Communication from the Commission to the European Parliament pursuant to the second subparagraph of Article 251(2) of the EC Treaty concerning the common position of the Council on the adoption of a Directive of the European Parliament and of the Council concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC
Date: 2009-01-12
Institutions: European Commission
Subjects: approximation of laws, electrical energy, energy distribution, energy production, energy supply, energy transport, single market

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 12.1.2009 
COM(2008)906 final 

2007/0195 (COD) 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT 

pursuant to the second subparagraph of Article 251(2) of the EC Treaty 

concerning the 

common position of the Council on the adoption of a Directive of the European 
Parliament and of the Council concerning common rules for the internal market in 
electricity and repealing Directive 2003/54/EC 

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2007/0195 (COD) 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT 

pursuant to the second subparagraph of Article 251(2) of the EC Treaty 

concerning the 

common position of the Council on the adoption of a Directive of the European 
Parliament and of the Council concerning common rules for the internal market in 
electricity and repealing Directive 2003/54/EC 

1. 

BACKGROUND 

Proposal transmitted to the European Parliament and the Council 
(document COM(2007) 528 - 2007/0195/COD) on: 

19.09.2007 

European Economic and Social Committee opinion delivered on: 

22.04.08 

Committee of the Regions opinion delivered on: 

10.04.08 

European Parliament opinion (first reading) delivered on: 

18.06.2008 

Common position adopted by unanimity on: 

[09.01.2008] 

2. 

AIM OF THE COMMISSION PROPOSAL 

This  proposal  is  part  of  the  third  legislative  package  for  an  internal  EU  gas  and  electricity 
market ("Third Package"), which includes two Directives and three Regulations. 

The main objective of the package is to put in place the regulatory framework needed to make 
market opening fully effective and create a single EU gas and electricity market in the interest 
of the citizens and of the industry of the European Union. This will help to keep prices as low 
as possible and increase standards of service and security of supply. 

This is done through the following main measures: 

– 

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more effective regulatory oversight by independent national regulators; 

establishment  of  an  Agency  to  ensure  effective  cooperation  between  national 
regulators and take decisions on all relevant cross-border issues; 

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– 

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compulsory cooperation between network operators to harmonise all rules relating to 
the transport of energy across Europe and to coordinate investment planning; 

effective unbundling of the generation and transmission of energy so as to eliminate 
any conflict of interests, promote network investment and prevent any discriminatory 
behaviour; 

increased transparency and better functioning of the retail market; 

increased  solidarity  and  regional  cooperation  between  Member  States  to  ensure 
greater security of supply. 

3. 

COMMENTS ON THE COMMON POSITION 

3.1. 

General comments 

The  common  positions  adopted  by  the  Council  on  the  five  texts  that  make  up  the  Third 
Package contain all the essential components of the Commission's proposal that are needed to 
ensure the proper functioning of the internal gas and electricity market and, more generally, to 
achieve the essential objectives set out above. It can therefore be generally supported by the 
Commission (see 3.2 below). 

The  first  reading  focused  on  obtaining  agreement  within  the  Council.  The  amendments 
adopted  by  the  European  Parliament  were  therefore  not  formally  incorporated  into  the 
common  position.  Negotiations  to  this  end  will  take  place  during  the second  reading.  Some 
amendments  adopted  by  the  European  Parliament  are  however  taken  into  account  in  the 
common  position  (see  3.3  below).  The  Commission  considers  that  a  number  of  the 
amendments that are not covered should be taken into account in the second reading (see 3.4 
below).  

3.2. 

Specific comments 

The main changes from the Commission's proposal are as follows. 

3.2.1  Effective unbundling 

The Common position endorses three options for effective unbundling, for gas and electricity. 

The  Ownership  Unbundling  option  and  the  Independent  System  Operator  (ISO)  option  are 
adopted.  The  European  Parliament's  amendments  gave  strong  support  to  ownership 
unbundling which the Commission continues to regard as the best solution. 

In  its  common  position,  the  Council  has  included  a  third  option,  the  Independent 
Transmission Operator (ITO), which allows transmission system operators (TSOs) to remain 
part of integrated undertakings but provides for detailed rules on autonomy, independence and 
investment,  plus  a  specific  revision  clause  which  can  lead  to  legislative  proposals.  The 
Commission  considers  that  these  detailed  rules  permit  an  acceptable  degree  of  effective 
unbundling and that the ITO option is therefore  acceptable as part of a general compromise 
provided  that  such  option  is  not  weaker  than  in  the  common  position  and  contains  the 
strongest possible features a  political compromise will allow. Contrary to the  Commission's 

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proposal, minority shareholding is allowed under Ownership Unbundling, but with no voting 
rights, which ensures that any cross-influence is avoided. 

Under all options, the TSO has to be certified by the national regulator. The common position 
however removes the binding oversight role of the Commission in the certification procedure, 
providing instead for an obligation for national regulators to "take the utmost account" of the 
Commission's position.  

The common position also provides for an article that allows Member States to take measures 
to ensure a level playing field provided these measures are proportionate, non-discriminatory 
and transparent, and comply with the EC Treaty. These measures may only be put into effect 
following approval by the Commission. In the Commission's view, this provision strikes the 
right  balance  between  recognising  that  several  models  of  unbundling  could  exist  in  the 
internal  energy  market,  and  allowing  Member  States  to  ensure  a  level  playing  field  within 
each of their territories as regards these different models. It can therefore be accepted. 

As regards the "Third Country Clause", the Commission proposal provided for the need for an 
international  agreement  to  allow  investors  from  third  countries  to  acquire  control  of  EU 
transmission  networks.  Third  country  investors  also  had  to  comply  with  the  rules  on 
ownership unbundling subject to binding Commission oversight. In the Common position, an 
agreement with a third country is no longer a prerequisite to allow control by an investor from 
the  third  country  concerned.  Under  the  certification  procedure,  in  addition  to  ensuring 
compliance  with  any  of  the  three  unbundling  options,  the  Member  State  has  to  refuse 
certification if this puts at risk the security of energy supply of the Member State concerned or 
of the Community. The national authority must consult the Commission and take the "utmost 
account"  of  its  opinion.  The  common  position  preserves  the  essential  objectives  of  the 
Commission's proposal and is therefore acceptable as part of an overall compromise.  

3.2.2  National regulators 

In substance, the Commission's proposal is endorsed with the creation of national regulators 
independent of government and with extensive powers over both the networks and the supply 
markets.  

Softening of the Commission's proposal includes powers that do not concern the core tasks of 
network regulation, such as renewables and research development policies, security of supply, 
and  public  service  obligations.  Limits  are  put  on  independence  that  do  not  affect  the  core 
principle,  e.g.  obligation  to  respect  the  role  of  other  competent  authorities  in,  for  example, 
environmental  sustainability  or  public  service  obligations,  legislative  control  on  budget, 
judicial control, and possible renewal of the management of the regulator. 

The  common  position  overall  preserves  the  essence  of  the  Commission's  proposal  and  is 
acceptable.  As  indicated  below,  the  common  position  would  benefit  from  the  insertion  of 
amendments from the European Parliament clarifying and completing the role of the national 
regulators. 

3.2.3  Guidelines adopted under the Comitology procedure 

Guidelines  are  made  non-compulsory  and  some  are  removed  (on  public  service  obligations, 
the  powers  and  duties  of  national  regulators,  retail  markets,  and  effective  unbundling  for 
system operation at distribution level). The remaining guidelines are absolutely essential. 

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3.2.4  Derogations 

The  Council  introduced  general  derogations  for  small/isolated  systems  for  Cyprus, 
Luxembourg and Malta. 

3.3. 

Aspects  of  the  common  position  reflecting  the  European  Parliament’s 
amendments 

A number of amendments of the European Parliament are reflected in the common position, 
either  with  the  same  wording  or  in  substance.  These  are  as  follows:  amendment  33  on  the 
definition of electricity undertakings, amendment 35 on the definition of virtual power plants, 
amendment  68  on  the  application  of  unbundling  to  public  entities,  amendment  119  on 
monitoring  of  the  implementation  of  safeguards  measures,  and  amendments  50  and  137  on 
guidelines for public service obligations and power of regulatory authorities. 

The following amendments are also partially covered by the common position: amendments 
54 and 138 on greater regional cooperation, amendment 95 on the independence of national 
regulators, amendment 98 on the duties of national regulators, and amendments 129 and 130 
on the methodology for approving tariffs. 

3.4. 

European  Parliament  amendments  approved  by  the  Commission  but  not 
endorsed by the Council 

The Commission can accept – in some cases subject to more precise wording or redrafting - in 
full or at least in part the majority of the amendments adopted by Parliament. This concerns 
the following main issues. 

3.4.1  Role of regulators 

The Commission generally supports amendments from the Parliament that strengthen the role 
and independence of the national regulators (e.g. approval and enforcement of TSOs’ annual 
investment  plans,  enforcement  of  consumer  protection  measures,  monitoring  of  restrictive 
contractual practices, strong rules and intervention to restore competition on supply markets, 
autonomous financing of regulators).  

Long-term  contracts  are  acceptable  provided  they  comply  with  competition  rules,  but  they 
will not be encouraged as they have a potential foreclosing effect on the market. Whilst price 
caps may be useful in exceptional cases and under clearly defined conditions, it is preferable 
not  to  include  a  specific  legislative  provision  in  the  current  context  of  regulated  prices  that 
will prevent market opening in many Member States. 

The  principles  behind  amendments  relating  to  the  promotion  of  energy  efficiency  can 
generally  be  supported.  However  the  specific  amendment  calling  for  a  pure  obligation  to 
introduce pricing formulas which increase in the case of greater levels of consumption cannot 
be  accepted.  Given  the  complexity  and  economic  consequences  of  such  an  obligation,  and 
because there are alternative ways of achieving the same result that are preferable, the market 
should be free to establish its own pricing formulas. 

3.4.2  Consumer rights 

The  Commission  generally  supports  European  Parliament  amendments  that  increase 
consumer  rights.  This  concerns  in  particular  the  extension  of  Annex  A,  the  obligation  on 

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suppliers to set adequate  prepayment bills,  the cross-recognition of supply licences between 
Member  States,  the  appointment  of  a  single  point  of  contact  at  national  level  to  provide 
consumers with all the necessary information concerning their rights, and the appointment of 
an  Ombudsman  at  national  level.  The  proposal  to  roll  out  smart  meters  within  a  10-year 
period can also in principle be supported although its precise scope and drafting would need 
to be carefully reviewed.  

As regards an Energy Consumers Charter, the Commission recognises that information for the 
consumer is crucial to the operation of the supply market. The Commission has developed an 
information  tool  in  the  form  of  a  European  Energy  Consumer  Checklist,  which  aims  to 
provide information to consumers on their rights. The Citizen's Energy Forum is the driving 
force  for  establishing  competitive  retail  markets  and  ensuring  the  protection  of  energy 
consumers  in  the  EU.  The  Checklist  is  being  developed  by  the  Forum.  The  Consumers 
Charter  would  be  based  on  Annex  A  of  the  Directives  and  on  general  consumer  protection 
directives  and  therefore  has  no  additional  legal  value.  Furthermore,  for  legal  reasons,  the 
Charter  cannot  be  incorporated  into  the  directives  as  it  duplicates  existing  rights.  The 
Commission  therefore  cannot  support  amendments  that  aim  to  incorporate  an  Energy 
Consumers  Charter  into  the  Directive.  The  Commission  could  however  agree  to  a  review 
clause  providing  for  a  report  from  the  Commission  on  the  implementation  of  Annex  A 
measures within three years of application of the directive. 

The  Commission  also  supports  the  aim  of  amendments  regarding  the  role  of  distribution 
system operators. However, the proposals need to be considered in further detail to ensure that 
they are practical and achievable.  

The current rules on universal service should not be changed. Universal service of electricity 
supply should remain an option for Member States for small enterprises and there should be 
no  obligation  to  provide  electricity  at  cost-based  prices.  The  Commission  cannot  therefore 
support Parliament's request for a universal service for small enterprises at cost–based prices. 

3.4.3  Fight against energy poverty 

The  European  Parliament  calls  for  an  obligation  on  Member  States  to  take  measures  to 
address energy  poverty in their National Energy Action Plans. These should ensure that the 
number  of  people  suffering  from  energy  poverty  decreases,  that  pensioners  and  disabled 
people cannot be disconnected in winter, and that energy poverty has to be defined at national 
level,  in  line  with  an  EC  definition  based  on  the  capacity  to  heat  houses  to  World  Health 
Organisation standards. 

The  Commission  did  not  propose  to  change  the  current  legal  framework,  which  already 
includes an obligation on Member States to protect vulnerable customers. 

Energy  poverty  is  not  a  concept  that  has  been  used  in  all  Member  States  and  measures  to 
address poverty require all aspects of energy and social policy to be taken into account. The 
Commission believes that using energy policy as the sole tool would distort the operation of 
the market for energy. Member States have the freedom to define vulnerable consumers with 
reference to those experiencing energy poverty. The Commission could therefore support an 
obligation on Member States to define energy poverty within the confines of a definition of 
vulnerable consumers at national level, but does not support a definition of energy poverty at 
EC level.  

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The Commission further believes that an obligation at EC level to ensure that the number of 
people suffering from energy poverty decreases would be inappropriate as it fails to recognise 
the  broad  policy  response  needed  to  address  this  issue.  The  Commission  could  however 
support a general objective to reduce the number of people suffering from energy poverty. 

The  Commission  could  also  support  an  obligation  on  Member  States  to  ensure  specific 
protection of pensioners and disabled people in winter and to report to the Commission on the 
measures  adopted  in  this  regard.  The  Commission  also  generally  supports  those  Member 
States that have fulfilled their obligation to define vulnerable consumers, where appropriate, 
with  reference  to  the  avoidance  of  disconnection,  but  believes  that  an  absolute  prohibition 
would be going too far.  

3.4.4  Other issues 

Amendments proposed by the European Parliament which underline the obligations of TSOs 
on  congestion  management,  investment  in  new  capacity  and  transparency  are  generally 
acceptable to the Commission. The Commission can also support the requirement of greater 
cooperation  between  TSOs  in  the  operation  of  their  systems  although  the  wording  of  these 
provisions needs to be clarified. 

Parliament wants to allow Member States to grant derogations to third-party access rules for 
industrial  sites.  The  Commission  supports  in  principle  the  derogation  for  industrial  sites, 
which  would  also  cover  airports  and  railways.  The  proposed  EP  amendment  goes  too  far, 
however,  in  exempting  industrial  sites  from  almost  all  obligations  applying  to  TSOs  and 
DSOs.  An  acceptable  solution  could  be  a  derogation  limited  to  the  most  burdensome 
administrative obligations, i.e. ex ante tariff approval by regulators. 

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4. 

CONCLUSIONS 

The  Commission  takes  the  view  that  the  common  position  maintains  the  key  points  of  the 
Commission's  proposal.  The  Commission  finds  that,  on  substantive  issues,  the  common 
position generally strikes a good balance and makes a viable compromise, which will enable 
the  internal  gas  and  electricity  market  to  operate  smoothly.  The  Commission  considers, 
however, that a number of amendments adopted by the European Parliament on first reading 
should be only be incorporated on second reading. 

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