Proposal for a Regulation of the European Parliament and of the Council establishing an Agency for the Cooperation of Energy Regulators {SEC(2007) 1179} {SEC(2007) 1180}
Date: 2007-09-19
Institutions: European Commission
Subjects: EU office or agency, energy grid, energy transport, operation of the Institutions

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.9.2007 
COM(2007) 530 final 

2007/0197 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing an Agency for the Cooperation of Energy Regulators 

(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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COM(2007) 1. 

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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. 

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 

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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 
plans,  to  include  the  integrated  network  modelling,  scenario  development  and  an 
assessment of the resilience and deliverability of the integrated system. These development 

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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. 

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 

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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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 
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 

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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 
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. 

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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. 

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 

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

EN 

19 

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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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2007/0197 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing an Agency for the Cooperation of Energy Regulators 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to the proposal from the 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 Treaty, 

Whereas: 

(1) 

(2) 

The  Communication  of  the  Commission  of  10  January  2007  entitled  "An  Energy 
Policy for Europe"11 highlighted the importance of completing the internal market in 
electricity  and  natural  gas.  Improving  the  regulatory  framework  at  Community  level 
was identified as a key measure to achieve this objective. 

An independent advisory group on electricity and gas, called the "European Regulators 
Group  for  Electricity  and  Gas"  (ERGEG)  was  established  by  Commission  Decision 
2003/796/EC12  to  facilitate  consultation,  coordination  and  cooperation  between  the 
regulatory  bodies  in  Member  States,  and  between  these  bodies  and  the  Commission, 
with  a  view  to  consolidating  the  internal  market  in  electricity  and  natural  gas.  This 
group is composed of representatives of the national regulatory authorities established 
pursuant to 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/EC13 and Directive 2003/55/EC of the European Parliament 

8 
9 
10 
11 
12 
13 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ L 296, 14.11.2003, p. 34. 
OJ L 176, 15.07.2003, p. 37. 

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21 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

and of the Council of 26 June 2003 concerning common rules for the internal market 
in natural gas and repealing Directive 98/30/EC14. 

The  work  undertaken  by  ERGEG  since  its  establishment  has  made  a  positive 
contribution  to  the  internal  market  in  electricity  and  gas.  However,  it  is  widely 
recognised  by  the  sector,  and  has  been  proposed  by  ERGEG  itself,  that  voluntary 
cooperation  between  national  regulatory  authorities  should  now  take  place  within  a 
Community structure with clear competences and with the power to adopt individual 
regulatory decisions in a number of specific cases. 

The  European  Council  in  the  spring  of  2007  invited  the  Commission  to  propose 
measures to set up an independent mechanism for national regulators to co-operate.  

On the basis of the impact assessment of the resource requirements for a central entity, 
it  was  concluded  that  an  independent  central  entity  offered  a  number  of  long-term 
advantages over other options. An Agency for the Cooperation of Energy Regulators, 
hereinafter referred to as ‘the Agency’, should therefore be established. 

The Agency should ensure that regulatory functions performed at national level by the 
national regulatory authorities in accordance with Directive 2003/54/EC and Directive 
2003/55/EC  are  properly  coordinated  and,  where  necessary,  completed  at  the 
Community  level.  To  that  end,  it  is  necessary  to  guarantee  the  independence  of  the 
Agency, its technical and regulatory capacities and its transparency and efficiency. 

The Agency should monitor the cooperation between transmission system operators in 
the  electricity  and  gas  sectors  as  well  as  the  execution  of  the  tasks  of  the  European 
Network of Transmission System Operators for electricity and the European Networks 
of  Transmission  System  Operators  for  Gas.  The  involvement  of  the  Agency  is 
essential in order to ensure that the cooperation between transmission system operators 
proceeds in an efficient and transparent way for the benefit of the internal market. 

It is appropriate to provide a framework within which national regulatory authorities 
are able to cooperate. This framework should facilitate the uniform application of the 
legislation  on  the  internal  market  for  electricity  and  gas  throughout  the  Community. 
As regards situations concerning more than one Member State, the Agency should be 
granted  the  power  to  adopt  individual  decisions.  This  power  should  cover  the 
regulatory  regime  for  infrastructure  connecting  at  least  two  Member  States, 
exemptions from the internal market rules for new electricity interconnectors and new 
gas infrastructures located in more than one Member State. 

Since the Agency has an overview of the national regulatory authorities, it should have 
an  advisory  role  towards  the  Commission  as  regards  market  regulation  issues.  It 
should also be required to inform the Commission where it finds that the cooperation 
between transmission system operators does not produce the results which are needed 
or  that  a  national  regulatory  authority  whose  decision  has  violated  guidelines  is  not 
willing to comply with the Agency’s opinion.  

14 

OJ L 176, 15.7.2003, p. 57. 

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22 

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(10)  The  Agency  should  also  be  able  to  issue  non-binding  guidelines  to  assist  regulatory 

authorities and market players in sharing good practices. 

(11)  The  structure  of  the  Agency  should  be  adapted  to  meet  the  specific  needs  of  energy 
regulation. In particular the specific role of the national regulatory authorities and their 
independence needs to be taken fully into account 

(12)  The Administrative  Board should have  the necessary powers to establish the  budget, 
check  its  implementation,  draw  up  internal  rules,  adopt  financial  regulations  and 
appoint the Director. 

(13)  The Agency should have the necessary powers to perform the regulatory functions in 
an  efficient  and  above  all  independent  manner.  The  independence  of  regulatory 
authorities is not only a key principle of good governance but also and a fundamental 
condition to ensure market confidence. Reflecting the situation on a national level, the 
Board of Regulators should therefore act independently from any market interest and 
shall  not  seek  or  take  instructions  from  any  government  or  other  public  or  private 
entity.  

(14)  Where the Agency has decision-making powers, interested parties should, for reasons 
of  procedural  economy,  be  granted  a  right  of  appeal  to  a  Board  of  Appeal,  which 
should be part of the Agency, but independent from its administrative and regulatory 
structure. 

(15)  The  Agency  should  be  financed  mainly  from  the  general  budget  of  the  European 
Communities,  by  fees  and  by  voluntary  contributions.  In  particular,  the  resources 
currently  pooled  by  regulatory  authorities  for  their  cooperation  at  European  level 
should continue to be available to the Agency. The Community budgetary procedure 
should  remain  applicable  as  far  as  any  subsidies  chargeable  to  the  general  budget  of 
the European Communities are concerned. Moreover, the auditing of accounts should 
be undertaken by the Court of Auditors in accordance with Article 91 of Commission 
Regulation  (EC,  Euratom)  No  2343/2002  of  23  December  2002  on  the  framework 
Financial  Regulation  for  the  bodies  referred  to  in  Article  185  of  Council  Regulation 
(EC,  Euratom)  No  1605/2002  on  the  Financial  Regulation  applicable  to  the  general 
budget of the European Communities15. 

(16)  The Agency should have highly professional staff. In particular, it should benefit from 
the  competence  and  experience  of  staff  seconded  by  the  national  regulatory 
authorities, the Commission and the Member States. The Staff Regulations of Officials 
of  the  European  Communities,  the  regulations  applicable  to  other  servants  of  the 
European  Communities  and  the  rules  adopted  jointly  by  the  European  Community 
institutions for the purpose of applying these regulations should apply to  the staff of 
the  Agency.  The  Administrative  Board,  in  agreement  with  the  Commission,  should 
adopt the necessary implementing measures. 

(17)  The Agency should apply the general rules regarding public access to documents held 
by  Community  bodies.  The  Administrative  board  should  establish  the  practical 
measures to protect commercially sensitive data and personal data.  

15 

OJ L 357, 31.12.2002, p. 72. 

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23 

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(18)  Participation  of  third  countries  in  the  work  of  the  Agency  should  be  possible  in 

accordance with appropriate agreements to be concluded by the Community. 

(19)  Since  the  objectives  of  the  proposed  action,  cooperation  of  national  regulatory 
authorities at Community level, cannot be sufficiently achieved by the Member States 
and can therefore, 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  Regulation  does  not  go  beyond  what  is  necessary  in  order  to  achieve  those 
objectives, 

HAVE ADOPTED THIS REGULATION: 

Article 1 

Establishment 

An Agency for the Cooperation of Energy Regulators, hereinafter referred to as ‘the Agency’ 
is  established  for  the  purpose  of  complementing  at  Community  level  the  regulatory  tasks 
performed at national level by the regulatory authorities mentioned in Article 22a of Directive 
2003/54/EC  and  Article  24a  of  Directive  2003/55/EC,  and,  where  necessary,  to  coordinate 
their action.  

Article 2 

Legal status and seat 

1. 

2. 

3. 

4. 

The Agency shall be a Community body with legal personality. 

In  each  Member  State,  the  Agency  shall  enjoy  the  most  extensive  legal  capacity 
accorded to legal persons under national law. It may, in particular, acquire or dispose 
of movable and immovable property and be a party to legal proceedings. 

The Agency shall be represented by its Director. 

The seat of the Agency shall be located in [place]. Until its premises are ready, it will 
be hosted on Commission premises. 

Article 3 

Composition 

The Agency shall comprise: 

(a) 

(b) 

an  Administrative  Board,  which  shall  exercise  the  responsibilities  set  out  in 
Article 10; 

a  Board  of  Regulators,  which  shall  exercise  the  responsibilities  set  out  in 
Article 12; 

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24 

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(c) 

(d) 

a Director, who shall exercise the responsibilities set out in Article 14; 

a  Board  of  Appeal,  which  shall  exercise the responsibilities  set out in Article 
16. 

Article 4 

Type of acts of the Agency 

The Agency may: 

(a) 

issue opinions addressed to transmission system operators; 

(b) 

issue opinions addressed to regulatory authorities; 

(c) 

issue opinions and recommendations addressed to the Commission; 

(d) 

take individual decisions in specific cases referred to in Articles 7 and 8. 

Article 5 

General tasks 

The  Agency  may,  upon  a  request  from  the  Commission  or  on  its  own  initiative,  provide  an 
opinion  to  the  Commission  on  all  issues  related  to  the  purpose  for  which  it  has  been 
established.  

Article 6 

1. 

2. 

3. 

Tasks as regards the cooperation of transmission system operators 

The Agency shall provide an opinion to the Commission on the draft statutes, list of 
members  and  draft  rules  of  procedure  of  the  European  Network  of  Transmission 
System Operators for Electricity in accordance with Article 2b(2) of Regulation (EC) 
No  1228/2003  and  on  those  of  the  European  Network  of  Transmission  System 
Operators  for  Gas  in  accordance  with  Article  2b(2)  of  Regulation  (EC)  No 
1775/2005. 

The  Agency  shall  monitor  the  execution  of  the  tasks  of  the  European  Network  of 
Transmission  System  Operators  for  Electricity  as  provided  for  in  Article  2d  of 
Regulation  (EC)  No  1228/2003  and  of  the  European  Network  of  Transmission 
System  Operators  for  Gas  as  provided  for  Article  2d  of  Regulation  (EC)  No 
1775/2005.  

The  Agency  may  provide  an  opinion  to  the  European  Network  of  Transmission 
System Operators for Electricity as provided for in Article 2d(2) of Regulation (EC) 
No 1228/2003 and to the European Network of Transmission System Operators for 
Gas  as  provided  for  in  Article  2d(2)  of  Regulation  (EC)  No  1775/2005  on  the 
technical or market codes, on the draft annual work programme and the draft 10-year 
investment plan. 

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25 

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4. 

5. 

6. 

1. 

2. 

3. 

4. 

5. 

6. 

The  Agency  shall  provide  a  duly  justified  opinion  to  the  Commission  where  it 
considers that the draft annual work programme or the draft 10-year investment plan 
submitted  to  it  in  accordance  with  Article  2d(2)  of  Regulation  (EC)  No  1228/2003 
and  Article  2d(2)  of  Regulation  (EC)  No  1775/2005  do  not  ensure  non-
discrimination, effective competition and the efficient functioning of the market. 

The Agency shall provide a duly justified opinion to the Commission, in accordance 
with Article 2e(2) of Regulation (EC) No 1228/2003 and Article 2e(2) of Regulation 
(EC)  No  1775/2005  where  it  considers  that  a  technical  or  market  code  does  not 
ensure non-discrimination, effective competition and the efficient functioning of the 
market,  that  a  technical  or  market  code  has  not  been  adopted  within  a  reasonable 
period of time or that the transmission system operators fail to implement a technical 
or market code.  

The Agency shall monitor the regional cooperation of transmission system operators 
referred  to  in  Article  2h  of  Regulation  (EC)  No  1228/2003  and  Article  2h  of 
Regulation (EC) No 1775/2005. 

Article 7 

Tasks as regards the national regulatory authorities 

The  Agency  shall  adopt  individual  decisions  on  technical  issues  where  these 
decisions are provided for in Guidelines pursuant to Directive 2003/54/EC, Directive 
2003/55/EC, Regulation (EC) No 1228/2003 or Regulation (EC) No 1775/2005. 

The  Agency  may,  in  accordance  with  its  work  programme  or  at  the  request  of  the 
Commission,  adopt  non-binding  guidelines  to  assist  regulatory  authorities  and 
market players in sharing good practice. 

The  Agency  shall  promote  cooperation  between  the  national  regulatory  authorities 
and  between  regulatory  authorities  at  regional  level.  Where  the  Agency  considers 
that  binding  rules  on  such  cooperation  are  required,  it  shall  make  the  appropriate 
recommendations to the Commission.  

The Agency shall provide an opinion, at the request of any regulatory authority or of 
the Commission, on whether a decision taken by a regulatory authority complies with 
the  Guidelines  referred  to  in  Directive  2003/54/EC,  Directive  2003/55/EC, 
Regulation (EC) No 1228/2003 or Regulation (EC) No 1775/2005.  

Where  a  national  regulatory  authority  does  not  comply  with  the  opinion  of  the 
Agency as referred to in paragraph 4 within four months from the date of receipt, the 
Agency shall inform the Commission. 

When a national regulatory authority encounters, in a specific case, difficulties with 
the  application  of  the  Guidelines  referred  to  in  Directive  2003/54/EC,  Directive 
2003/55/EC,  Regulation  (EC)  No  1228/2003  or  Regulation  (EC)  No  1775/2005,  it 
may  ask  the  Agency  for  an  opinion.  The  Agency  shall  deliver  its  opinion  after 
consulting the Commission within four months.  

EN 

26 

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7. 

1. 

2. 

1. 

2. 

3. 

4. 

5. 

The  Agency  shall  decide  on  the  regulatory  regime  for  infrastructure  connecting  at 
least two member States, in accordance with Article 22d(3) of Directive 2003/54/EC 
and Article 24d(3) of Directive 2003/55/EC.  

Article 8 

Other tasks 

The Agency may grant exemptions, as provided for in Article 7(4)(a) of Regulation 
(EC)  No  1228/2003.  The  Agency  may  also  grant  exemptions  as  provided  for  in 
Article  22(3)(a)  of  Directive  2003/55/EC  where  the  infrastructure  concerned  is 
located in the territory of more than one Member State.  

The Agency shall propose an independent system operator in accordance with Article 
10(4) of Directive 2003/54/EC and Article 9(4) of Directive 2003/55/EC. 

Article 9 

Administrative Board 

The  Administrative  Board  shall  be  composed  of  twelve  members.  Six  shall  be 
appointed  by  the  Commission,  and  six  by  the  Council.  The  term  of  office  shall  be 
five years, renewable once. 

The  Administrative  Board  shall  appoint  its  Chairperson  and  its  Vice-Chairperson 
from  among  its  members.  The  Vice-Chairperson  shall  automatically  replace  the 
Chairperson if the latter is not in a position to perform his duties. The term of office 
of  the  Chairperson  and  of  the  Vice-Chairperson  shall  be  two  and  a  half  years  and 
shall be renewable. In any event, however, the term of office of the Chairperson and 
that  of  the  Vice-Chairperson  shall  expire  the  moment  they  cease  to  be  members  of 
the Administrative Board. 

Meetings  of  the  Administrative  Board  shall  be  convened  by  its  Chairperson.  The 
Director of the Agency shall participate in the deliberations unless the Administrative 
Board decides otherwise. The Administrative Board shall meet at least twice a year 
in  ordinary  session.  It  shall  also  meet  at  the  initiative  of  its  Chairperson,  at  the 
request of the  Commission or at  the request  of  at  least  a  third  of  its  members.  The 
Administrative  Board  may  invite  any  person  with  potentially  relevant  opinions  to 
attend  its  meetings  in  the  capacity  of  an  observer.  The  members  of  the 
Administrative Board may, subject to the rules of procedure, be assisted by advisers 
or  by  experts.  The  Administrative  Board’s  secretarial  services  shall be provided by 
the Agency. 

Decisions  of  the  Administrative  Board  shall  be  adopted  on  the  basis  of  a  majority 
two-thirds majority of the members present. 

Each  member  shall  have  one  vote.  The  rules  of  procedure  shall  set  out  in  greater 
detail  the  arrangements  governing  voting,  especially  the  conditions  whereby  one 
member can act on behalf of another and also, where appropriate, the rules governing 
quorums. 

EN 

27 

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Article 10 

Tasks of the Administrative Board  

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10. 

The  Administrative  Board  shall,  after  having  consulted  the  Board  of  Regulators, 
appoint the Director in accordance with Article 13(2).  

The Administrative Board shall appoint the members of the Board of Regulators in 
accordance with Article 11(1). 

The  Administrative  Board  shall  appoint  the  members  of  the  Board  of  Appeal  in 
accordance with Article 15(1). 

The  Administrative  Board  shall  adopt,  before  30  September  each  year,  and  after 
consulting  the  Commission  and  after  approval  by  the  Board  of  Regulators  in 
accordance  with  Article  12(3),  the  work  programme  of  the  Agency  for  the  coming 
year  and  shall  transmit  it  to  the  European  Parliament,  the  Council  and  the 
Commission. The work programme shall be adopted without prejudice to the annual 
budgetary procedure. 

The  Administrative  Board  shall  exercise  its  budgetary  powers  in  accordance  with 
Articles 18 to 21. 

The  Administrative  Board  shall  decide,  after  having  obtained  the  agreement  of  the 
Commission,  whether  to  accept  any  legacies  or  donations  or  grants  from  other 
Community sources. 

The Administrative Board shall exercise disciplinary authority over the Director. 

The Administrative Board shall, where necessary, draw up the Agency’s staff policy 
pursuant to Article 25(2). 

The Administrative Board shall adopt the special provisions on right of access to the 
documents of the Agency, in accordance with Article 27. 

The  Administrative  Board  shall  adopt  the  annual  report  on  the  activities  of  the 
Agency, referred to in Article 14(8), and shall transmit it to the European Parliament, 
the Council, the Commission, the European Economic and Social Committee and the 
Court of Auditors by 15 June at the latest. This report shall contain an independent 
section, approved by the Board of Regulators, concerning the regulatory activities of 
the Agency during the year considered. 

11. 

The Administrative Board shall adopt its own rules of procedure. 

Article 11 

Board of Regulators 

1. 

The Board of Regulators shall be composed of one representative per Member State 
from the regulatory authorities, as mentioned in Article 22a of Directive 2003/54/EC 
and  Article  24a  of  Directive  2003/55/EC,  and  one  non-voting  representative  of  the 

EN 

28 

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2. 

3. 

4. 

5. 

Commission.  The  national  regulatory  authorities  shall  nominate  one  alternate  per 
Member State.  

The  Board  of  Regulators  shall  elect  a  Chairperson  and  a  Vice-Chairperson  from 
among its members. The Vice-Chairperson shall replace the Chairperson if the latter 
is not in a position to perform his or her duties. The term of office of the Chairperson 
and of the Vice-Chairperson shall be two and a half years and shall be renewable. In 
any  event,  however,  the  term  of  office  of  the  Chairperson  and  that  of  the  Vice-
chairperson  shall  expire  the  moment  they  cease  to  be  members  of  the  Board  of 
Regulators.  

The  Board  of  Regulators  shall  act  by  a  majority  of  two-thirds  of  it  members.  Each 
member or alternate shall have one vote. 

The Board of Regulators shall adopt its Rules of procedure.  

When  carrying  out  the  tasks  conferred  upon  it  by  this  Regulation,  the  Board  of 
Regulators  shall  act  independently  and  shall not  seek  or  take  instructions  from  any 
government of a Member State or from any public or private interest. 

6. 

The Board of Regulators’ secretarial services shall be provided by the Agency. 

Article 12 

Tasks of the Board of Regulators 

1. 

2. 

3. 

4. 

The Board of Regulators shall provide an opinion to the Director before the adoption 
of the opinions, recommendations and decisions referred to in Articles 5, 6, 7 and 8. 
In  addition,  the  Board  of  Regulators,  within  its  field  of  competence,  shall  provide 
guidance to the Director in the execution of the Director's tasks. 

The Board of Regulators shall deliver an opinion on the candidate to be appointed as 
Director  in  accordance  with  Article  10(1)  and  Article  13(2).  The  Board  shall  reach 
this decision on the basis of a majority of three quarters of its members. 

The  Board  of  Regulators  shall,  in  accordance  with  Article  10(4)  and  Article  14(6) 
and in line with the draft budget established according to Article 20(1), approve the 
work  programme  of  the  Agency  for  the  coming  year  and  present  it  before  1 
September for adoption by the Administrative Board. 

The  Board  of  Regulators  shall  approve  the  independent  section  on  regulatory 
activities of the annual report, as provided for in Article 10(10) and Article 14(8).  

Article 13 

Director 

1. 

The  Agency  shall  be  managed  by  its  Director,  who  shall  act  independently  in  the 
exercise  of  his  functions.  Without  prejudice  to  the  respective  powers  of  the 

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29 

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Commission,  the  Administrative  Board  and  the  Board  of  Regulators,  the  Director 
shall not seek or accept any instruction from any government or from any body. 

The Director shall be appointed by the Administrative Board, on the basis of merit as 
well as skills and experience, from a list of at least two candidates proposed by the 
Commission,  following  a  call  for  expression  of  interest.  Before  appointment,  the 
candidate selected by the Administrative Board may be invited to make a statement 
before  the  competent  committee  of  the  European  Parliament  and  answer  questions 
put by its members.  

The  Director’s  term  of  office  shall  be  five  years.  In  the  course  of  the  nine  months 
preceding  the  end  of  this  period,  the  Commission  shall  undertake  an  evaluation.  In 
the evaluation, the Commission shall assess in particular: 

(e) 

the performance of the Director; 

(f) 

the Agency's duties and requirements in the coming years. 

The  Administrative  Board,  acting  on  a  proposal  from  the  Commission,  taking  into 
account the evaluation report and only in those cases where it can be justified by the 
duties and requirements of the Agency, may extend the term of office of the Director 
once for not more than three years.  

The Administrative Board shall inform the European Parliament about its intention to 
extend the Director's term of office. Within a month before the extension of his/her 
term of office, the director may be invited to make a statement before the competent 
committee of the Parliament and answer questions put before its members.  

If  the  term  of  office  is  not  extended,  the  Director  shall  remain  in  office  until  the 
appointment of his/her successor. 

The  Director  may  be  removed  from  office  only  upon  a  decision  by  the 
Administrative Board, after consulting the Board of Regulators. The Administrative 
Board  shall  reach  this  decision  on  the  basis  of  a  majority  of  three  quarters  of  its 
members.  

The  European  Parliament  and  the  Council  may  call  upon  the  Director  to  submit  a 
report on the performance of his duties. 

Article 14 

Tasks of the Director 

The Director shall be responsible for representing the Agency and shall be in charge 
of its management. 

The  Director  shall  prepare  the  work  of  the  Administrative  Board.  He  or  she  shall 
participate, without having the right to vote, in the work of the Administrative Board. 

The  Director  adopts  the  opinions,  recommendations  and  decisions  referred  to  in 
Articles 5, 6, 7 and 8, subject to the assent of the Board of Regulators.  

2. 

3. 

4. 

5. 

6. 

7. 

8. 

1. 

2. 

3. 

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30 

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4. 

5. 

6. 

7. 

8. 

9. 

1. 

2. 

3. 

The  Director  shall  be  responsible  for  implementing  the  annual  work  programme  of 
the  Agency  under  the  guidance  of  the  Board  of  Regulators  and  under  the 
administrative control of the Administrative Board. 

The  Director  shall  take  the  necessary  measures,  notably  the  adoption  of  internal 
administrative  instructions  and  the  publication  of  notices,  to  ensure  the  functioning 
of the Agency in accordance with this Regulation. 

Each year the Director shall prepare a draft work programme of the Agency for the 
following  year,  and  submit  it  to  the  Board  of  Regulators  and  to  the  Commission 
before 30 June of that year. 

The Director shall make an estimate of the revenue and expenditure of the Agency 
pursuant  to  Article  20  and  shall  implement  the  budget  of  the  Agency  pursuant  to 
Article 21. 

Each  year  the  Director  shall  prepare  a  draft  annual  report  with  a  section  on  the 
regulatory  activities  of  the  Agency  and  a  section  on  financial  and  administrative 
matters. 

With  regard  to  the  staff  of  the  Agency,  the  Director  shall  exercise  the  powers 
provided for in Article 25(3). 

Article 15 

Board of Appeal 

The Board of Appeal shall be composed of six members and six alternates selected 
from  among  current  or  former  senior  staff  of  the  national  regulatory  authorities, 
competition  authorities  or  other  national  or  Community  institutions  with  relevant 
experience in the energy sector. The Board of Appeal designates its Chairperson. The 
decisions of the Board of Appeal shall be adopted on the basis of a qualified majority 
of at least four out of its six members. The Board of Appeal shall be convened when 
necessary. 

The  members  of  the  Board  of  Appeal  shall  be  appointed  by  the  Administrative 
Board,  on  a  proposal  from  the  Commission,  following  a  call  for  expression  of 
interest, after consultation of the Board of Regulators.  

The term of office of the members of the Board of Appeal shall be five years. This 
term shall be renewable. The members of the Board of Appeal shall be independent 
in making their decisions; they shall not be bound by any instructions. They may not 
perform any other duties in the Agency, in its Administrative Board or in its Board of 
Regulators. A member of the Board of Appeal may not be removed during his or her 
term of office, unless he or she has been found guilty of serious misconduct, and the 
Administrative  Board,  after  consulting  the  Board  of  Regulators,  takes  a  decision  to 
this effect. 

4. 

Members of the Board of Appeal may not take part in any appeal proceedings if they 
have  any  personal  interest  therein,  or  if  they  have  previously  been  involved  as 

EN 

31 

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5. 

6. 

1. 

2. 

3. 

4. 

5. 

representatives of one of the parties to the proceedings, or if they participated in the 
decision under appeal. 

If, for one of the reasons mentioned in paragraph 4 or for any other reason, a member 
of  a  Board  of  Appeal  considers  that  a  fellow  member  should  not  take  part  in  any 
appeal  proceedings,  the  member  shall  inform  the  Board  of  Appeal  accordingly.  A 
member  of  the  Board  of  Appeal  may  be  objected  to  by  any  party  to  the  appeal 
proceedings  on  any  of  the  grounds  mentioned  in  paragraph  4,  or  if  suspected  of 
partiality. An objection cannot be based on the nationality of members nor shall it be 
admissible  if,  while  being  aware  of  a  reason  for  objecting,  the  party  to  the  appeal 
proceedings has taken a procedural step. 

The Board of Appeal shall decide as to the action to be taken in the cases specified in 
paragraphs  4  and  5  without  the  participation  of  the  member  concerned.  For  the 
purposes  of  taking  that  decision,  the  member  concerned  shall  be  replaced  on  the 
Board  of  Appeal  by  his  alternate,  unless  the  alternate  finds  himself  in  a  similar 
situation. Should this be the case, the Chairperson shall designate a replacement from 
among the available alternates.  

Article 16 

Appeals 

Any natural or legal person may appeal against a decision as referred to in Articles 7 
and 8 and which is addressed to that person, or against a decision which, although in 
the  form  of  a  decision  addressed  to  another  person,  is  of  direct  and  individual 
concern to that person.  

The appeal, together with the statement of grounds thereof, shall be filed in writing at 
the  Agency  within  two  months  of  the  notification  of  the  decision  to  the  person 
concerned,  or,  in  the  absence  thereof,  of  the  day  on  which  within  two  months  the 
Agency has published its decision. The Board of Appeal shall decide upon the appeal 
within two months after the appeal has been lodged. 

An  appeal  lodged  pursuant  to  paragraph  1  shall  not  have  suspensory  effect.  The 
Board of Appeal may, however, if it considers that circumstances so require, suspend 
the application of the contested decision.  

If  the  appeal  is  admissible,  the  Board  of  Appeal  shall  examine  whether  it  is  well 
founded. It shall invite the parties as often as necessary to the appeal proceedings to 
file  observations  on  notifications  issued  by  itself  or  on  communications  from  the 
other  parties  to  the  appeal  proceedings,  within  specified  time  limits.  Parties  to  the 
appeal proceedings shall be entitled to make an oral presentation.  

The Board of Appeal may, within the terms of this Article, exercise any power which 
lies within the competence of the Agency, or it may remit the case to the competent 
body  of  the  Agency.  The  latter  shall  be  bound  by  the  decision  of  the  Board  of 
Appeal. 

6. 

The Board of Appeal shall adopt its rules of procedure.  

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32 

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Article 17 

Actions before the Court of First Instance and the Court of Justice 

1. 

2. 

3. 

An action may be brought before the Court of First Instance of the Court of Justice, 
in  accordance  with  Article  230  of  the  Treaty,  contesting  a  decision  taken  by  the 
Board of Appeal or, in case where no right lies before the Board , by the Agency. 

Should  the  Agency  fail  to  take  a  decision,  proceedings  for  failure  to  act  may  be 
brought before the Court of First Instance or the Court of Justice in accordance with 
Article 232 of the Treaty. 

The  Agency  shall  be  required  to  take  the  necessary  measures  to  comply  with  the 
judgment of the Court of First Instance or the Court of Justice. 

Article 18 

Budget of the Agency 

1. 

The revenues of the Agency shall consist notably of: 

(a) 

a subsidy from the Community, entered in the general budget of the European 
Communities (Commission Section); 

(b) 

the fees paid to the Agency pursuant to Article 19; 

(c) 

any  voluntary  contribution  from  the  Member  States  or  from  their  regulatory 
authorities; 

(d) 

any legacies, donations or grants as mentioned in Article 10(6). 

The  expenditure  shall  cover  staff,  administrative,  infrastructure,  and  operational 
expenses.  

Revenue and expenditure shall be in balance. 

All  Agency  revenue  and  expenditure  shall  be  the  subject  of  forecasts  for  each 
financial year, coinciding with the calendar year, and shall be entered in its budget. 

Article 19 

Fees 

Fees  shall  be  due  to  the  Agency  for  requesting  an  exemption  decision  pursuant  to 
Article 8(1). 

The above mentioned fees shall be set by the Commission. 

2. 

3. 

4. 

1. 

2. 

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33 

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1. 

2. 

3. 

4. 

5. 

6. 

1. 

2. 

Article 20 

Establishment of the budget 

By 15 February of each year at the latest, the Director shall drawn up a preliminary 
draft  budget  covering  the  operational  expenditure  and  the  programme  of  work 
anticipated for the following financial year, and shall forward this preliminary draft 
to the Administrative Board, together with a list of provisional posts. Each year the 
Administrative Board shall, on the basis of the draft prepared by the Director, make 
an  estimate  of  revenue  and  expenditure  of  the  Agency  for  the  following  financial 
year. This estimate, including a draft establishment plan, shall be transmitted by the 
Administrative Board to the Commission by 31 March at the latest. Prior to adoption 
of  the  estimate,  the  draft  prepared  by  the  Director  shall  be  transmitted  to  the 
Regulatory Board, which may deliver an opinion on the draft. 

The estimate shall be transmitted by the Commission to the European Parliament and 
to the Council (hereinafter referred to as the budgetary authority) together with  the 
preliminary draft general budget of the European Communities. 

On  the  basis  of  the  estimates,  the  Commission  shall  enter  in  the  preliminary  draft 
general budget of the European Communities the forecasts it considers necessary in 
respect  of  the  establishment  plan  and  the  amount  of  the  grant  to  be  charged  to  the 
general budget in accordance with Article 272 of the Treaty. 

The budgetary authority shall adopt the establishment plan for the Agency. 

The  budget  of  the  Agency  shall  be  drawn  up  by  the  Administrative  Board.  It  shall 
become  final  after  the  final  adoption  of  the  general  budget  of  the  European 
Communities. Where necessary, it shall be adjusted accordingly.  

The Administrative Board shall, without delay, notify the budgetary authority of its 
intention to implement any project which may have significant financial implications 
for the funding of its budget, in particular any project relating to property such as the 
rental  or  purchase  of  buildings.  It  shall  inform  the  Commission  thereof.  If  either 
branch of the budget authority intends to issue an opinion, it shall within two weeks 
after  receipt  of  the  information  on  the  building  project  notify  the  Agency  of  its 
intention to issue such an opinion. Failing a reply, the agency may proceed with the 
planned operation. 

Article 21 

Implementation and control of the budget  

The  Director  shall  act  as  authorising  officer  and  shall  implement  the  Agency's 
budget. 

By 1 March at the latest following the completion of each financial year, the Agency 
accounting  officer  shall  forward  to  the  Commission's  accounting  officer  and  the 
Court of Auditors the provisional accounts, accompanied by the report on budgetary 
and  financial  management  over  the  financial  year.  The  Agency  accounting  officer 
shall  also  send  the  report  on  budgetary  and  financial  management  to  the  European 

EN 

34 

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Parliament  and  the  Council  by  31  March  of  the  following  year  at  the  latest.  The 
Commission's  accounting  officer  shall  then  consolidate  the  provisional  accounts  of 
the  institutions  and  decentralised  bodies  in  accordance  with  Article  128  of 
Regulation (EC, Euratom) No 1605/200216. 

By  31  March  at  the  latest  following  the  completion  of  each  financial  year,  the 
Commission's  accounting  officer  shall  forward  the  provisional  accounts  of  the 
Agency, accompanied by the report on budgetary and financial management over the 
financial  year,  to  the  Court  of  Auditors.  The  report  on  budgetary  and  financial 
management  over  the  financial  year  shall  also  be  forwarded  to  the  European 
Parliament and the Council. 

After receiving the observations of the Court of Auditors on the provisional accounts 
of the Agency in accordance with the provisions of Article 129 of Regulation (EC, 
Euratom) No 1605/2002, the Director, acting on his own responsibility, shall draw up 
the  final  accounts  of  the  Agency  and  transmit  them,  for  opinion,  to  the 
Administrative Board. 

The  Administrative  Board  shall  deliver  an  opinion  on  the  final  accounts  of  the 
Agency. 

The Director shall transmit these final accounts, accompanied by the opinion of the 
Administrative Board, no later than 1 July following the completion of the financial 
year,  to  the  European  Parliament,  the  Council,  the  Commission  and  the  Court  of 
Justice. 

The final accounts shall be published. 

The Director shall send the Court of Auditors a reply to the latter’s observations by 
15 October at the latest. He shall also send a copy of this reply to the Administrative 
Board and the Commission. 

The Director shall submit to the European Parliament, at the latter’s request and as 
provided  for  in  Article  146(3)  of  Regulation  (EC,  Euratom)  No  1605/2002,  any 
information  necessary  for  the  smooth  running  of  the  discharge  procedure  for  the 
financial year in question. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10. 

The European Parliament, following a recommendation from the Council acting on a 
qualified majority, shall, before 15 May of the year N + 2, grant a discharge to the 
Director for the implementation of the budget for the financial year N. 

Article 22 

Financial rules 

The financial rules applicable to the Agency shall be drawn up by the Administrative Board 
after  consultation  with  the  Commission.  Those  rules  may  deviate  from  Commission 

16 

OJ L 248, 16.9.2002, p. 1. 

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35 

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Regulation (EC, Euratom) No 2343/2002 if the specific operational needs for the functioning 
of the Agency so require and only with the prior agreement of the Commission. 

Article 23 

Anti-fraud measures 

1. 

2. 

3. 

For the purposes of combating fraud, corruption and other illegal acts, the provisions 
of  Regulation  (EC)  No  1073/199917  shall  apply  to  the  Agency  without  any 
restriction. 

The  Agency  shall  accede  to  the  Interinstitutional  Agreement  of  25  May  1999 
between  the  European  Parliament,  the  Council  of  the  European  Union  and  the 
Commission of the European Communities concerning internal investigations by the 
European  Anti-Fraud  Office  (OLAF)18  and  shall  immediately  adopt  appropriate 
provisions for all staff of the Agency. 

The  funding  decisions  and  the  agreements  and  the  implementing  instruments 
resulting  from  them  shall  explicitly  stipulate  that  the  Court  of  Auditors  and  OLAF 
may,  if  need  be,  carry  out  on-the-spot  checks  on  the  beneficiaries  of  monies 
disbursed  by  the  Agency  as  well  as  on  the  staff  responsible  for  allocating  these 
monies. 

Article 24 

Privileges and immunities 

The Protocol on Privileges and Immunities of the European Communities shall apply to the 
Agency. 

Article 25 

Staff 

The Staff Regulations of Officials of the European Communities, the Conditions of 
employment  of  other  servants  of  the  European  Communities  and  the  rules  adopted 
jointly  by  the  European  Community  institutions  for  the  purpose  of  applying  these 
staff regulations and conditions of employment shall apply to the staff of the Agency. 

The  Administrative  Board,  in  agreement  with  the  Commission,  shall  adopt  the 
necessary implementing measures, in accordance with the arrangements provided for 
in Article 110 of the Staff Regulations of officials of the European Communities. 

In  respect  of  its  staff,  the  Agency  shall  exercise  the  powers  conferred  on  the 
appointing  authority  by  the  Staff  Regulations  of  officials  of  the  European 

OJ L 136, 31.5.1999, p. 1. 
OJ L 136, 31.5.1999, p. 15. 

1. 

2. 

3. 

17 
18 

EN 

36 

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Communities and on the authority entitled to conclude contracts by the Conditions of 
Employment of other servants of the European Communities. 

4. 

The  Administrative  Board  may  adopt  provisions  to  allow  national  experts  from 
Member States to be employed on secondment at the Agency. 

Article 26 

Liability of the Agency 

1. 

2. 

1. 

2. 

3. 

In  the  case  of  non-contractual  liability,  the  Agency  shall,  in  accordance  with  the 
general  principles  common  to  the  laws  of  the  Member  States,  make  good  any 
damage caused by it or by its staff in the performance of their duties. The Court of 
Justice of the European Communities shall have jurisdiction in any dispute over the 
remedying of such damage. 

The personal financial liability and disciplinary liability of Agency staff towards the 
Agency  shall  be  governed  by  the  relevant  provisions  applying  to  the  staff  of  the 
Agency. 

Article 27 

Access to documents  

Regulation (EC) No 1049/200119 shall apply to documents held by the Agency. 

The  Administrative  Board  shall  adopt  practical  measures  for  applying  Regulation 
(EC)  No  1049/2001  within  six  months  from  the  date  of  entry  into  force  of  this 
Regulation. 

Decisions  taken  by  the  Agency  pursuant  to  Article  8  of  Regulation  (EC)  No 
1049/2001 may be the subject of a complaint to the Ombudsman or of proceedings 
before the Court of Justice, in accordance with the conditions laid down in Articles 
195 and 230 respectively of the Treaty. 

Article 28 

Participation of third countries 

The  Agency  shall  be  open  to  the  participation  of  countries  which  are  not  members  of  the 
European  Union  and  which  have  concluded  agreements  with  the  Community  to  this  effect. 
Under the relevant provisions of these agreements, arrangements shall be made specifying, in 
particular, the nature, scope and procedural aspects of the involvement of these countries in 
the work of the Agency, including provisions relating to financial contributions and to staff. 

19 

OJ L 145, 31.5.2001, p. 43. 

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37 

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Article 29 

Language arrangements 

The provisions of Regulation No 1 of 15 April 1958 shall apply to the Agency. 

The Administrative Board shall decide on the internal language arrangements for the 
Agency. 

The translation services required for the functioning of the Agency shall be provided 
by the Translation Centre for the Bodies of the European Union. 

Article 30 

Evaluation 

The Commission shall carry out an evaluation of the activities of the Agency. This 
shall cover the results achieved by the Agency and its working methods, in relation 
with  its  objective,  mandate  and  tasks  defined  in  this  Regulation  and  in  its  annual 
work programmes.  

The  first  evaluation  report  shall  be  presented  by  the  Commission  to  the  European 
Parliament and the Council at the latest four years after the first Director has taken up 
his  or  her  duties.  The  Commission  shall  then  present  an  evaluation  report  at  least 
every five years. 

Article 31 

Entry into force and transitory measures 

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

Articles 5, 6, 7 and 8 shall apply as from… [18 months after entry into force of this 
Regulation].  

1. 

2. 

3. 

1. 

2. 

1. 

2. 

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

Done at Brussels, [ ...] 

For the European Parliament 
The President 

For the Council 
The President 

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38 

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Annex 1 

LEGISLATIVE FINANCIAL STATEMENT 

Policy area(s): TRANSPORT AND ENERGY 

Activity(ies): Internal market in energy  

TITLE OF OPERATION: AGENCY FOR THE COOPERATION OF ENERGY REGULATORS  

1. 

BUDGET LINE(S) + TITLE(S) 

Under Chapter 06 … 

Creation of the appropriate structure for the Agency for the Cooperation of Energy 
Regulators (regulatory agency), i.e: 

–  creation  of  an  item  06  entitled  “Agency  for  the  Cooperation  of  Energy 

Regulators” 

–  creation of an item 06 XX XX – entitled “Agency for the Cooperation of Energy 

Regulators” – Grant Titles 1 and 2 

–  creation of an item 06 XX XX – entitled “Agency for the Cooperation of Energy 

Regulators” – Grant Title 3 

The choice of article and items, under Chapter 06 03, will be determined under the 
budget procedure for 2009. 

2. 

OVERALL FIGURES 

2.1. 

Allocation for the action: 

An annual allocation is included in the appropriations entered under Article XXX for 
the year 2009 and for the subsequent years. 

2.2. 

Period of application 

The action will be of unlimited duration (annual grant). 

2.3. 

Overall multiannual estimate on expenditure: 

a) Schedule of commitment appropriations / payment appropriations (financial intervention)  

EN 

39 

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in € millions 

Year 

2009 

2010 

2011 

2012 

Subsequent 
financial 
years 

Commitment 
appropriations 

Payment 
appropriations 

1,970 

3,940

6,084

6,314 

6,434

1,970 

3,940

6,084

6,314 

6,434

2.4. 

Compatibility with financial programming and the financial perspective 

x 

Proposal compatible with existing financial programming (2007/2013) 

2.5. 

Financial impact on revenue 

x 

No financial implications 

3. 

BUDGET CHARACTERISTICS 

Type of expenditure 

New 

Participation 
EFTA 

Participation 
applicant 
countries 

Heading 
Financial 
Perspective 

NCE 

DA/NDA 

YES  

YES  

YES 

No 1.a           

4. 

LEGAL BASIS  

EC Treaty: Article 95 

5. 

DESCRIPTION AND GROUNDS 

5.1. 

Need for Community intervention 

5.1.1. Objectives pursued 

The  EC  has  already  adopted  a  series  of  measures20  to  create  an  Internal  Energy  Market 
intended  to  deliver  real  choice  for  all  EU  consumers,  be  they  citizens  or  business,  new 
business  opportunities  and  more  cross-border 
trade.  The  Internal  Energy  Market 
Communication21  and  the  final  Report  on  the  Competition  Sectoral  Enquiry22  demonstrate 

20 

21 

Including  the  second  market  opening  Directives,  the  Regulations  aimed  at  harmonising  the  technical 
standards  necessary  to  make  cross-border  trade  work  in  practice,  and  the  Directives  on  security  of 
supply. 
Communication from the Commission to the European Parliament and the Council on prospects for the 
internal gas and electricity market - COM(2006) 841. 

EN 

40 

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that  the  present  rules  and  measures  have  not  yet  achieved  these  objectives.  The 
Communication  of  the  Commission  of  10  January  2007  entitled  "An  Energy  Policy  for 
Europe"23  set  the  objective  of  creating  a  European  Gas  and  Electricity  Grid  and  a  truly 
competitive European-wide energy market. One key element in achieving this objective is the 
improvement of market regulation at national and European level and in particular effective 
cooperation  of  national  regulatory  authorities  taking  the  form  of  a  "new  single  body  at 
Community level". 

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 regulatory bodies in Member States, 
and between these bodies and the Commission. ERGEG activities over recent years made a 
very  positive  contribution  to  the  completion  of  the  internal  market  in  gas  and  electricity. 
However,  most  stakeholders,  including  the  regulators  themselves,  consider  that  the 
development  of  the  internal  markets  calls  for  a  formal  mechanism  to  enable  national 
regulators to cooperate and take decisions on important cross-border issues.  

The nature of the tasks to be devolved to such a mechanism leads to the conclusion that it can 
only take the form of a regulatory agency. This analysis reflects the principles defined by the 
Commission  in  the  Draft  inter-institutional  agreement  on  the  operating  framework  for  the 
European  regulatory  agencies24,  in  particular  the  possibility  to  adopt  individual  decisions 
which are legally binding on third parties. 

5.1.2. Measures taken in connection with ex ante evaluation 

The Commission evaluated the impact of setting up an agency against a number of criteria. 
First of all, the problem to be resolved and the need to be met were assessed.  

National energy regulators have competences to regulate their national markets. Nevertheless, 
the integration of each national market in order to build the EU internal market now require 
sanction  at  EU  level  for  certain  types  of  decisions,  and  there  is  a  consensus  among  the 
stakeholders on this. Most stakeholders, including the regulators themselves, consider that the 
development  of  the  internal markets calls for a formal mechanism  for national regulators to 
cooperate and take decisions on important cross-border issues. 

Secondly, the added value of Community action and alternatives to the creation of a European 
regulatory agency were assessed. The question asked was questioned whether these new tasks 
could  have  been  pursued  by  the  Commission  itself.  Regulatory  activities  require  highly 
technical skills, notably knowledge of the physics of the grid, levels of investment needed in 
the  sector  (generation  and  transmission),  a  scale  of  access  tariffs  and  a  dispute  settlement 
mechanism.  These  tasks  require  very  specific  technical  expertise  that  the  Commission  does 
not have. Acquiring the necessary expertise would probably require a new directorate within 
the Commission. In addition, this option would transform the Commission's institutional role 
towards more of a technical body without generating any benefit from such activities. Other 
systems,  like  the  model  of  the  System  of  European  Central  Banks,  might  be  feasible.  This 
option looks attractive but lacks a legal basis, such as an Article in the Treaty, for energy. The 

22 

23 
24 

Communication from the Commission "Sector Enquiry under Article 17 of Regulation (EC) No 1/2003 
on the gas and electricity markets (final report)" - COM(2006) 851. 
OJ C , , p. . 
COM(2005) 59. 

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creation  of  a  more  powerful  network  of  national  energy  regulators  was  considered,  like  the 
Network of Competition Authorities created by the Commission in 2004 on the basis of the 
new  Council  anti-trust  regulation  (EC)  No  1/2003.  In  that  system,  national  competition 
authorities  do  not  exert  a  collective  decision  power,  but  apply  precise  rules  to  define  the 
competent authority, the exchange of information and procedures. The Commission exerts a 
general evocation power and may take over a case, for instance if two national regulators have 
conflicting views. However, this system works in relation with the autonomous powers of the 
Commission  in  the  competition  sector.  The  Commission  does  not  have  such  autonomous 
decision  powers  as  for  regulating  energy  markets  (beyond  competition  issues)  and  would 
therefore not have the same leverage on the network.  

Having  assessed  these  alternative  models,  the  conclusion  was  drawn  that  the  nature  of  the 
tasks to be devolved to such a mechanism are such that the only option is a regulatory agency 
having the power to adopt individual decisions which are legally binding on third parties. This 
option is also based on the assumption that the powers available to national regulators will be 
reinforced and harmonised.  

5.2. 

Actions envisaged and arrangements for budget intervention 

With a view to achieving its objectives, the Agency will carry out the following measures:  

–  Providing a framework for national regulators to cooperate. It is proposed to improve the 
handling  of  cross-border  situations.  The  Agency  will  set  rules  and  procedures  for  the 
cooperation  between  national  regulators,  in  particular  as  regards  the  exchange  of 
information  and  the  apportionment  of  competence  in  cases  affecting  more  than  one 
Member State.  

–  Regulatory  review  of  the  cooperation  between  transmission  system  operators.  It  is 
proposed  that  the  cooperation  among  transmission  system  operators,  in  particular  as 
regards the development of market and technical codes, the coordination of grid operation 
and  investment  planning,  shall  be  reviewed  by  the  Agency.  For  that  purpose,  draft 
measures to be adopted jointly by the transmission system operators, or by several of them, 
would  be  submitted  to  the  Agency  which  would  provide  an  opinion  to  the  transmission 
system  operators  if  these  measures  did  not  ensure  non-discrimination,  effective 
competition  or  the  efficient  functioning  of  the  market.  In  practice,  this  mechanism  shall 
take  the  form  of  a  constructive  dialogue  between  transmission  system  operators,  the 
Commission only intervening as a last resort.  

–  Individual  decision  powers.  In  a  limited  number  of  cases,  it  is  proposed  to  entrust  the 
Agency  with  individual  decision  powers.  Such  is  the  case  for  handling  exemption25 
requests concerning infrastructure assets of European interest.  

–  General  advisory  role.  The  Agency  would  also  have  an  advisory  role  towards  the 
Commission  as  regards  market  regulation  issues,  and,  without  prejudice  to  the  tasks 
conferred  to  the  transmission  system  operators;  it  may  issue  non-binding  guidelines  to 
disseminate good practices among the national regulators.  

25 

As defined in Article 22 of Directive 2003/55/EC and in Article 7 of Regulation (EC) No 1228/2003. 

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All  Agency  revenues  and  expenditures  are  the  subject  of  forecasts  for  each  financial  year, 
coinciding with the calendar year, and are entered in its budget. 

The  budget  is  balanced  in  terms  of  revenue  and  expenditure.  Without  prejudice  to  other 
resources and dues yet to be defined, revenue accruing to the Agency includes a Community 
grant entered in the general budget of the European Community in order to ensure a balance 
between revenue and expenditure.  

In particular, Agency expenditure covers staff remuneration, administrative and infrastructure 
expenditure, operating costs and expenditure associated with the functioning of the Board of 
regulators and the Board of Appeal. 

5.3.  Methods of implementation 

The legal status of the Agency should be such as to enable it to act as a legal person in the 
discharge of its tasks.  

An Administrative Board will serve as the Agency’s financial and administrative control unit, 
made up of 12 members. Six are appointed by the Commission, and six by the Council. The 
term of office is five years, renewable once. 

The Agency  is headed by  a Director appointed by the Administrative Board for a period of 
five years, renewable once. The Director is the legal representative of the Agency.  

The  Agency's  decisions  are  adopted  by  the  Board  of  Regulators.  In  order  to  keepdecision 
making  independent  of  the  executive  (the  Administrative  Board),  there  must  bea  separate 
Board of Regulators. The Board of Regulators will be composed of the Director and of one 
representative  per  Member  State.  The  representatives  of  the  Member  State  come  from  a 
regulatory authority of that Member State.  

Finally,  the  decisions  adopted  by  the  Agency  are  subject  to  appeal.  Appeals  can  be  made 
before the Board of Appeal, which has 6 members.  

6. 

FINANCIAL IMPACT  

6.1.  Method of calculating the total cost of the action (To be determined by DG BUDG 

and DG ADMIN) 

The  Agency’s  annual  costs  will  be  covered  by the  Community  grants.  The  various  types  of 
expenditure can be analysed as follows: 

Staff expenditure 

The  proposed  budget  is  based  on  an  estimated  staff  of  48.  Total  annual  staff  expenditure  is 
estimated at € 5.184 million, taking as the average the cost of European Commission staff, i.e. 
€  0.117  million  per  year,  which  includes  expenditure  associated  with  buildings  and  related 
administrative expenditure (mailing charges, telecommunications, IT, etc.). 

Staff  expenditure  will  cover  recruitment  costs  from  2009.  The  staff  expenditure  estimate  is 
based on the following recruitment plan: 

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Recruitment 

Total staff 

First semester 2009 

Second semester 2009 

First semester 2010 

Second semester 2010 

First semester 2011 

Capital expenditure 

+10 

+10 

+10 

+10 

+8 

10 

20 

30 

40 

48 

Expenditure  relating  to  the  acquisition  of  movable  property  and  associated  expenditure  will 
cover € 0,350 million in the first two years. For the following years, a sum of € 0.05 million 
per year has been set aside to cover additional costs. This item may vary in relation with the 
facilities provided by the host Member State. 

Operating costs 

These costs cover meetings and studies, as well as translation, publication and public relations 
costs. Based on preliminary estimates, these operating costs come to €1 million per year.  

Mission expenditure  

In order to discharge its tasks, the Agency will need to organise trips both inside and outside 
the  EU  (transport  and  accommodation  costs).  The  mission  expenses  budget  is  estimated  to 
come to € 0.150 million per year when the Agency is fully operational. These estimates are 
based  on  actual  average  mission  expenses  costs  attributed  to  DG  TREN.  They  may  vary  in 
relation to the location of the seat of the Agency. 

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6.2. 

Breakdown by elements of the action  

Commitment appropriations in million euros (at current prices) 

Breakdown/ categories 

Year 2009  Year 2010  Year 2011  Year 2012 

Subsequent 
financial 
years 

Staff expenditure 

1.755 

4,095 

5,616 

5,616 

5,6160,050 

Equipment 

0,150 

0,200 

0,050 

0,050 

1,000 

Operating expenditure 

0,150 

0,400 

0,700 

0,900 

Mission expenditure 

0,050 

0,100 

0,150 

0,180 

0,200 

Total 

2,105 

4,795 

6,516 

6,746 

6,866 

6.3. 

Schedule of commitment appropriations / payment appropriations 

in millions of euros  

 Years  

et seq. 

2009 

2010 

2011 

2012 

Subsequent 
years 

Commitment appropriations 

1,970 

3,940 

6,084 

6,314 

6,434 

Payment appropriations 

1,970 

3,940 

6,084 

6,314 

6,434 

7. 

FOLLOW-UP AND EVALUATION 

The management of the funds entrusted to the Agency comes under the control of the Court of 
Auditors  (Article  21),  the  European  Parliament  (Article  21)  and  the  European  Anti-Fraud 
Office (Article 23). 

8. 

ANTI-FRAUD MEASURES 

See point 7 above. 

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