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3rd Energy Package gets final approval from MEPs

Energy - 29-04-2009 - 10:00
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Gas platform in the North Sea: On 22 April plans to open up Europe's gas and electricity market received a positive second reading by MEPs 
©Belga/A. Semyonov

On 22 April plans to open up Europe's gas and electricity market received a positive second reading by MEPs ©Belga/A. Semyonov

More choice, investment and security of supply lie at the heart of the 3rd energy package. EU energy markets will become more competitive as energy companies will have to separate supply and production from transmission activities. The wide-ranging rules adopted by Parliament 21 April 2009 will also improve consumer rights and promote regional solidarity in the event of severe gas supply disruptions.

Parliament backed by a large majority a compromise on the "third energy package" agreed between MEPs and the Council Presidency. At the heart of the proposals is the concept of "unbundling" - separating the operation of gas pipelines and electricity networks from the business of providing gas or generating power.
Separating supply and production
 
Member States will have to choose among three options for separating supply and production activities by gas and electricity transmission networks:
 
  • full ownership unbundling
  • the independent system operator (ISO)
  • the independent transmission operator (ITO)
 
The three options will apply to transmission networks - such as the high-voltage power lines which connect distant power plants to sub-stations in populated regions.
 
Improved consumer rights
 
For the consumer the shake-up in the market will mean getting all the relevant data about how much gas or electricity they use and information on bills and what rights they have as consumers. The creation of an energy Ombudsman or consumer council is also envisaged.
 
On the EP's initiative the new legislation includes special protection measures for vulnerable energy consumers. EU countries should take "appropriate measures" to address energy poverty such as National Energy Action Plans or benefits in social security systems to guarantee necessary energy supply to vulnerable customers.
 
Energy solidarity in emergency situations
 
The new legislation also seeks to promote "regional solidarity". It requires Member States to co-operate in the event of "severe disruptions" of gas supply, by coordinating national emergency measures or developing and upgrading electricity and gas interconnections.
 
Member States will have one and a half years to put most of the new rules into effect.
 
For a detailed look at the 3rd Energy Package read the rest of our feature.
 
 
 
 
REF.: 20080616FCS31737

"Unbundling" at core of reform

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Ferrybridge power station,  Leeds, UK ©Belga/AFP/P. Ellis

Separating supply and production is at the heart of the proposals

One of the most important proposals of the "3rd Energy Package" is "unbundling" - separating the operation of gas pipelines and electricity networks from the business of providing gas or generating power. This would mean for example that integrated companies such as Électricité de France would not be able to generate power and own the grid.
 
MEPs expressed strong political support for a common energy policy, and ownership unbundling, in a resolution in July 2007. 
 
Supporters believe unbundling will encourage investment in energy infrastructure. The Commission points to Britain where unbundling has taken place and four new liquid natural gas (LNG) terminals have been built - compared to none in Germany where the market is still protected.
 
If states are unwilling to "unbundle", the Commission is also proposing an "Independent System Operator" system under which companies would retain ownership of the network, but hand over management control to an independent company, which would make commercial and investment decisions.
 
Rapporteur talks of "massive abuse"
 
British Labour MEP Eluned Morgan is parliament's rapporteur for the Electricity directive. Speaking in June she explained that "there is now, in theory, a duty for generation and network companies to be legally separated, in many cases this is not being implemented and there is evidence of massive abuse – evidence which has led to the biggest energy company in Europe agreeing to "unbundle".
 
Ms Morgan added, that "in principle, a single European market in electricity already exists in the EU, but the reality is very different". She said "some countries have easy access to competitors - for example French and German companies have secured over 40% of the UK market - companies in Spain or the UK have found it very difficult to access French and German markets".
 
Not universally popular
 
Unbundling is not entirely popular - France and Germany oppose the Commission's plans. Along with Austria, Bulgaria, Greece, Latvia and Luxembourg and Slovakia they believe that enforced unbundling is unconstitutional and could have negative social consequences.
 
Given such opposition the extent to which MEPs from those countries will support their government's opposition to the plans will be one of the most fascinating aspects of the debate. The full plenary of the European Parliament will debate both the gas and electricity directives in June.
 
When the measures were first debated by MEPs in the Industry Committee on 28 February, Czech Member Jan Březina (EPP-ED) pointed out that in many countries that joined the EU after 2004 "we are dependent on one supplier" and thus unbundling doesn't make sense.
 
Energy costs up or down?
 
There can be no sure data as to whether energy costs will go up or down given the number of variables such as soaring demand from China and India and the price of a barrel of oil approaching $120. However, supporters believe that an open market will encourage more efficient energy production and keep prices at a reasonable rate. There will also be measures to protect poorer consumers.
 
Europe's energy market is changing rapidly, as are people's energy's needs. Some people are more interested in price, some in green energy and some in generating their own power. It is hoped that by opening up the market, people will have more choice.
 
Influence on emission trading scheme
 
The Commission believes that only with a proper market in electricity and gas can the Emissions Trading Scheme (ETS) and renewable energy be boosted. It points out that with more competition the generators of energy, the network operators, the owner and suppliers all have an incentive to invest in renewable energy and alternative sources of energy.
 
At present the ETS is hampered, as Europe's electricity companies include carbon costs in their prices to customers, whilst accepting free emissions permits. In a free market low emissions will become a real competitive advantage, then demand for efficient power plants, renewables and carbon capture and storage will increase.
 
Energy Agency and Energy Consumers Charter
 
Also envisaged in the Energy Package is the setting up of an Agency to coordinate National Energy Regulators to complement the existing 27 national regulators. An "Energy Consumers Charter" in 2008 should allow consumers to choose suppliers and defend their rights when buying energy.
 
Gas and Energy Agency Rapporteurs named
 
The political groups have nominated rapporteurs for the key issues. Italian MEP Romano La Russa (UEN) for the gas directive, Bulgarian Atanas Paparizov (PES) and Spanish Member Alejo Vidal-Quadras (EPP-ED) are the rapporteurs for technical aspects of the gas and electricity regulation changes. Finally, Italian Member Renato Brunetta (EPP-ED) is rapporteur for the regulation establishing an energy agency.
 
 
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Europe's electricity and gas the focus of Industry MEPs

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To bundle or unbundle, which way is the EU's gas industry heading? ©Belga/EPA/S. Dolzenko

To bundle or unbundle, which way is the EU's gas industry heading?

At the heart of the Commission's proposals is "ownership unbundling". This is the separation of supply and production of gas. For example, if a network operator is in the same group as the company that supplies or produces energy, it will defend the interests of the group.
 
However, with unbundling the network could belong to an independent company. In this case it is natural they will allow as many companies as possibility to use its network and maximise profits and efficiency.
 
Its supporters claim that increased competition between energy companies will lead to more customer choice, greater investment in pipes, terminals and key infrastructure.
 
When initially announced, the plans for unbundling were opposed by France, Germany, Austria, Bulgaria, Greece, Latvia, Luxembourg and Slovakia. They believe that enforced unbundling is unconstitutional and could have negative social consequences.
 
Instead, they propose to give EU members the option of undergoing "legal unbundling", whereby companies could retain their network assets by ensuring "an effective separation of interests" - through rules on assets such as equipment and staff.
 
In the vote on 6 May Members on the Industry Committee narrowly backed an amendment to support unbundling (25-22 in favour), defeating the so called Franco-German "third way" proposals.
 
Gas rapporteur slams current practice
 
Parliament's rapporteur is Italian MEP Romano Maria La Russa of the UEN group. He supports "unbundling" and says that such a choice is not based on ideological grounds but rather due to "the reality of the facts". 
 
Mr La Russa strongly criticised the current situation in the gas market. He sees it as a bad deal for the consumers and says that "gas bills are incomprehensible" to people. He wants a lot more choice and information about suppliers and says at present people cannot gain access to information about their gas consumption and how much they are paying for it.
 
Will prices go up or down?
 
There are fears about what will happen to prices in a liberalised market. The EU statistical arm Eurostat collected figures showing that since 1998, prices in liberalised markets such as the UK Netherlands, Spain and Sweden prices have risen by only 6% as opposed to up to 30% in other markets. However, sources of supply and taxes make up most of the price of gas so with oil well over $100 a barrel this will have a serious impact.
 
"Gazprom clause" to protect EU's energy security
 
The specific challenge of the gas market is the EU´s "serious dependency when it comes to security of supply of gas" according to the rapporteur.
 
A number of countries - Slovakia, Finland and Bulgaria - are almost 100% dependent on Russian gas. Germany gets around 39% and France 26% of its gas from Russia. Foreign companies like the Russia's Gazprom control an increasing number of gas pipelines.
 
Therefore a special clause is foreseen in the new directive (dubbed the "Gazprom clause") with the aim to prevent a massive sell-out of strategic EU energy assets and to guarantee equal conditions for all. Namely if a company wants to buy shares in a transmission system operator (a company that could operate the network), an agreement between Brussels and the respective country is necessary to ensure that European companies would be allowed to do the same. The rules of unbundling would apply also to the foreign company. Perhaps not unsurprisingly, Russia has voiced its opposition to the clause.
 
In addition to the proposals on gas and electricity, an EU agency is also proposed that will draw together 27 different legal frameworks in order to create a truly single European market of energy. The full plenary of the European Parliament will debate both the gas and electricity directives in June.
 
 
 
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Regulatory Agency will have teeth

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The future of Europe's electricity market could be looking up
©Belga Groille, Pierre-Jean

The future of Europe's electricity market could be looking up

In a vote on 28 May 2008,  MEPs on the Industry Research and Energy Committee backed a report drafted by British Conservative MEP Giles Chichester calling for an "Agency for the Cooperation of Energy Regulators" with regulatory powers - contrary to the Commission's original plan which favoured more of a coordination role.
 
Call for an accountable agency
 
Industry MEPs want the Agency to be fully accountable -  reporting regularly to the House and with an EP vote on the Director. The Industry Committee also says it should be based in Brussels, although a final decision on the headquarters is up to EU heads of state and government.
 
The Agency will have a key role is setting guidelines for the energy market. The proposal envisages a distribution network called "European Network on Transmission System Operators for Electricity" (ENTSOE) which would respond to guidelines set by the new Agency.
 
They would be responsible for: security rules, including interoperability and procedures for emergency situations, grid connection and access rules, cross-border capacity allocation and congestion management rules, network-related transparency rules, energy efficiency rules and a 10-year investment plan.
 
What is the 3rd energy package?
 
At the heart of the 3rd energy package are plans to separate the operation of gas pipelines and electricity networks ("unbundling") from production. In practice it would mean that companies cannot generate power and own the grid. This division of production and supply is intended to allow more competition into the energy market and encourage investment in outdated infrastructure. The hope is that it will also increase investment in renewable energy. In a resolution adopted by the European Parliament last July, MEPs supported the principle of unbundling.
 
 
 
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MEPs back gas liberalisation

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Construction of a gas pipeline from the Ukrainian border to Hungary 
 ©Belga/MTI/I. Kiss

Construction of a gas pipeline from the Ukrainian border to Hungary

On Wednesday 9 July the EP took a major step forward in ending national gas monopolies in the EU by backing proposed new rules on Europe's gas industry, intended to directly benefit consumers. The final rules adopted by MEPs met concerns of countries opposed to "full ownership unbundling" by supporting unbundling but offering a new compromise option.
 
Members debated and voted on a report on the "Internal market in gas" drafted by Italian MEP Romano La Russa (UEN) and one on "conditions for access to the natural gas transmission networks" by Bulgarian Socialist Atanas Paparizov.
 
The Commission's original proposal gave countries a choice between two models: "ownership unbundling" (distinct companies for gas supply and gas transmission networks) or the preservation of integrated supply and transmission companies. This is provided that the operation of the transmission network was handed over to an independent system operator (ISO).
 
When they met on 6 June Europe's energy Ministers proposed another alternative to unbundling. This is known as the "independent transmission operator" (ITO) model allowing gas suppliers to retain the ownership of pipelines but compelling them to abide by rules and a structure to ensure they operate independently in practice.
 
In their vote MEPs supported ownership unbundling and the ITO model. In doing so they ensured that a range of safeguards were built into the system to protect the interests of all parties, notably through the creation on an independent trustee, a supervisory body and compliance programmes.
 
Consumer protection
 
Both reports put a lot of weight on consumer protection making sure that consumer can terminate contracts without charge, get compensation if service quality levels are not met, access information on their rights through bills and gas company web sites, is informed of actual gas consumption and costs and can obtain "smart" gas meters within 10 years of the directive's entry into force.
 
In addition to this the report wants the disconnection of pensioners and disabled people in winter to be forbidden.

 

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MEPs give green light to further liberalisation of EU electricity and gas markets

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MEPs give green light to further liberalisation of EU electricity and gas markets, 22 April '09

MEPs give green light to further liberalisation of EU electricity and gas markets, 22 April '09

EU energy markets will become more competitive as energy companies will have to separate supply and production from transmission activities. The wide-ranging rules adopted by Parliament on 22 April 2009 will also improve consumer rights, strengthen the powers of national regulators and promote regional solidarity in the event of severe gas supply disruptions.
 
Separating supply and production from transmission network operations
 
Member States will have to choose between three "unbundling" options - i.e. to separate supply and production activities from gas and electricity transmission networks:  
  • full ownership unbundling;
  • the independent system operator (ISO);
  • the independent transmission operator (ITO).
 
Full ownership unbundling would force integrated energy companies to sell off their gas and electricity grids thus establishing separate transmission system operators, which handle all network operations. A supply and production company could not, in this case, hold a majority share in a transmission system operator, stipulates the compromise text.
 
As alternatives to ownership unbundling the ISO and ITO options allow energy companies to retain the ownership of their transmission networks. To liberalise the energy market, Member States could, for example, oblige companies to hand over the operation of their transmission network to a designated, separate body - the independent system operator (ISO).
 
The third option – the ITO model – preserves integrated supply and transmission companies but compels them to abide by certain rules to ensure these two sections of the company operate independently in practice:
 
  • a “supervisory body” - composed of energy company representatives, third party shareholders, and transmission system operator representatives - will take the decisions “which may have a significant impact on the value of the assets of the shareholders”;
  • a “compliance programme” will set out measures that prevent “discriminatory conduct”;
  • a “compliance officer” will monitor the implementation of the compliance programme;
  • management staff is not allowed to work for the supply and generation company for three years before and for four years after being employed with the transmission operator (mandatory "cooling-off periods").
 
Non-EU companies
 
The legislative package also includes provisions to prevent control of transmission systems or their owners by companies from non-EU countries until they fulfil certain conditions, i.e. a national regulator will have the right to refuse certification of a transmission system operator controlled by "a person or persons from a third country", if:
 
- this company does not comply with the unbundling requirements, and
- its market entry would jeopardise the Member State's or the EU's security of supply
 
EU countries will have three and a half years to give effect to the provisions concerning non-EU companies.
 
Improved consumer rights
 
MEPs achieved a clear strengthening of consumer rights. The new legislation would give customers the right:
 
  • to change their gas and electricity suppliers within three weeks and free of charge;
  • to receive the final closure account at the latest six weeks after switching suppliers;
  • to receive all relevant gas and electricity consumption data;
  • to be informed about the contribution of the different energy sources to the electricity supplier's fuel mix;
  • to independent mechanisms for efficient treatment of complaints and out-of-court dispute settlements, such as an energy ombudsman or a consumer body;
  • to compensation if service quality levels are not met (as with, for example, inaccurate and delayed billing);
  • to information on their rights through bills and company websites.
 
The Commission should put forward a clear and concise "Energy Consumer Checklist" listing practical information on consumer rights, says the compromise text.
Subject to an economic assessment, 80% of consumers should have access to intelligent metering systems by 2020, says another provision added to the text.
 
Guaranteeing universal service of electricity
 
The new legislation would also oblige Member States to guarantee universal service to all household customers and, if necessary, small enterprises (with fewer than 50 employees and an annual turnover or balance sheet of less than €10 million). Those customers would then have the right to be supplied with electricity of a specified quality at reasonable, easily and clearly comparable, transparent and non-discriminatory prices.
 
Protecting vulnerable consumers
 
On the EP's initiative the new legislation includes special protection measures for vulnerable energy consumers. EU countries should take "appropriate measures” to address energy poverty such as National Energy Action Plans or benefits in social security systems to guarantee necessary energy supply to vulnerable customers or energy efficiency improvements, says the new text.
 
Co-operation in emergency situations
 
The new legislation also seeks to promote "regional solidarity". It requires Member States to co-operate in the event of "severe disruptions" of gas supply, by co-ordinating national emergency measures or developing and upgrading electricity and gas interconnections
 
Further measures
 
The two directives and three regulations of the third energy package also include, among other points:
 
  • the creation of an EU Agency for the Cooperation of Energy Regulators which will set out non-binding framework guidelines;
  • tasking the Commission with the adoption of binding network codes - e.g. on procedures in emergency situations - based on the agency's guidelines;
  • the establishment of European Networks of Transmission System Operators for electricity (ENTSOE) and gas (ENTSOG) which are to implement the network codes;
  • the obligation on transmission system operators to submit every year a 10-year network development plan to the national regulatory authorities;
  • measures to improve the regional cooperation between different national regulators;
  • measures to strengthen the independence of national regulators.
 
Voting results
 
Eluned Morgan (PES, UK) Energy: rules for the internal market in electricity (repeal. Directive 2003/54/EC) - 588 votes in favour, 81 against and 9 abstentions.

Giles Chichester (EPP-ED, UK) Electricity and gas market: Agency for the Cooperation of Energy Regulators - 585 votes in favour, 29 against and 70 abstentions.
 
Alejo Vidal-Quadras (EPP-ED, ES) Energy: internal market in electricity, cross-border exchanges, access to network (amend. Regulation (EC) No 1228/2003) - 589 votes in favour, 57 against and 38 abstentions.
 
Antonio Mussa (UEN, IT) - Energy: rules for the internal market in natural gas (repeal. Directive 2003/55/EC) - 596 votes in favour, 45 against and 45 abstentions.
 
Atanas Paparizov (PES, BG) Energy: internal market in natural gas, access to the transmission networks (repeal. Regulation (EC) No 1775/2005) - 594 votes in favour, 24 against and 65 abstentions.
 
 

Further information :

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