCE SECURITY OF SUPPLY 

6.1. 

Security of supply monitoring by transmission system operators 

It is important to ensure that the electricity and gas systems can meet demand even in peak 
times. In the case of electricity, this is only possible when there is enough generation capacity 
(generation adequacy) and the network is capable of transporting the energy from generators 
to  final  consumers  (network  adequacy).  In  the  case  of  gas,  sufficient  import  and  storage 
capacity need to be in place.  

Directive  2005/89/EC  requires  the  national  regulators,  with  the  help  of  the  transmission 
system  operators,  to  report  yearly  to  the  Commission  on  security  of  electricity  supply. 
Directive 2004/67/EC requires Member States to report on the security of gas supply situation 
and  on  the  regulatory  framework  to  enhance  investment  in  infrastructure.  The  proposed 
amendments  to  Regulations  (EC)  No  1228/2003  and  (EC)  No  1775/2005  give  the  task  of 
making system adequacy forecasts for every summer and winter as well for the long term to 
the Network of European Transmission System Operators. A European outlook is necessary 
to take into account the possibilities to export and import electricity and gas in peak demand 
conditions.  Due  to  the  cross-border  electricity  and  gas  flows  within  the  internal  market,  the 
outlook needs to be carried out at the European level. 

6.2. 

Cooperation of Member States 

EU  legislation  has  two  instruments  dealing  with  security  of  gas  supply.  First,  Directive 
2003/55/EC  introduced  general  monitoring  obligations  for  the  Member  States.  Second, 
Directive  2004/67/EC  specifically  concerns  measures  to  safeguard  security  of  gas  supply. 
This  later  directive  establishes  the  Gas  Coordination  Group  and  defines  a  "Community 
mechanism" in the event of supply disruption.  

These  instruments  provide  for  a  coordination  platform.  They  do  not  define  quantitative 
objectives  as  regards  security  of  supply,  nor  do  they  impose  any  obligation  as  regards  gas 
stocks.  Finally,  they  do  not  provide  a  framework  for  regional  cooperation  in  case  of  severe 
supply disruptions.  

Directive  2004/67/EC  was  only  recently  transposed  by  the  Member  States.  Its  Article  10 
provides  for  the  Commission  to  report  by  19  May  2008  on  its  implementation  and  in 
particular  on  the  effectiveness  of  its  instruments  and  that  it  may  issue  further  proposals 

EN 

19 

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concerning  security  of  supply.  In  particular,  this  report  will  address  security  of  supply 
measures in relation to gas stocks.  

For that reason, as a first step, the present proposals do not modify Directive 2004/67/EC and 
only address two issues: 

–  Increased  transparency  obligations  on  the  level  of  commercial  stocks.  Each  storage 
operator would have the obligation to publish on a daily basis the amount of working gas it 
has  in  its  facilities.  This  obligation  would  considerably  increase  mutual  confidence  for 
regional and bilateral assistance in case of severe supply disruptions.  

–  Solidarity  It  is  proposed  that  Member  States  cooperate  in  order  to  promote  regional  and 
bilateral solidarity This cooperation is intended to cover situations which would be likely 
to  result  in  severe  disruptions  of  gas  supply  affecting  a  Member  State.  Examples  of  this 
coordination  are  the  streamlining  of  national  measures  to  deal  with  emergencies  and  the 
elaboration  of  practical  modalities  for  mutual  assistance.  The  Commission  will  adopt 
guidelines for regional solidarity cooperation, if needed. 

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2007/0195 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 2003/54/EC concerning common rules for the internal market 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 Articles 
47(2), 55, and 95 thereof, 

Having regard to the proposal from the Commission8, 

Having regard to the opinion of the European Economic and Social Committee9, 

Having regard to the opinion of the Committee of the Regions10, 

Acting in accordance with the procedure laid down in Article 251 of the Treaty11, 

Whereas: 

(1) 

(2) 

(3) 

The  internal  market  for  electricity,  which  has  been  progressively  implemented 
throughout  the  Community  since  1999,  aims  at  delivering  real  choice  for  all  EU 
consumers, whether citizens or business, new business opportunities and more cross-
border  trade,  so  as  to  achieve  efficiency  gains,  competitive  prices,  and  higher 
standards of service, and to contribute to security of supply and sustainability. 

Directive 2003/54/EC of the European Parliament and of the Council of 26 June 2003 
concerning common rules for the internal market in electricity and repealing Directive 
96/92/EC12 has made a significant contribution towards the creation of such an internal 
market for electricity. 

However, at present, the right to sell electricity in any Member State on equal terms 
and without discrimination or disadvantages cannot be guaranteed to any company in 
the  Community.  In  particular,  non-discriminatory  network  access  and  an  equally 
effective level of regulatory supervision in each Member State do not yet exist, since 
the current legal framework is insufficient. 

8 
9 
10 
11 
12 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ L 176, 15.7.2003, p. 37. 

EN 

21 

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(4) 

The  Communication  of  the  Commission  of  10  January  2007  entitled  "An  Energy 
Policy for Europe"13 highlighted the importance of completing the internal market in 
electricity and of creating a level playing field for all electricity companies established 
in the Community. The Internal Energy Market Communication14 and the final Report 
on the Competition Sectoral Enquiry15 showed that the present rules and measures do 
not provide the necessary framework for achieving the objective of a well functioning 
internal market. 

(5)  Without  effective  separation  of  networks  from  activities  of  generation  and  supply, 
there is an inherent risk of discrimination not only in the operation of the network but 
also in the incentives for vertically integrated companies to invest adequately in their 
networks. 

(6) 

(7) 

(8) 

(9) 

13 
14 

15 

The  rules  on  legal  and  functional  unbundling  currently  in  place  have  not  led  to 
effective unbundling of the transmission system operators. At its meeting in Brussels 
on  8  and  9  March  2007,  the  European  Council  invited  the  Commission  to  develop 
legislative  proposals  for  the  effective  separation  of  supply  and  generation  activities 
from network operations.  

Only  the  removal  of  the  inherent  incentive  for  vertically  integrated  companies  to 
discriminate against competitors as regards network access and investment can ensure 
effective unbundling. Ownership unbundling, which implies the network owner being 
appointed  as  the  network  operator  and  being  independent  from  any  supply  and 
production interests, is clearly the most effective and stable way to solve the inherent 
conflict  of  interest  and  to  ensure  security  of  supply.  For  this  reason,  the  European 
Parliament  in  its  Resolution  on  Prospects  for  the  internal  gas  and  electricity  market 
adopted on 10 July 2007 referred to ownership unbundling at transmission level as the 
most  effective tool  to promote investments in infrastructures in  a non-discriminatory 
way, fair access to the grid for new entrants and transparency in the market. Member 
States should therefore be required to ensure that the same person or persons are not 
entitled to exercise control, including through minority blocking rights on decisions of 
strategic  importance  such  as  investments,  over  a  production  or  supply  undertaking 
and,  at  the  same  time,  hold  any  interest  in  or  exercise  any  right  over  a  transmission 
system  operator  or  transmission  system.  Conversely,  control  over  a  transmission 
system operator should preclude the possibility of holding any interest in or exercising 
any right over a supply undertaking.  

Since  ownership  unbundling  requires,  in  some  instances,  the  restructuring  of 
undertakings, Member States should be granted  additional  time to apply the relevant 
provisions.  In  view  of  the  vertical  links  between  the  electricity  and  gas  sectors,  the 
unbundling provisions should apply, moreover, across the two sectors. 

To  ensure  full  independence  of  network  operation  from  supply  and  generation 
interests  and  to  prevent  exchange  of  any  confidential  information,  the  same  person 
should  not  be  a  member  of  the  managing  boards  of  both  a  transmission  system 

COM(2007) 1. 
Communication  of  the  Commission  to  the  European  Parliament  and  the  Council  on  prospects  for  the 
internal gas and electricity market - COM(2006) 841. 
Communication from the Commission "Sector Enquiry under Article 17 of Regulation (EC) No 1/2003 
on the gas and electricity markets (final report)" - SEC(2006) 1724. 

EN 

22 

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operator and an undertaking performing any of the functions of generation or supply. 
For the same reason, the same person should not be entitled to appoint members of the 
managing boards of a transmission system operator and to hold any interest in a supply 
undertaking.  

(10)  The setting up of system operators independent from supply and generation interests 
should enable vertically integrated companies to maintain their ownership of network 
assets  whilst  ensuring  an  effective  separation  of  interests,  provided  that  the 
independent  system  operator  performs  all  the  functions  of  a  network  operator  and 
detailed regulation and extensive regulatory control mechanisms are put in place.  

(11)  Where the undertaking owning a transmission system is part of a vertically integrated 
undertaking,  Member  States  should  therefore  be  given  a  choice  between  ownership 
unbundling  and,  as  a  derogation,  setting  up  system  operators  which  are  independent 
from supply and generation interests. The full effectiveness of the independent system 
operator solution needs to be assured by way of specific additional rules. To preserve 
fully  the  interests  of  the  shareholders  of  vertically  integrated  companies,  Member 
States should have the choice of implementing ownership unbundling either by direct 
divestiture  or  by  splitting  the  shares  of  the  integrated  company  into  shares  of  the 
network  company  and  shares  of  the  remaining  supply  and  generation  business, 
provided  that  the  requirements  resulting  from  ownership  unbundling  are  complied 
with. 

(12)  The  implementation  of  effective  unbundling  should  respect  the  principle  of  non-
discrimination between the public and private sectors. To this effect, the same person 
should not be able to exercise any influence, solely or jointly, over the composition, 
voting  or  decision  of  the  bodies  of  both  transmission  system  operators  and  supply 
undertakings.  Provided  that  the  Member  State  in  question  can  demonstrate  that  this 
requirement  is  respected,  two  distinct  public  bodies  could  control  on  the  one  hand 
generation and supply activities and on the other transmission activities. 

(13)  Full  separation  of  network  and  supply  activities  should  apply  throughout  the 
Community,  so  that  any  network  operator  in  the  Community  or  its  affiliated 
companies should be prevented from having any supply or generation activities in any 
Member  State.  This  should  apply  equally  to  EU  and  non-EU  companies.  To  ensure 
that  network  and  supply  activities  throughout  the  Community  are  kept  separate, 
regulatory  authorities  should  be  empowered  to  refuse  certification  to  transmission 
system operators that do not comply with the unbundling rules. To ensure a consistent 
application  across  the  Community  and  the  respect  of  the  international  obligations  of 
the  Community,  the  Commission  should  have  the  right  to  review  the  decisions  on 
certification taken by the regulatory authorities.  

(14)  The  safeguarding  of  energy  supply  is  an  essential  element  of  public  security  and  is 
therefore inherently connected to the efficient functioning of the EU electricity market. 
Electricity  can  only  reach  EU  citizens  through  the  network.  Functioning  electricity 
markets  and  in  particular  the  networks  and  other  assets  associated  with  electricity 
supply are essential for public security, for the competitiveness of the economy and for 
the well-being of the citizens of the Community. Without prejudice to the international 
obligations  of  the  Community,  the  Community  considers  that  the  electricity 
transmission  system  sector  is  of  high  importance  to  the  Community  and  therefore 
additional safeguards are necessary regarding the influence of third countries in order to 

EN 

23 

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avoid any threats to Community public order and public security and the welfare of the 
citizens of the Community. Such measures are also necessary for ensuring compliance 
with the rules on effective unbundling. 

(15)  Non discriminatory access to the distribution network determines downstream access 
to customers at retail level. The scope for discrimination as regards third party access 
and  investment  is  however  less  significant  at  distribution  level  than  at  transmission 
level because at distribution level congestion and the influence of generation interests 
are  generally  less  important  than  at  transmission  level.  Moreover,  functional 
unbundling  of  distribution  system  operators  became,  according  to  Directive  2003/54 
compulsory only as of 1 July 2007 and its effects on the internal market still need to be 
evaluated. The rules on legal and functional unbundling currently in place can lead to 
effective  unbundling  provided  they  are  more  clearly  defined,  properly  implemented 
and closely monitored. To create a level playing field at retail level, the activities of 
distribution system operators should therefore be monitored so that they are prevented 
from taking advantage of their vertical integration as regards their competitive position 
on the market, in particular in relation to small domestic and non-domestic customers.  

(16)  Directive  2003/54/EC  introduced  a  requirement  for  Member  States  to  establish 
the 
regulators  with  specific  competences.  However,  experience  shows 
effectiveness of regulation is frequently hampered through a lack of independence of 
regulators from government, and insufficient powers and discretion. For this reason, at 
its  meeting  in  Brussels  on  8  and  9  March  2007,  the  European  Council  invited  the 
Commission  to  develop  legislative  proposals  providing  for  further  harmonisation  of 
the powers and strengthening of the independence of national energy regulators. 

that 

(17)  Energy regulators need to be able to take decisions on all relevant regulatory issues if 
the internal market is to function correctly, and to be fully independent from any other 
public or private interests.  

(18)  Energy  regulators  should  have  the  power  to  issue  binding  decisions  on  electricity 
undertakings  and  to  impose  effective,  appropriate  and  dissuasive  sanctions  on 
electricity undertakings which fail to comply with their obligations. They must also be 
granted the powers to decide, irrespective of the application of competition rules, on 
any  appropriate  measures  promoting  effective  competition  necessary  for  the  proper 
functioning  of  the  market;  as  well  as  ensure  high  standards  of  universal  and  public 
service  in  compliance  with  market  opening,  the  protection  of  vulnerable  customers, 
and that consumer protection measures are fully effective. These provisions should be 
without  prejudice  to  both  the  Commission's  powers  concerning  the  application  of 
competition rules including the examination of mergers with a Community dimension, 
and the rules on the internal market such as the free movement of capital. 

(19)  The  internal  electricity  market  is  suffering  from  a  lack  of  liquidity  and  transparency 
hindering the efficient allocation of resources, risk hedging and new entry. Trust in the 
market,  its  liquidity  and  the  number  of  market  participants  need  to  increase,  and 
therefore  regulatory  oversight  over  undertakings  active  in  the  supply  of  electricity 
need  to  be  increased.  Such  requirements  should  be  without  prejudice  to,  and 
compatible  with,  the  existing  Community  legislation  on  financial  markets.  Energy 
Regulators and Financial Market Regulators need to cooperate in order to enable each 
other to have an overview over the markets concerned. 

EN 

24 

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(20)  Prior to adoption by the Commission of guidelines defining further the record keeping 
requirements,  the  Agency  for  the  Cooperation  of  Energy  Regulators  and  the 
Committee of European Securities Regulators (CESR) should cooperate to investigate 
and  advise  the  Commission  on  the  content  of  the  guidelines.  The  Agency  and  the 
Committee  should  also  cooperate  to  further  investigate  and  advise  on  the  question 
whether  transactions  in  electricity  supply  contracts  and  electricity  derivatives  should 
be  subject  to  pre  and/or  post-trade  transparency  requirements  and  if  so  what  the 
content of those requirements should be. 

(21)  The public service requirements and the common minimum standards that follow from 
them need to be further strengthened to make sure that all consumers can benefit from 
competition. A key aspect in supplying customers is access to consumption data, and 
consumers must have access to their data so that they can invite competitors to make 
an  offer  based  on  these  data.  Consumers  also  should  have  the  right  to  be  properly 
informed about their energy consumption. Regularly provided information on energy 
costs  will  create  incentives  for  energy  savings  because  it  will  give  customers  direct 
feedback on the effects of investment in energy efficiency and change of behaviour.  

(22) 

In  view  of  the  creation  of  an  internal  market  for  electricity,  Member  States  should 
foster  the  integration  of  their  national  markets  and  the  cooperation  of  network 
operators at European and regional level. 

(23)  Regulatory  authorities  should  provide  information  to  the  market  also  to  permit  the 
Commission to exercise its role of observing and monitoring the European electricity 
market  and  its  short,  medium  and  long  term  evolution,  including  aspects  such  as 
generation  capacity,  different  sources  of  electricity  generation,  transmission  and 
distribution  infrastructures,  cross-border  trade,  the  investments,  wholesale  and 
consumers prices, market liquidity, environmental and efficiency improvements. 

(24)  Since the objectives of the proposed action, namely the creation of a fully operational 
internal electricity market, cannot be sufficiently achieved by the Member States and 
can  therefore,  by  reason  of  the  scale  and  effects  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  proportionality,  as  set  out  in  that  Article,  this  Directive  does  not  go 
beyond what is necessary in order to achieve those objectives. 

(25)  Regulation (EC) No 1228/2003 of the European Parliament and of the Council of 26 
June  2003  on  conditions  for  access  to  the  network  for  cross-border  exchanges  in 
electricity16  provides  the  Commission  with  the  possibility  of  adopting  guidelines  to 
achieve  the  necessary  degree  of  harmonisation.  Such  guidelines,  which  are  thus 
binding implementing measures, are a useful tool which can be adapted quickly where 
necessary.  

(26)  The measures necessary for the implementation of Directive 2003/54/EC as amended 
by this Directive should be adopted in accordance with Council Decision 1999/468/EC 

16 

OJ L 176, 15.7.2003, p. 1. 

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25 

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of 28 June 1999 laying down the procedures for the exercise of implementing powers 
conferred on the Commission17. 

(27) 

In  particular  power  should  be  conferred  on  the  Commission  to  adopt  the  guidelines 
necessary for providing the minimum degree of harmonisation required to achieve the 
aim  of  Directive  2003/54/EC.  Since  those  measures  are  of  general  scope  and  are 
designed  to  supplement  Directive  2003/54/EC  by  the  addition  of  new  non-essential 
elements,  they  must  be  adopted  in  accordance  with  the  regulatory  procedure  with 
scrutiny provided for in Article 5a of Decision 1999/468/EC.  

(28)  Directive 2003/54/EC should be amended accordingly, 

HAVE ADOPTED THIS DIRECTIVE: 

Article 1 
Amendments to Directive 2003/54/EC 

Directive 2003/54/EC is amended as follows: 

(1) 

Article 2 is amended as follows: 

(a) 

point 21 is amended as follows: 

“21.  'vertically  integrated  undertaking'  means an electricity  undertaking, or  a group 
of  electricity  undertakings  where  the  same  person  or  the  same  persons  are  entitled, 
directly  or  indirectly,  to  exercise  control  within  the  meaning  of  Article  3(2)  of 
Council  Regulation  (EC)  No  139/2004  of  20  January  2004  on  the  control  of 
concentrations  between  undertakings*,  and  where  the  undertaking  or  group  of 
undertakings perform at least one of the functions of transmission or distribution, and 
at least one of the functions of generation or supply of electricity;” 

* 

OJ L 145, 30.4.2004, p. 1 

(b) 

The following points 32 to 34 are added:  

"32.  'electricity  supply  contract'  means  a  contract  for  the  supply  of  electricity,  but 
does not include a electricity derivative; 

33. 'electricity derivative' means a financial instrument specified in one of Sections 
C5, C6, or C7 of Annex I to Directive 2004/39/EC of the European Parliament and of 
the  Council  of  21  April  2004  on  markets  in  financial  instruments18,  where  that 
instrument relates to electricity; 

34. "control" means any rights, contracts or any other means which, either separately 
or  in  combination  and  having  regard  to  the  considerations  of  fact  or  law  involved, 
confer the possibility of exercising decisive influence on an undertaking, in particular 
by: 

17 

18 

OJ  L184,  17.7.1999, p.  23. Decision  as  amended by  Decision  2006/512/EC  (OJ  L  200,  22.7.2006,  p. 
11). 
OJ L 145, 30.4.2004, p. 1. 

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26 

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(a) ownership or the right to use all or part of the assets of an undertaking; 

(b) rights or contracts which confer decisive influence on the composition, voting or 
decisions of the organs of an undertaking." 

(2) 

 In Article 3, the following paragraph 10 is added: 

"10.  The  Commission  may  adopt  guidelines  for  the  implementation  of  this  Article. 
This  measure,  designed  to  amend  non-essential  elements  of  this  Directive  by 
supplementing it, shall be adopted in accordance with the regulatory procedure with 
scrutiny referred to in Article 27b(3)" 

(3) 

The following Article 5a is inserted: 

"Article 5a 
Promotion of Regional Cooperation 

Member States shall cooperate among themselves for the purpose of integrating their 
national  markets  at  least  at  the  regional  level.  In  particular,  Member  States  shall 
promote  the  cooperation  of  network  operators  at  a  regional  level,  and  foster  the 
consistency of their legal and regulatory framework. The geographical area covered 
by regional cooperations shall be in line with the definition of geographical areas by 
the Commission in accordance with Article 2h(3) of Regulation (EC) No 1228/2003 
of  the  European  Parliament  and  of  the  Council  of  26  June  2003  on  conditions  for 
access to the network for cross-border exchanges in electricity19." 

(4) 

Article 8 is replaced as follows: 

"Article 8 
Unbundling of transmission systems and transmission system operators 

1. Member States shall ensure that as from [date of transposition plus one year]: 

(a) each undertaking which owns a transmission system acts as a transmission system 
operator;  

(b) the same person or the same persons are not entitled: 

(i)  to  directly  or  indirectly  exercise  control  over  an  undertaking  performing  any  of 
the functions of generation or supply, and to directly or indirectly exercise control or 
hold any interest in or exercise any right over a transmission system operator or over 
a transmission system, 

or 

(ii) to  directly or indirectly exercise control over  a transmission  system operator or 
over a transmission system, and to directly or indirectly exercise control or hold any 
interest in or exercise any right over an undertaking performing any of the functions 
of generation or supply; 

19 

OJ L 176, 15.7.2003 p. 1. 

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(c) the same person or the same persons are not entitled to appoint members of the 
supervisory  board,  the  administrative  board  or  bodies  legally  representing  the 
undertaking,  of  a  transmission  system  operator  or  a  transmission  system,  and  to 
directly  or  indirectly  exercise  control  or  hold  any  interest  in  or  exercise  any  right 
over an undertaking performing any of the functions of generation or supply;  

(d)  the  same  person  is  not  entitled  to  be  a  member  of  the  supervisory  board,  the 
administrative  board  or  bodies  legally  representing  the  undertaking,  of  both  an 
undertaking  performing  any  of  the  functions  of  generation  or  supply  and  a 
transmission system operator or a transmission system. 

2. The interests and rights referred to in paragraphs 1(b) shall include, in particular: 

(a) 

the ownership of part of the capital or of the business assets, or 

(b) 

the power to exercise voting rights, or 

(c) 

the  power  to  appoint  members  of  the  supervisory  board,  the  administrative 
board or bodies legally representing the undertaking, or 

(d) 

the right to obtain dividends or other shares of the benefits. 

3. For the purpose of paragraph 1(b), the notion "undertaking performing any of the 
functions  of  production  or  supply"  shall  cover  “undertaking  performing  any  of  the 
functions of production and supply” within the meaning of Directive 2003/55/EC of 
the  European  Parliament  and  of  the  Council  of  26  June  2003  concerning  common 
rules for the internal market in gas and repealing Directive 98/30/EC*, and the terms 
"transmission system operator" and "transmission system" shall cover "transmission 
system  operator"  and  "transmission  system"  within  the  meaning  of  Directive 
2003/55/EC. 

* 

OJ L 176, 15.7.2003, p. 57 

4.  Member  States  may  allow  for  derogations  from  paragraphs  1(b)  and  1(c)  until 
[date  of  transposition  plus  two  years],  provided  that  transmission  system  operators 
are not part of a vertically integrated undertaking. 

5.  The  obligation  set  out  in  paragraph  1(a)  is  deemed  to  be  fulfilled  in  a  situation 
where  several  undertakings  which  own  transmission  systems  have  created  a  joint 
venture  which  acts  as  a  transmission  system  operator  in  several  Member  States  for 
the  transmission  systems  concerned.  No  other  undertaking  may  be  part  of  the  joint 
venture,  unless  it  has  been  approved  under  Article  10  as  an  independent  system 
operator. 

6. Member States shall ensure that commercially sensitive information referred to in 
Article  12  held  by  a  transmission  system  operator  which  was  part  of  a  vertically 
integrated undertaking, and the staff of such a transmission system operator, are not 
transferred  to  undertakings  performing  any  of  the  functions  of  generation  and 
supply."  

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(5) 

The following Articles 8a and 8b are inserted: 

"Article 8a 

Control over transmission system owners and transmission system operators 

1. Without prejudice to the international obligations of the Community, transmission 
systems  or  transmission  system  operators  shall  not  be  controlled  by  a  person  or 
persons from third countries. 

2.  An  agreement  concluded  with  one  or  several  third  countries  to  which  the 
Community is a party may allow for a derogation from paragraph 1. 

Art. 8b 

Designation and certification of transmission system operators 

1. Undertakings which own a transmission system and which have been certified by 
the national regulatory authority as having complied with the requirements of Article 
8(1)  and  8a,  pursuant  to  the  certification  procedure  below,  shall  be  approved  and 
designated  as  transmission  system  operators  by  Member  States.  The  designation  of 
transmission system operators shall be notified to the Commission and published in 
the Official Journal of the European Union. 

2.  Without  prejudice  to  the  international  obligations  of  the  Community,  where 
certification  is  requested  by  a  transmission  system  owner  or  transmission  system 
operator controlled by a person or persons from third countries in compliance  with 
Article  8a,  it  shall  be  denied  unless  the  transmission  system  owner  or  transmission 
system operator demonstrate that there is no possibility for the entity concerned to be 
influenced, in violation of Article 8(1), directly or indirectly by any operator active in 
the production or supply of gas or electricity or by a third country.  

3. Transmission system operators shall notify to the regulatory authority any planned 
transaction which may require a reassessment of their compliance with Articles 8(1) 
or 8a. 

4.  Regulatory  authorities  shall  monitor  the  continuing  compliance  of  transmission 
system operators with Articles 8(1) and 8a. They shall open a certification procedure 
to ensure such compliance: 

(a) upon notification by the transmission system operator pursuant to paragraph 3;  

(b) on their own initiative where they have knowledge that a planned change in rights 
or influence over transmission system owners or transmission system operators may 
lead to an infringement of Articles 8(1) or 8a, or where they have reason to believe 
that such an infringement may have occurred; or 

(c) upon reasoned request from the Commission. 

5.  The  regulatory  authorities  shall  adopt  a  decision  on  the  certification  of  a 
transmission system operator within four months from the date of the notification by 
the transmission system operator or from the date of the Commission request. After 

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expiry of this period, the certification is deemed to be granted. The explicit or tacit 
decision of the regulatory authority may become effective only after the conclusion 
of the procedure set out in paragraphs 6 to 9 and only if the Commission fails to raise 
objections against it. 

6. The explicit or tacit decision on the certification of a transmission system operator 
shall  be  notified  without  delay  to  the  Commission  by  the  regulatory  authority, 
together with all the relevant information with respect to the decision.  

7.  The  Commission  shall  examine  the  notification  as  soon  as  it  is  received.  Within 
two  months  after  receiving  a  notification,  where  the  Commission  finds  that  the 
decision of the regulatory authority raises serious doubts as to its compatibility with 
Articles  8(1),  8a  or  8b(2),  it  shall  decide  to  initiate  proceedings.  In  such  a  case,  it 
shall invite the regulatory authority and the transmission system operator concerned 
to submit comments. Where additional information is sought by the Commission, the 
two-month-period  may  be  extended  by  two  additional  months  starting  from  the 
receipt of the complete information. 

8.  Where  the  Commission  has  decided  to  initiate  proceedings,  it  shall,  within  not 
more than four months of the date of such decision, issue a final decision 

(a) not to raise objections against the decision of the regulatory authority; 

or 

(b) requiring the regulatory authority concerned to amend or withdraw its decision if 
it considers that Articles 8(1), 8a or 8b(2) have not been complied with.  

9. Where the Commission has not taken a decision to initiate proceedings or a final 
decision  within  the  time-limits  set  in  paragraphs  7  and  8  respectively,  it  shall  be 
deemed not to have raised objections against the decision of the regulatory authority. 

10. The regulatory authority shall comply with the Commission decision to amend or 
withdraw the certification decision within a period of four weeks and shall inform the 
Commission accordingly. 

11.  Regulatory  authorities  and  the  Commission  may  request  from  transmission 
system operators and undertakings performing any of the functions of generation of 
supply any information relevant for the fulfillment of their tasks under this Article. 

12. Regulatory authorities and the Commission shall preserve the confidentiality of 
commercially sensitive information. 

13. The Commission shall adopt guidelines setting out the details of the procedure to 
be followed for the application of paragraphs 6 to 9. This measure designed to amend 
non-essential  elements  of  this  Directive  by  supplementing  it  shall  be  adopted  in 
accordance with the regulatory procedure with scrutiny referred to in Article 27b(3)." 

(6) 

Article 9 paragraph a shall be replaced as follows. 

"(a)  ensuring  the  long-term  ability  of  the  system  to  meet  reasonable  demands  for  the 
transmission of electricity, operating, maintaining and developing under economic conditions 

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secure,  reliable  and  efficient  transmission  systems  with  due  regard  to  the  environment,  and 
promote  energy  efficiency  and  research  and  innovation  notably  with  respect  to  ensuring 
penetration of renewables and dissemination of low carbon technology." 

(7) 

Article 10 shall be deleted. 

(8) 

The following Articles 10 and 10a are inserted: 

"Article 10 
Independent system operators 

1.  Where  the  transmission  system  belongs  to  a  vertically  integrated  undertaking  on 
entry into force of this Directive, Member States may grant derogations from Article 
8(1),  provided  that  an  independent  system  operator  is  designated  by  the  Member 
State upon a proposal from the transmission system owner and subject to approval of 
such designation by the Commission. Vertically integrated undertakings which own a 
transmission system may not in any event be prevented from taking steps to comply 
with Article 8(1). 

2.  The  Member  State  may  approve  and  designate  an  independent  system  operator 
only where: 

(a) 

(b) 

(c) 

(d) 

(e) 

the candidate operator has demonstrated that it complies with the requirements 
of Article 8(1)(b) to (d);  

the candidate operator has demonstrated that it has at its disposal the required 
financial, technical and human resources to carry out its tasks under Article 9; 

the  candidate  operator  has  committed  to  complying  with  a  ten  year  network 
development plan proposed by the regulatory authority; 

the transmission system owner has demonstrated its ability to comply with its 
obligations  under  paragraph  6.  To  this  effect,  it  shall  provide  all  the  draft 
contractual arrangements with the candidate undertaking and any other relevant 
entity; 

the  candidate  operator  has  demonstrated  its  ability  to  comply  with  its 
obligations under Regulation (EC) No 1228/2003 of the European Parliament 
and of the Council of 26 June 2003 on conditions for access to the network for 
cross-border exchanges in electricity* including the cooperation of transmission 
system operators at European and regional level. 

* OJ n° L 176 of 15/07/2003 p. 0001 – 0010. 

3.  Undertakings  which  have  been  certified  by  the  regulatory  authority  as  having 
complied  with  the  requirements  of  Articles  8a  and  10(2)  shall  be  approved  and 
designated  as  independent  system  operators  by  Member  States.  The  certification 
procedure in Article 8b shall be applicable. 

4. Where the Commission has taken a decision in accordance with the procedure in 
Article 8b and finds that the regulatory authority has not complied with its decision 
within two months, it shall, within a period of six months, designate, on a proposal 

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from  the  Agency  for  the  Cooperation  of  Energy  Regulators  and  after  having  heard 
the views of the transmission system owner and the transmission system operator, an 
independent  system  operator  for  a  period  of  5  years.  At  any  time,  the  transmission 
system  owner  may  propose  to  the  regulatory  authority  the  designation  of  a  new 
independent system operator pursuant to the procedure in Article 10(1). 

5. Each independent system operator shall be responsible for granting and managing 
third  party  access,  including  the  collection  of  access  charges,  congestion  rents, and 
payments under the inter transmission system operator compensation mechanism in 
compliance  with  Article  3  of  Regulation  (EC)  No  1228/2003,  as  well  as  for 
operating, maintaining and developing the transmission system, and for ensuring the 
long  term  ability  of  the  system  to  meet  reasonable  demand  through  investment 
planning.  When  developing  the  network  the  independent  system  operator  is 
responsible  for  planning  (including  authorisation  procedure),  construction  and 
commissioning  of  the  new  infrastructure.  For  this  purpose,  it  shall  act  as  a 
transmission system operator in accordance with this Chapter. Transmission system 
owners may not be responsible for granting and managing third party access, nor for 
investment planning. 

6.  Where  an  independent  system  operator  has  been  designated,  the  transmission 
system owner shall: 

(a) 

(b) 

provide  all  the  relevant  cooperation  and  support  to  the  independent  system 
operator  for  the  fulfilment  of  its  tasks,  including  in  particular  all  relevant 
information; 

finance  the  investments  decided  by  the  independent  system  operator  and 
approved by the regulatory authority, or give its agreement to financing by any 
interested  party  including  the  independent  system  operator.  The  relevant 
financing arrangements shall be subject to approval by the regulatory authority. 
Prior  to  this  approval,  the  Regulatory  Authority  shall  consult  the  asset  owner 
together with other interested parties; 

(c) 

provide  for  the  coverage  of  liability  relating  to  the  network  assets,  excluding 
the liability relating to the tasks of the independent system operator; 

(d)  provide  guarantees  to  facilitate  financing  any  network  expansions  with  the 
exception of those investments where, pursuant to paragraph b, it has given its 
agreement  to  financing  by  any  interested  party  including  the  independent 
system operator.  

7.  In  close  cooperation  with  the  regulatory  authority,  the  relevant  national 
competition  authority  shall  be  granted  all  relevant  powers  to  effectively  monitor 
compliance of the transmission system owner with its obligations under paragraph 6. 

Article 10a 
Unbundling of transmission system owners 

1.  Transmission  system  owners,  where  an  independent  system  operator  has  been 
appointed, which are part of vertically integrated undertakings shall be independent 

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at  least  in  terms  of  their  legal  form,  organisation  and  decision  making  from  other 
activities not relating to transmission. 

2. In order to ensure the independence of the transmission system owner referred to 
in paragraph 1, the following minimum criteria shall apply: 

(a) 

(b) 

(c) 

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

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

transmission system owner shall establish a compliance programme, which sets 
out  measures  taken  to  ensure  that  discriminatory  conduct  is  excluded,  and 
ensure that observance of it is adequately monitored. The programme shall set 
out  the  specific  obligations  of  employees  to  meet  this  objective.  An  annual 
report, setting out the measures taken, shall be submitted by the person or body 
responsible  for  monitoring  the  compliance  programme  to  the  regulatory 
authority and shall be published. 

3. The Commission may adopt guidelines to ensure full and effective compliance of 
the  transmission  system  owner  with  paragraph  2  of  this  Article.  This  measure 
designed to amend non-essential elements of this Directive by supplementing it shall 
be adopted in accordance with the regulatory procedure with scrutiny referred to in 
Article 27b(3)." 

(9) 

Article 12 is replaced by the following: 

"Article 12 
Confidentiality for transmission system operators and transmission system owners 

1.  Without  prejudice  to  Article  18  or  any  other  legal  duty  to  disclose  information, 
each transmission system operator and transmission system owners shall preserve the 
confidentiality  of  commercially  sensitive  information  obtained  in  the  course  of 
carrying out its business, and shall prevent information about its own activities which 
may  be  commercially  advantageous  from  being  disclosed  in  a  discriminatory 
manner, and in particular shall not disclose any commercially sensitive information 
to  the  remaining  parts  of  the  company,  unless  this  is  necessary  for  carrying  out  a 
business  transaction.  In  order  to  ensure  the  full  respect  of  the  rules  on  information 
unbundling  it  must  also  be  ensured  that  the  transmission  system  owner  and  the 
remaining  part  of  the  company  do  not  use  joint  services,  apart  from  purely 
administrative or IT functions (e.g. no joint legal service). 

2.  Transmission  system  operators  shall  not,  in  the  context  of  sales  or  purchases  of 
electricity  by  related  undertakings,  abuse  commercially  sensitive  information 
obtained  from  third  parties  in  the  context  of  providing  or  negotiating  access  to  the 
system." 

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(10)  Article 15 is amended as follows: 

(a) 

In paragraph 2(c), the following sentence shall be added after the first sentence: 
"In order to fulfill these tasks, the distribution system operator shall have at its 
disposal  the  necessary  resources  including  human,  technical,  financial  and 
physical." 

(b)  Paragraph 2(d) is amended as follows: 

(i) 

the  last  sentence  is  amended  as  follows:  "An  annual  report,  setting  out 
the measures taken, shall be submitted by the person or body responsible 
for  monitoring  the  compliance  programme,  hereinafter  referred  to  as 
'compliance  officer',  to  the  regulatory  authority  referred  to  in  Article 
22a(1) and shall be published.  

(ii)  The following sentence is added: "The compliance officer shall be fully 
independent and shall have access to all the necessary information of the 
distribution  system  operator  and  any  affiliated  companies  to  fulfill  his 
task." 

(c)  The following paragraphs 3 and 4 are added: 

"3.  Where  the  distribution  system  operator  is  part  of  a  vertically  integrated 
undertaking, Member States shall ensure that the activities of the distribution system 
operator  is  monitored  so  that  it  cannot  take  advantage  of  its  vertical  integration  to 
distort  competition.  In  particular,  vertically  integrated  distribution  system  operators 
shall  not,  in  their  communication  and  branding,  create  confusion  in  respect  of  the 
separate identity of the supply branch of the vertically integrated undertaking. 

4. The Commission may adopt guidelines to ensure full and effective compliance of 
the distribution system operator with paragraph 2 as regards the full independence of 
the  distribution  system  operator,  the  absence  of  discriminatory  behaviour,  and  that 
supply activities of the vertically integrated undertaking cannot take unfair advantage 
of its vertical integration. This measure designed to amend non-essential elements of 
this Directive by supplementing it shall be adopted in accordance with the regulatory 
procedure with scrutiny referred to in Article 27b(3)." 

(11)  Article 17 shall be replaced as follows: 

"This  directive  shall  not  prevent  the  operation  of  a  combined  transmission  and 
distribution system operator provided it complies, for each of its activities, with the 
applicable provisions of Articles 8, 10b and 15(1)." 

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(12)  The following Chapter VIIa is inserted after Article 22: 

"CHAPTER VIIa 

NATIONAL REGULATORY AUTHORITIES 

Article 22a 
Designation and independence of regulatory authorities 

1. Each Member State shall designate a single national regulatory authority. 

2.  Member  States  shall  guarantee  the  independence  of  the  regulatory  authority  and 
shall  ensure  that  it  exercises  its  powers  impartially  and  transparently.  For  this 
purpose,  Member  State  shall  ensure  that,  when  carrying  out  the  regulatory  tasks 
conferred  upon  it  by  this  Directive,  the  regulatory  authority  is  legally  distinct  and 
functionally independent from any other public or private entity, and that its staff and 
the  persons  responsible  for  its  management  act  independently  from  any  market 
interest and shall not seek or take instructions from any government or other public 
or private entity. 

3.  In  order  to  protect  the  independence  of  the  regulatory  authority,  Member  States 
shall in particular ensure that: 

(a) 

(b) 

the  regulatory  authority  has  legal  personality,  budgetary  autonomy,  and 
adequate human and financial resources to carry out its duties;  

its  management  is  appointed  for  a  non  renewable  fixed  term  of  at  least  five 
years,  and  may  only  be  relieved  from  office  during  its  term  if  it  no  longer 
fulfills  the  conditions  set  out  in  this  Article  or  it  has  been  guilty  of  serious 
misconduct. 

Article22b 
Policy objectives of the regulatory authority 

In  carrying  out  the  regulatory  tasks  specified  in  this  Directive,  the  regulatory 
authority shall take all reasonable measures to achieve the following objectives: 

(a) 

(b) 

(c) 

the promotion, in close cooperation with the Agency, regulatory authorities of 
other  Member  States  and  the  Commission,  of  a  competitive,  secure  and 
environmentally sustainable internal electricity market within the Community, 
and  effective  market  opening  for  all  consumers  and  suppliers  in  the 
Community; 

the  development  of  competitive  and  properly  functioning  regional  markets 
within the Community in view of the achievement of the objective mentioned 
in point (a);  

the  suppression  of  restrictions  to  electricity  trade  between  Member  States, 
including the development of appropriate cross border transmission capacities 
to  meet  demand,  enhance  integration  of  national  markets  and  to  enable 
unrestrained electricity flow across the Community; 

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(d) 

ensuring the development of secure, reliable and efficient systems, promoting 
energy  efficiency,  system  adequacy,  and  research  and  innovation  to  meet 
demand  and  the  development  of  innovative  renewable  and  low  carbon 
technologies, in both short and long term; (e) ensuring  that  network  operators 
are granted adequate incentives, in both the short and the long term, to increase 
efficiencies in network performance and foster market integration; 

(f) 

ensuring  the  efficient  functioning  of  their  national  market,  and  to  promote 
effective competition in cooperation with competition authorities. 

Article 22c 
Duties and powers of the regulatory authority 

1. The regulatory authority shall have the following duties: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

ensuring  compliance  of  transmission  and  distribution  system  operators,  and 
where relevant system owners, as well as of any electricity undertakings, with 
their obligations under this Directive and other relevant Community legislation, 
including as regards cross border issues; 

cooperating on cross-border issues with the regulatory authority or authorities 
of those Member States; 

complying  with,  and  implementing,  decisions  of  the  Agency  and  of  the 
Commission; 

reporting on a yearly basis on its activity and the fulfilment of its duties to the 
relevant  authorities  of  the  Member  States,  the  Agency  and  the  Commission. 
This report shall cover the steps taken and the results obtained as regards each 
of the tasks listed in this Article; 

ensuring  that  there  are  no  cross  subsidies  between  transmission,  distribution, 
and supply activities; 

reviewing  investment  plans  of  the  transmission  system  operators,  and 
providing  in  its  annual  report  an  assessment  of  the  investment  plan  of  the 
transmission  system  operators  as  regards  its  consistency  with  the  European-
wide  10-year  network  development  plan  mentioned  in  Article  2c(1)  of 
Regulation (EC) No 1228/2003; 

(g)  monitoring  network  security  and  reliability,  and  reviewing  network  security 

and reliability rules; 

(h)  monitoring  the  level  of  transparency,  ensuring  compliance  of  electricity 

undertakings with transparency obligations; 

(i)  monitoring the level of market opening and competition at wholesale and retail 
levels,  including  on  electricity  exchanges,  household  prices,  switching  rates, 
disconnection rates and household complaints in an agreed format, as well as 
any  distortion  or  restriction  of  competition  in  cooperation  with  competition 
authorities, including providing any relevant information, bringing any relevant 
cases to the attention of the relevant competition authorities; 

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(j)  monitoring  the  time  taken  by  transmission  and  distribution  undertakings  to 

make connections and repairs; 

(k)  without  prejudice  to  the  competence  of  other  national  regulatory  authorities, 
ensuring  high  standards  of  universal  and  public  service  for  electricity,  the 
protection of vulnerable customers, and that consumer protection measures set 
out in Annex A are effective; 

(l) 

publishing  recommendations,  at  least  on  a  yearly  basis,  on  compliance  of 
supply tariffs with Article 3; 

(m)  ensuring access to customer consumption data, the application of a harmonised 
format  for  consumption  data  and  the  access  to  data  under  paragraph  (h)  of 
Annex A; 

(n)  monitoring the implementation of rules relating to the roles and responsibilities 
of  transmission  system  operators,  distribution  system  operators,  suppliers  and 
customers and other market parties pursuant to Regulation (EC) 1228/2003; 

(o)  monitoring investment in generation capacities in relation to security of supply. 

2. In addition to the tasks conferred upon it under paragraph 1, when an independent 
system operator has been designated under Article 10, the regulatory authority shall: 

(a)  monitor the transmission system owner's and the independent system operator's 
compliance with their obligations under this Article, and issue penalties for non 
compliance in accordance with paragraph 3(d); 

(b)  monitor  the  relations  and  communications  between  the  independent  system 
operator and the transmission system owner so as to ensure compliance of the 
independent  system  operator  with  its  obligations,  and  in  particular  shall 
approve  contracts  and  act  as  a  dispute  settlement  authority  between  the 
independent system operator and the transmission system owner in respect of 
any complaint submitted by either party pursuant to paragraph 7; 

(c)  without  prejudice  to  the  procedure  under  paragraph  2c  of  Article  10,  for  the 
first ten year network development plan, approve the investments planning and 
the multi-annual network development plan presented on a yearly basis by the 
independent system operator;  

(d) 

ensure  that  network  access  tariffs  collected  by  independent  system  operators 
include a remuneration for the network owner or network owners that provide 
for an adequate remuneration of the network assets and of any new investments 
therein; 

(e) 

have the powers to carry out inspections at the transmission system owner and 
independent system operator's premises; 

(f)  monitor  the  use  of  congestion  rents  collected  by  the  independent  system 
operator in accordance with Article 6(6) of Regulation (EC) No 1228/2003 of 

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the European Parliament and of the Council of 26 June 2003 on conditions for 
access to the network for cross-border exchanges in electricity20. 

3.  Member States shall ensure that regulatory authorities are granted the powers 
enabling them to carry out the duties referred to in paragraph 1 and 2 in an efficient 
and expeditious manner. For this purpose, the regulatory authority shall have at least 
the following powers: 

(a) 

to issue binding decisions on electricity undertakings; 

(b) 

(c) 

(d) 

in  cooperation  with 

to  carry  out 
the  national  competition  authority 
investigations  of  the  functioning  of  electricity  markets,  and  to  decide,  in  the 
absence  of  violations  of  competition  rules,,  of  any  appropriate  measures 
necessary  and  proportionate  to  promote  effective  competition  and  ensure  the 
proper functioning of the market, including virtual power plants; 

to  request  any  information  from  electricity  undertakings  relevant  for  the 
fulfilment of its tasks; 

to  impose  effective,  appropriate  and  dissuasive  sanctions  to  electricity 
undertakings not complying with their obligations under this Directive or any 
decisions of the regulatory authority or of the Agency;  

(e) 

to have appropriate rights of investigations, and relevant powers of instructions 
for dispute settlement under paragraphs 7 and 8; 

(f) 

to approve safeguards measures as referred to in Article 24. 

4. 

(a) 

The regulatory authorities shall be responsible for fixing or approving prior to 
their entry into force the terms and conditions for:  

connection  and  access  to  national  networks,  including  transmission  and 
distribution  tariffs.  These  tariffs  shall  allow  the  necessary  investments  in  the 
networks to be carried out in a manner allowing these investments to ensure the 
viability of the networks; 

(b) 

the provision of balancing services. 

5. 

6. 

In  fixing  or  approving  the  tariffs,  the  regulatory  authorities  shall  ensure  that 
network operators are granted adequate incentive, over both the short and long 
term, to increase efficiencies, foster market integration and support the related 
research activities. 

Regulatory  authorities  shall  have  the  authority  to  require  transmission  and 
distribution system operators, if necessary, to modify the terms and conditions, 
including tariffs referred to in this Article, to ensure that they are proportionate 
and applied in a non-discriminatory manner. 

20 

OJ L 176, 15.7.2003 p. 1. 

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7.  Any  party  having  a  complaint  against  a  transmission  or  distribution  system 
operator  may  refer  the  complaint  to  the  regulatory  authority  which,  acting  as 
dispute  settlement  authority,  shall  issue  a  decision  within  two  months  after 
receipt  of  the  complaint.  This  period  may  be  extended  by  two  months  where 
additional information is sought by the regulatory authorities. This period may 
be extended with the agreement of the complainant. Such a decision shall have 
binding effect unless and until overruled on appeal. 

8.  Any  party  who  is  affected  and  who  has  a  right  to  complain  concerning  a 
decision  on  methodologies  taken  pursuant  to  this  Article  or,  where  the 
regulatory  authority  has  a  duty 
the  proposed 
methodologies, may, at the latest within two months, or a shorter time period as 
provided by Member States, following publication of the decision or proposal 
for a decision, submit a complaint for review. Such a complaint shall not have 
suspensive effect. 

to  consult,  concerning 

9.  Member  States  shall  create  appropriate  and  efficient  mechanisms  for 
regulation,  control  and  transparency  so  as  to  avoid  any  abuse  of  a  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. 

10.  Member States shall ensure that the appropriate measures are 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. 

11.  Complaints referred to in paragraphs 7 and 8 shall be without prejudice to the 

exercise of rights of appeal under Community and national law. 

12.  Decisions taken by regulatory authorities shall be motivated.  

13.  Member  States  shall  ensure  that  suitable  mechanisms  exist  at  national  level 
under which a party affected by a decision of the national regulatory authority 
has a right of appeal to a body independent of the parties involved. 

14.  The  Commission  may  adopt  guidelines  on  the  implementation  by  the 
regulatory  authorities  of  the  powers  described  in  this  Article.  This  measure 
designed to amend non-essential elements of this Directive by supplementing it 
shall  be  adopted  in  accordance  with  the  regulatory  procedure  with  scrutiny 
referred to in Article 27b(3)" 

Article 22d 
Regulatory regime for cross border issues 

1.  Regulatory  authorities  shall  closely  cooperate  and  consult  with  each  other,  and 
shall  provide  each  other  and  the  Agency  with  any  information  necessary  for  the 
fulfilment  of  their  tasks  under  this  Directive.  In  respect  of  the  information 
exchanged,  the  receiving  authority  shall  ensure  the  same  level  of  confidentiality  as 
that required of the originating authority. 

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2.  Regulatory  authorities  shall  cooperate  at  least  on  a  regional  level  to  foster  the 
creation  of  operational  arrangements  in  order  to  ensure  an  optimal  management  of 
the  network,  develop  joint  electricity  exchanges  and  the  allocation  of  cross-border 
capacity,  and  to  ensure  a  minimum  level  of  interconnection  capacity  within  the 
region to allow for effective competition to develop.  

3. The Agency shall decide upon the regulatory regime for infrastructure connecting 
at least two Member States: 

a) 

upon  a  joint  request  from  the  competent  national  regulatory  authorities, 
or, 

b)  where the competent national regulatory authorities have not been able to 
reach  an  agreement  on  the  appropriate  regulatory  regime  within  six 
months  from  the  date  the  file  was  brought  before  the  last  of  these 
regulatory authorities. 

4. The Commission may adopt guidelines on the extent of the duties of the regulatory 
authorities to cooperate with each other and with the Agency, and on the situations in 
which  the  Agency  becomes  competent  to  decide  upon  the  regulatory  regime  for 
infrastructures connecting at least two Member States. These measures, designed to 
amend non-essential elements of this Directive by supplementing it, shall be adopted 
in  accordance  with  the  regulatory  procedure  with  scrutiny  referred  to  in  Article 
27b(3). 

Article 22e 
Compliance with Guidelines 

1.  Any  regulatory  authority  and  the  Commission  may  request  the  opinion  of  the 
Agency  on  the  compliance  of  a  decision  taken  by  a  regulatory  authority  with 
guidelines referred to in this Directive or in Regulation (EC) No 1228/2003. 

2.  The  Agency  shall  provide  its  opinion  to  the  regulatory  authority  which  has 
requested it or to the Commission, respectively, and to the regulatory authority which 
has taken the decision in question within four months. 

3. Where the regulatory authority which has taken the decision does not comply with 
the Agency’s opinion within four months from the date of receipt, the Agency shall 
inform the Commission. 

4.  Any  regulatory  authority  may  inform  the  Commission  where  it  considers  that  a 
decision taken by a regulatory authority does not comply with guidelines referred to 
in  this  Directive  or  in  Regulation  (EC)  No  1228/2003  within  two  months  from  the 
date of that decision. 

5.  Where  the  Commission,  within  two  months  after  having  been  informed  by  the 
Agency  in  accordance  with  paragraph  3  or  by  a  regulatory  authority  in  accordance 
with  paragraph  4,  or  on  its  own  initiative  within  three  months  from  the  date  of  the 
decision finds that the decision of a regulatory authority raises serious doubts as to its 
compatibility with guidelines referred to in this Directive or in Regulation (EC) No 
1228/2003,  the  Commission  may  decide  to  initiate  proceedings.  In  such  a  case,  it 

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shall  invite  the  regulatory  authority  and  the  parties  to  the  proceedings  before  the 
regulatory authority to submit comments. 

6.  Where  the  Commission  has  decided  to  initiate  proceedings,  it  shall,  within  not 
more than four months of the date of such decision, issue a final decision: 

(a) not to raise objections against the decision of the regulatory authority; 

or 

(b) requiring the regulatory authority concerned to amend or withdraw its decision if 

it considers that guidelines have not been complied with.  

7. Where the Commission has not taken a decision to initiate proceedings or a final 
decision  within  the  time-limits  set  in  paragraphs  5  and  6  respectively,  it  shall  be 
deemed not to have raised objections against the decision of the regulatory authority. 

8. The regulatory authority shall comply with the Commission decision to amend or 
withdraw  their  decision  within  a  period  of  two  months  and  shall  inform  the 
Commission accordingly. 

9. The Commission shall adopt guidelines setting out the details of the procedure to 
be followed for the application of this Article. This measure designed to amend non-
essential  elements  of  this  Directive  by  supplementing  it  shall  be  adopted  in 
accordance with the regulatory procedure with scrutiny referred to in Article 27b(3). 

Article 22f 
Record keeping 

1.  Member  States  shall  require  supply  undertakings  to  keep  at  the  disposal  of  the 
national regulatory authority, the national competition authority and the Commission, 
for  at  least  five  years,  the  relevant  data  relating  to  all  transactions  in  electricity 
supply  contracts  and  electricity  derivatives  with  wholesale  customers  and 
transmission system operators. 

2.  The  data  shall  include  details  on  the  characteristics  of  the  relevant  transactions 
such as duration, delivery and settlement rules, the quantity, the dates and times of 
execution and the transaction prices and means of identifying the wholesale customer 
concerned, as well as specified details of all unsettled electricity supply contracts and 
electricity derivatives.  

3.  The  regulatory  authority  may  decide  to  make  available  to  market  participants 
elements  of  this  information  provided  that  commercially  sensitive  information  on 
individual  market  players  or  individual  transactions  is  not  released.  This  paragraph 
shall not apply to information about financial instruments which fall within the scope 
of Directive 2004/39/EC. 

4.  To  ensure  the  uniform  application  of  this  Article,  the  Commission  may  adopt 
guidelines which define the methods and arrangements for record keeping as well as 
the  form  and  content  of  the  data  that  shall  be  kept.  These  measures,  designed  to 
amend non-essential elements of this Directive by supplementing it, shall be adopted 

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in  accordance  with  the  regulatory  procedure  with  scrutiny  referred  to  in  Article 
27b(3). 

5. With respect to transactions in electricity derivatives of supply undertakings with 
wholesale customers and transmission system operators, this Article shall only apply 
once the Commission has adopted the guidelines referred to in paragraph 4. 

6. The provisions of this Article shall not create additional obligations vis-à-vis the 
authorities mentioned in paragraph 1 for entities falling within the scope of Directive 
2004/39/EC. 

7.  In  case  the  authorities  mentioned  in  paragraph  1  need  access  to  data  kept  by 
entities falling within the scope of Directive 2004/39/EC, the authorities responsible 
under that Directive shall provide the authorities mentioned in paragraph 1 with the 
required data. 

(13)  Article 23 is deleted. 

(14)  A new Article 27b is inserted as follows: 

"Article 27b 
Committee 

1. The Commission shall be assisted by a committee. 

2.  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. 

3. Where reference is made to this paragraph, Article 5a(1) to (4), and Article 7 of 
Decision  1999/468/EC  shall  apply,  having  regard  to  the  provisions  of  Article  8 
thereof." 

(15) 

 In Annex A, the following paragraphs shall be added: 

"(h)  have  at  their  disposal  their  consumption  data,  and  shall  be  able  to,  by  explicit 
agreement and free of charge, give any undertaking with a supply license access to 
its metering data. The party responsible for data management is obliged to give these 
data  to  the  undertaking.  Member  States  shall  define  a  format  for  the  data  and  a 
procedure for suppliers and consumers to have access to the data. No additional costs 
can be charged to the consumer for this service. 

(i)  shall  be  properly  informed  every  month  of  actual  electricity  consumption  and 
costs. No additional costs can be charged to the consumer for this service. 

(j)  can  change  supplier  at  any  time  in  the  year,  and  a  customer's  account  with  the 
previous supplier shall not be settled later than one month following the last supply 
by this previous supplier." 

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Article 2 
Transposition 

1. 

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative 
provisions  necessary  to  comply  with  this  Directive  by  [18  months  after  entry  into 
force] at the latest. They shall forthwith communicate to the Commission the text of 
those provisions and a correlation table between those provisions and this Directive. 

They shall apply these provisions from [18 months after entry into force]. 

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. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 3 
Entry into force 

This  Directive  shall  enter  into  force  on  the  […]  day  following  that  of  its  publication  in  the 
Official Journal of the European Union. 

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Article 4 

This Directive is addressed to the Member States. 

Done at Brussels, […] 

For the European Parliament 
The President 

For the Council 
The President 

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