Opinion of the Committee of the Regions on the Third legislative package on European electricity and gas markets
Date: 2008-04-10
Institutions: European Committee of the Regions
Subjects: competition, consumer protection, electrical energy, energy policy, gas, investment, renewable energy, security of supply, single market, trans-European network

5.7.2008

EN

Official Journal of the European Union

C 172/55

Opinion of the Committee of the Regions on the ‘Third legislative package on European electricity
and gas markets’

(2008/C 172/11)

THE COMMITTEE OF THE REGIONS

— stresses that all discussions on the liberalisation of energy should centre around the consumer;

— is therefore in favour of additional measures in the area of transmission unbundling;

— is pleased that the legislative package proposes to complete the internal market in energy through
legislative measures intended to guarantee non-discriminatory access to transmission
additional
networks for new entrants and thus promote competition, to establish better coordination between
regulators and TSOs, to promote investment in electricity generation and networks, and to increase
market transparency;

— calls on the Commission to take appropriate measures to prevent market concentration and to encou-
rage the diversity of private and public operators; Member States who so wish must be able to decide
not to apply the rules on legal unbundling of supply system operators to integrated electricity compa-
nies serving less than 100 000 connected customers or serving small isolated networks;

— calls for encouragement of

local and regional energy generation derived from renewable energy
sources, which are suited to local environmental conditions while cutting energy transmission costs
and emissions throughout the EU. Region-specific energy plans must therefore be encouraged; they
should be properly coordinated and integrated at both national and Community level.

C 172/56

EN

Official Journal of the European Union

5.7.2008

Rapporteur: Michel LEBRUN, Member of the Walloon Parliament (BE/EPP)

Reference documents

Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/54/EC
concerning common rules for the internal market in electricity

COM(2007) 528 final — 2007/0195 (COD)

Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/55/EC
concerning common rules for the internal market in natural gas

COM(2007) 529 final — 2007/0196 (COD)

Proposal for a Regulation of the European Parliament and of the Council establishing an Agency for the
Cooperation of Energy Regulators

COM(2007) 530 final — 2007/0197 (COD)

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No
1228/2003 on conditions for access to the network for cross-border exchanges in electricity

COM(2007) 531 final — 2007/0198 (COD)

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No
1775/2005 on conditions for access to the natural gas transmission networks

COM(2007) 532 final — 2007/0199 (COD)

Policy recommendations

THE COMMITTEE OF THE REGIONS,

General recommendations

points out that local and regional authorities make an
1.
important contribution to the success of European initiatives
and play an important role in European energy policy,

emphasises that energy is essential for citizens and busi-
2.
ness competitiveness. Local and regional authorities, as organisa-
tions close to citizens, want consumers to have uninterrupted
access to electricity and gas, at a competitive price and with a
good level of service,

stresses that all discussions on the liberalisation of energy

3.
should centre around the consumer,

4.
notes that the liberalisation of energy has not yet yielded
the anticipated results in many Member States and that there is
no real single market for electricity and gas in the EU,

5.
agrees with the European Commission's analysis of the
malfunctioning observed in the electricity and gas markets:
strong market concentration, high degree of vertical integration
of energy companies,
lack of
fragmentation of
transparency as regards price formation inter alia, and lack of
coordination between transmission system operators (TSOs),

the markets,

the

is pleased that

legislative package proposes

6.
to
complete the internal market in energy through additional legis-
lative measures intended to guarantee non-discriminatory access
to transmission networks for new entrants and thus promote
competition, to establish better coordination between regulators

and TSOs, to promote investment in electricity generation and
networks, and to increase market transparency,

7.
is pleased that the development of regional markets has
been included in the legislative package, believing that this is a
crucial step towards a single market in electricity and gas within
the EU,

8.
is pleased that the European Commission has identified
competitiveness, security of supply and sustainability as the
objectives of European energy policy and is pursuing them;
however, it emphasises that these three objectives are not neces-
sarily compatible, thus necessitating a careful balance between
them,

9.
recognises that the primary aim of the third legislative
package is to improve the functioning of the European electri-
city and gas markets, but would also hope that the package will
work towards other Community policy objectives, such as
improving energy efficiency and reducing the impact of climate
change. Therefore renewable sources of energy should be made
the recommended option,

10.
draws attention to a previous opinion in which the CoR
advocated internalising environmental costs in the consumer
price (CdR 216/2005). Such an initiative would require the
implementation of targeted legislation at EU level, whereas the
legislative package has no such intention; therefore urges the
Commission to propose such a system. When creating this
system, however, care must be taken to ensure that it does not
lead to a disproportionate rise in energy prices, taking into
account the repercussions on the EU's competitiveness and the
achievement of the Lisbon Strategy,

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Official Journal of the European Union

C 172/57

11.
believes that regardless of the Commission's largely posi-
tive impact analysis of the third legislative package on energy, it
is imperative to remain attentive to the social, economic and
environmental repercussions of the proposed measures, in par-
ticular at regional and local level.

Internal market in electricity and gas

Regarding competition

12.
points out that the liberalisation of the electricity and gas
markets was supposed to put an end to the monopolies of
energy companies in Member States and to promote competi-
tion. Competition is in fact only possible if, on the supply side,
several producers and several suppliers are genuinely competing
against each other,

13.
notes that at the current time, national energy generation
markets are dominated by a de facto monopoly or an oligopoly.
As regards natural gas, the number of potential generators is
not only limited, but moreover, generators from outside the
European Union are not subject to EU rules, despite providing
the bulk of the supply,

14.
calls on the Commission to take appropriate measures to
prevent market concentration and to encourage the diversity of
private and public operators. Local and regional energy compa-
nies have a key role to play in this respect, and therefore
Member States who so wish must be able to decide not to apply
the rules on legal unbundling of supply system operators to
than
companies
electricity
integrated
100 000 connected customers or
isolated
networks,

serving small

serving

less

is therefore in favour of additional measures in the area

19.
of transmission unbundling,

20.
notes that the ownership unbundling advocated by the
Commission is not unanimously welcomed by Member States
despite the fact that this is a way of guaranteeing equal access to
the networks for all suppliers and of neutrality in transmission
network investment policy,

21.
judges therefore that Member States who so wish must
have the choice of opting for the approach based on an ‘inde-
pendent system operator’ (ISO), while noting that this option
can have undesirable consequences for shareholders (loss of
control, privatisation, etc.). Member States should therefore also
be offered a further option, namely ‘effective and efficient
unbundling’, based, on the one hand, on real independence for
transmission system operators and, on the other hand, on clear
provisions governing network investments,

22.
calls for legal and functional supply unbundling, which
has only been mandatory since 1 July 2007, to be applied in
both the letter and the spirit of the law. In order to discourage
market concentration as far as possible, there must also be a
strategy to support small and medium-sized energy companies;
the Committee is therefore pleased that the current waiver for
small supply system operators (serving less than 100 000 custo-
mers) is being maintained,

23.
believes that local and regional authorities should be
encouraged to become active shareholders in transmission and
supply system operators, real hubs in the energy market.

15.
insists that new market participants be able to invest in
new electricity generation and gas import capacity so as to
develop a level playing field conducive to a competitive market,

Regarding energy regulators

16.
draws attention to the fact that a competitive market also
enables local and regional generators of electricity derived from
renewable sources to have equal access to consumers.

Regarding unbundling requirements

17.
notes that legal and functional transmission unbundling,
effective since 1 January 2004, is insufficient to ensure that the
market
functions properly, since it does not suppress the
conflict of interest that stems from vertical integration,

18.
agrees that a vertically integrated company tends to
consider networks as strategic assets serving the commercial
interest of the integrated entity, rather than the overall interest
of network customers, and in particular to underinvest in new
networks, fearing that these investments might help its competi-
tors to prosper on its national market,

24.
emphasises the need for independent, but competent and
efficient regulatory bodies, in a market with monopoly and/or
dominant operators,

25.
is pleased to see the role of national regulators harmo-
nised and reinforced. Regulators must not focus exclusively on
regulated activities, but must also ensure the proper general
functioning of the market through ex-ante discretionary powers,

26.
notes that regulators often take an overly short-term
view, determined to cut the tariffs for the electricity and gas
networks at any cost and losing sight of long-term objectives:
optimal development of the network and improvement of (or at
least maintaining) network and service quality. Regulators must
therefore be persuaded to adopt an integrated approach to their
task, which should not consist solely in regulating prices,

27.
stresses the need for regulators to try and create incen-
tives for the necessary investment in the networks to be carried
out, including those necessary for renewable energy,

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Official Journal of the European Union

5.7.2008

28.
calls for methodologies for benchmarking of tariffs and
of transmission and supply network-access costs, established by
the regulators,
to incorporate not only quantitative aspects
(costs) but also qualitative aspects (e.g. network quality reliability
criteria) so as to maintain the current level of network quality.

future European Charter on the Rights of Energy Consumers
should have legal force,

welcomes the setting-up of a ‘retail market’ forum, along

38.
the lines of the Florence and Madrid fora,

Regarding investment to guarantee secur ity of energy
supply

29.
notes that not only is the security of energy supply at
in new electric power
risk owing to inadequate investment
plants, but also that it is of fundamental importance for security
of supply that new transport and distribution networks are
developed, existing networks are expanded and improved, and
that the networks are linked up with each other; besides large-
scale investment, this means major design and procedural diffi-
culties will have to be overcome,

emphasises the importance of a stable and attractive

30.
environment for investors,

highlights that diversification of energy sources will be

31.
important in future to guarantee the security of energy supply,

calls for encouragement of

32.
local and regional energy
generation derived from renewable energy sources, which are
suited to local environmental conditions while cutting energy
transmission costs and emissions throughout the EU. Region-
specific energy plans must therefore be encouraged; they should
be properly coordinated and integrated at both national and
Community level,

33.
calls on the Commission to take all necessary measures
to encourage generators and network operators to invest in the
construction of power generation plants and network infrastruc-
ture to allow access, on a fair basis, to local renewable genera-
tion,

34.
nevertheless draws the Commission's attention to the
fact that, generally speaking, the networks are not currently
designed to accommodate a large share of renewable energy,
which means that
funds will be
needed to adapt the networks to the development of renewable
energy. The question of energy storage will also have to be
addressed, which will require further not inconsiderable costs,

investment and additional

35.
stresses that policies for the rational use of energy and
for energy efficiency are the best way to ease the current tension
between energy supply and demand.

Regarding consumer protection

points out

36.
run
alongside competition and must remain at the heart of the
market-opening process,

that public service obligations must

37.
recommends that the freedom of choice of energy consu-
mers should be accompanied by firm guarantees regarding the
rights of energy consumers. In this respect, the provisions of the

calls on the Commission to step up its surveillance of
39.
retail markets so as to assess the effects of
liberalisation on
households, with a view to increasing consumer confidence in
the energy market and limiting the risks of market manipula-
tion,

40.
stresses the importance of increased transparency in elec-
tricity and gas billing with a view to encouraging consumers to
modify their behaviour by energy saving and greater energy effi-
ciency,

insists on the implementation of neutral

41.
IT systems
which are independent of suppliers and enable the ‘switch’ to be
managed automatically,

42.
calls on the Commission to make the roll-out of smart
meters subject to two conditions: it must be financially reason-
able and proportionate to the potential energy savings for the
various types of customers,

recommends that

43.
in future protection of vulnerable
consumers be stepped up so as to combat the phenomenon of
energy poverty.

Agency for the Cooperation of Energy Regulators

acknowledges that as regards cross-border issues there is
in some market

44.
a ‘regulatory gap’ and inter-connections
segments need to be improved,

reinforcing the
45.
nevertheless, supports the notion of
ERGEG rather than replacing it with a new agency.
Indeed,
rather than establishing a new structure, with the resulting
it would be possible to
expenses and bureaucratic burden,
continue on the current basis with a stronger ERGEG which
would have the power to deal with cross-border problems and
which would also be made responsible for the other tasks
which would be entrusted to the proposed agency. If this does
not sufficiently increase competition, the establishment of a
separate agency would then be justified.

Cross-border exchanges

46.
is pleased that the third legislative package reinforces
cooperation between the TSOs by establishing a European TSO
network. This serves to encourage cross-border exchanges of
electricity and gas, one of the prerequisites for a fully functional
internal market. High TSO capacity is a basic technical require-
ment for both security of supply and effective competition in a
common energy market. At present, this is particularly true of
the eastern Member States, who are endeavouring as a matter of
principle to end their energy dependency on their eastern neigh-
bours,

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believes that a gradual move towards regional transmis-

47.
sion system operators is imperative,

Gas transmission networks

points out that the European Commission's proposals
48.
regarding the European electricity and gas TSO network confer
a quasi-regulatory status on the TSOs, whereas the agency
appears to be limited to the role of consultative body. Some
rules, such as those on transparency or exchanges, fall rather
more within the remit of the regulatory authorities,

49.
welcomes the obligation imposed on the European elec-
tricity TSO network to publish, every two years, a ten-year plan
for investment in the networks for the whole of the EU,

51.
believes that the limited availability of gas storage capa-
city, often controlled by longstanding operators, has a serious
impact on competition in the gas sector and, indirectly, the elec-
tricity sector as regards generation. It therefore welcomes the
proposals intended to improve access to storage facilities and to
LNG facilities,

50.
is keen for new market entrants, in particular local and
regional electricity companies, to have the same level of market
information as longstanding stakeholders.

52.
supports the implementation of an ‘entry/exit’ regime
where capacity is allocated to an area or region rather than to a
specific gas pipeline, thus promoting competition.

Brussels, 10 April 2008.

The President

of the Committee of the Regions

Luc VAN DEN BRANDE