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MEMO/09/297
Brussels, 25 June 2009
Q&A: the infringement exercise concerning crossborder energy network access and regulated prices
The Commission launched today new infringement proceedings against 25
Member States (MS) for not complying with the EU legislation on the internal
market for electricity and gas, notably the Electricity Regulation (1228/2003),
the Gas Regulation (1775/2005), the Electricity Directive (2003/54/EC) and
the Gas Directive (2003/55/EC).
If MS do not implement the internal energy market rules, they prevent
European consumers and the other market participants from benefiting from
the advantages of a competitive and open energy market.
What is at stake?
This major infringement exercise focuses on three broad areas of concern:
lack of transparent, simple and inexpensive procedures for dealing with
consumer complaints, lack of transparent access to cross-border electricity
and gas network infrastructure and market distortions caused by regulated
energy prices.
Compliance with the existing regulations in the area of electricity and gas is of
key importance for the proper functioning of the internal energy market in the
EU and is a pre-condition for effective implementation of the Third Energy
Market Liberalisation Package (see IP/09/1035) which will also be adopted
today.
How should energy consumer complaints be settled?
It is fundamental that all citizens who enjoy the benefits of the internal market
should also be able to enjoy high levels of consumer protection. However, a
lack of transparent, simple and inexpensive procedures for dealing with their
complaints can lead to consumer reluctance in participating in the internal
market.
There are clear obligations in the Electricity and Gas Directives to ensure that
such procedures are in place and provide real alternative options for
consumers. However, the Commission's analysis of MS practices showed
that in a number of cases MS do not allow for consumers to settle their
disputes with their energy suppliers efficiently.
Why is a transparent access to cross-border electricity and gas
network infrastructure important for the internal energy market?
The aim of the internal energy market is to provide customers with secure
and sustainable energy at competitive prices across Europe.
Today's energy markets in the EU are mostly national in scope and often
dominated by a few large incumbent energy companies. Therefore the
historical boundaries of the national markets have to be enlarged to stimulate
competition between market participants across Europe. New market
entrants have to be in a position to get access to a sizeable customer base.
Why do we need coordinated congestion management methods?
The transport infrastructure for energy which links neighbouring markets
plays a central role in providing customers with secure and sustainable
energy at competitive prices across Europe. However, cross-border
transmission links are often congested and their management does not live
up to the standards set by the European Regulations for Electricity and Gas.
The Commission's analysis has shown that despite the efforts made, the
coordination between Transmission System Operators (TSOs) is not yet
sufficient to offer the maximum available transport capacity to market
participants. Capacity allocation methods are often not even bilaterally
coordinated between the operators of adjacent transmission systems. This
causes procedural inefficiencies and increases market participants'
transaction costs, ultimately resulting in higher prices for energy consumers.
Why it is so important that Transmission System Operators (TSOs)
offer transparent capacity allocation and calculation mechanisms?
The transparent information on capacity calculation is the corner stone for all
energy market participants. Without knowing the capacities available and how
they are allocated and calculated, companies cannot participate in the Energy
market using all the available capacity. The Electricity and the Gas
Regulation require that the TSOs publish their allocation methods for
transmission capacities (in case of gas), and their operational, planning and
safety standards including the calculation scheme for transmission capacities
(in case of electricity) and that the national regulatory authorities (Regulators)
approve those methods and standards. Since TSOs are monopoly providers
of energy transmission services, their internal procedures and dealings are
subject to regulatory scrutiny. In addition to that and in order to increase
market participants' trust, their work has to be organised transparently.
However, the Commission's analysis has shown that some TSOs either do
not publish this information with the required content or it is not approved by
the Regulator.
Why are not all transmission capacities offered to the market?
Concerning the electricity market, some TSOs commonly use the alleged or
real tightness of their internal generation and supply balance as an argument
to limit cross-border transmission capacities. Also, internal network
congestions are sometimes relieved by reducing the available transmission
capacity on cross-border transmission lines. Such limitations eventually result
in suboptimal generation and consumption patterns between MS and lead to
higher costs of providing energy to European consumers.
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Gas TSOs which operate systems that are only capable of allowing gas to flow in
one direction, often do not offer capacities for so called counter flows. In cases
where a pipeline system allows physical gas flows in both directions, capacity - firm
and interruptible - can be offered in both directions. However, also in cases where it
is technically not possible to physically transport gas in both directions, it is still
possible for a TSO to offer capacity as a "counter flow" or "backhaul" in the other
direction, on a virtual basis. In that case the gas is not actually moving in the
opposite direction, but the gas flow requested in the counter flow direction is
subtracted from the gas flowing in the main direction. This is referred to as "netting".
Counter flow transport can be offered up to the maximum of the main flow, however
generally only on an interruptible basis, as a TSO cannot guarantee the shipment of
the counter flow gas under all circumstances.
In the internal market in natural gas the provision of counter flow capacities
on an interruptible basis is a precondition for competitive shipper activity.
Shipper options would seriously diminish if shippers were limited to exercising
their shipping activities according to the physically feasible main flow direction
of the pipeline system only.
By not providing such counter flow capacity, TSOs would be obstructing the
possibility for suppliers to enter neighbouring markets and therefore limit
competition and market integration which in the end leads also to higher costs
of providing energy to European consumers.
Why are coordinated intra-day cross-border transmission capacity
allocation procedures important?
In order to enable electricity producers to optimize their short term generation
assets across borders, TSOs are obliged to put in place coordinated intra-day
cross-border transmission capacity allocation procedures. Such procedures
have increasingly gained importance with the large scale deployment of wind
generation units. The abruptly changing output of wind farms needs to be
efficiently absorbed by consumption units which can only be ensured if
properly designed and implemented intra-day TSO procedures are in place.
However, the Commission's examination has revealed that up until now only
very few TSOs have fully complied with this requirement and implemented
such procedures on all their interconnectors. This reluctance has the potential
to hinder the rapid development of renewable energy sources throughout
Europe and their integration into a regional generation market.
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Why do transmission capacities have to be allocated for different
timeframes?
TSOs have to define an appropriate structure for the allocation of capacities
between different timeframes. This means that TSOs have to define which
proportion of their transmission capacities will be allocated on short term
basis (e.g. day-ahead) and which proportion will be made available for longer
periods (e.g. for whole calendar years) Ideally, the proper structure would
reflect the characteristics of traded electricity markets, which means that the
capacity allocation periods would have to correspond to the relevant time
horizons for which cross-border wholesale transactions are concluded. E.g. in
Continental European traded electricity markets the price of the year-ahead
forward contract is deemed to be a benchmark. However, some TSOs do not
offer any transmission capacities for the calendar year at their
interconnectors. This does not allow for market participants to buy this
contract in one MS along with the corresponding cross-border transmission
right and resell it in another MS. This clearly hinders the development of deep
and liquid cross-border wholesale electricity markets.
Are there enough key fundamental and infrastructure related data
available?
For their trading decision, market participants rely heavily on accurate,
complete and timely information on both, the availability of the transmission
infrastructure and market fundamentals (information on supply and demand).
TSOs are therefore obliged to publish a wealth of data for different
timeframes in prescribed time periods.
As for the gas and electricity transmission infrastructure, these data include:
available and reserved transmission capacities, information on the actual
usage of the infrastructure, long-term forecast of available capacities and
information on maintenance periods. Regarding the market fundamentals, the
relevant information encompasses: forecasts on aggregated demand,
planned and unplanned generation outages and the realised values for all
forecasted data.
The Commission has found that almost all TSOs put out some infrastructure
related information, but almost none of them do it with the required granularity
and/or regularity. The level of compliance is even lower for the provision of
fundamental market data with electricity generation related information being
routinely missing items among published data.
Why should balancing regimes be transparent?
Suppliers who provide gas to their customers have to match the demand of
these customers with adequate supplies (e.g. import or local production) at all
times. Since this matching procedure happens in advance of actual supply
(real time) and the realised demand of customers cannot be predicted with
full accuracy, suppliers will always be out of balance for a given balancing
period.
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Therefore, TSOs have to provide for a balancing regime which allows for
suppliers to cover their imbalances real time. This regime has to be
transparent and carefully designed giving appropriate incentives to market
participants to stay in balance but it has also to avoid being punitive at the
same time.
The Commission's research has shown that, in particular in the case of gas
transmission, the calculation methodology and the final tariffs of the
imbalance charges applied are often not published by the TSOs. This missing
transparency of balancing rules and charges exposes suppliers to a risk
which ultimately leads to higher gas prices paid by final customers and
discourages new suppliers from entering the market.
How to make Transmission System Operators (TSOs) obey the rules?
Even if the provisions of the Electricity and Gas Regulations are properly
transposed into national law, it has to be ensured that they are in fact applied.
Therefore it is foreseen that MS lay down rules on penalties. A system of
penalties which gives Regulators the possibility of combating violations is
necessary to ensure TSOs compliance with congestion management and
transparency requirements. Furthermore, the penalties provided for at
national level must be effective, proportionate and dissuasive.
However, the Commission has found that the majority of MS have not laid
down and notified an adequate system of penalties threatening the effective
enforceability and the correct application of the rules.
Why does the Commission tackle regulated prices?
The internal energy market legislation builds on the concept of competitive
energy markets encompassing production, trading and supply to final
customers. The market mechanism is there to ensure that energy is provided
to customers reliably and at the lowest possible cost.
The notion of price is central to the functioning of competitive markets. E.g. in
case of electricity, it indicates which of the existing generation units should be
employed and suggests to investors whether there is any room for profitable
investments in new generation assets. It also gives valuable information to
customers as to how to best adjust their consumption in both, short and long
term.
Therefore, in general, regulated prices are not compatible with the ideal of the
competitive internal energy market. However, the Electricity and Gas
Directives allow MS to implement regulated price schemes, provided that they
are clearly defined, transparent, non discriminatory, verifiable, guarantee EU
energy companies equal access to national consumers and do not impede
the opening of the market.
The Commission's investigations have revealed that regulated price regimes
of certain MS do not fulfill these criteria and therefore distort the functioning of
the internal energy market.
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Which MS are affected?
Belgium, the Czech Republic, Germany, Poland, Romania and Slovenia have
received letters of formal notice for not putting in place adequate procedures
for dealing with consumer complaints as required by the Electricity and Gas
Directives.
As for not complying with certain provisions of the Gas Regulation, all MS
have received letters of formal notice, except for Estonia, Latvia, Lithuania
and Finland in view of specific derogations which apply to them. Also Malta
and Cyprus are not subject to this infringement exercise as they do not have
a gas transmission network in place and do not use gas.
Regarding the infringement of certain provisions of the Electricity Regulation,
all MS have received letters of formal notice, except for Malta and Cyprus,
since they do not have an electricity interconnection to any other MS.
Finally, the Commission has sent letters of formal notice to Greece, Poland,
Portugal, Romania and Lithuania concerning regulated prices.
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