Replies to: Questions for the Hearing on the completion of the internal energy market

Transcription

1 /HLJK+$1&+(5 Catholic University Brabant, Tilburg Replies to: Questions for the Hearing on the completion of the internal energy market 1.) Questions concerning both the directive on common rules for the internal market in electricity and natural gas and the regulation on cross-border exchanges in electricity a) Price: Over the past few years in the EU as a whole the price of industrial electricity has fallen the trend is less pronounced in the domestic sector. How far have these price reductions (price for production, price for using the grid, price for distribution and retailing) been caused by efficiency gains as a result of liberalisation, how far by an existing over-capacity and what might the future trends be? What further measures could the Directive introduce to ensure price transparency within these different sectors (production, transport, distribution/retailing)? Answer: As a legal expert, I am not competent to answer this question. b) Mergers and take-overs: Europe has become a key battle ground for mergers and take-overs in the energy sector. At what stage does the decreasing number of players affect the competition in the market? How do these trends affect individual consumers? Is the actual EU legislation (DG competition, regulators, national merger control) strong enough to prevent market dominance? Answer: The majority of the mergers that have taken place so far have been subject to European merger control and even where the mergers have been deemed purely national, as in the case of certain mergers in Germany, these have been examined by the national authorities in close co-operation with the Commission. National regulators do not usually deal with mergers this is the exclusive task of national competition authorities. In some cases national regulators may provide an advisory opinion, but this is not uniform nor are the competition authorities bound by such opinions. In principle the powers available to the Commission and to national merger control authorities should be sufficient to prevent market dominance. The Commission continues to take the view that market liberalisation has not yet sufficiently progressed to allow the definition of the relevant geographic market to be extended to a European-wide one and so it can exercise close control over the possible impact of most mergers. In the most recent cases the Commission has allowed the mergers subject to important conditions which not only affect the industries concerned but also require commitments from national governments to liberalise their markets further. c) Energy Imports: Should the Commission or Member States act to restrict import of energy from countries with lower environmental or social standards and if so what mechanisms, which are compatible with WTO-rules and with the Energy Charter are open to them to do so? Answer: The Energy Charter incorporates WTO rules and so it is legally difficult to impose reciprocity requirements on third countries which are signatories of the Energy Charter Treaty unless the view is taken that electricity for example is a service, not a good. Nevertheless the

2 environmental provisions in the ECT are weak and there is legal scope here to impose strict standards although these should respect national treatment/most favoured nation principles. d) Environmental: How has the liberalisation of the Union s energy markets impacted upon the environment? What further measures need to be put in place to reduce the environmental impact of energy use? Answer: With regard to energy supply, and especially electricity, the existing directives for electricity and gas as well as the recently approved Renewables Directive leave many issues regarding the application of the Treaty state aid rules and free movement rules to national measures unclear. This could have the unwanted result that national initiatives to promote renewables are not free from doubt. Furthermore certain forms of electricity production especially cogeneration appear to have suffered and are not able to compete on liberalised markets in certain countries. With regard to energy demand, however, although the price of electricity has decreased in certain countries, this has been compensated by the imposition of new energy-related consumption taxes. There remains. sufficient scope for national governments to put pressure on energy demand through taxation. e) Regulator: Should each Member State have an independent energy regulator? Is there a need for minimum common requirements for the work of the regulators e.g. when it comes to the control of unbundling and costs distribution between production, transport, distribution and retailing considering that in some Member States the number of grid owners is quite high (e.g. there are approximately 1000 owners)? Given the size and influence of some companies is there a need for a pan-european regulatory energy agency? Answer: experience across the Member States and the EEA countries demonstrates that effective market liberalisation is dependent upon the creation of an effective, independent energy regulator with sufficient resources and sufficient ex ante powers to deal with unbundling issues and cost allocation matters. If the regulator is not independent from government then market entrants do not have sufficient faith in the system to commit the considerable resources needed to challenge the incumbent operators. The same is true if the regulator is not perceived to be independent from industry. A pan-european regulator is unlikely to be politically acceptable and is in any event unlikely to be able to regulate effectively given the considerable differences in national energy markets and in national regulatory cultures. Many regulatory issues are highly technical and require detailed knowledge of local market conditions. f) Disclosure: Is it possible that individual consumers of electricity are informed of the sources of energy used to produce their electricity? What other information could be made available to consumers? Answer: it is possible to introduce certificates or guarantees of origin as the Dutch example shows but it is also necessary to have some sort of body in place which can check the source of energy and provide assurance that green certificate systems are not being abused. Consumers

3 should be informed of energy saving and energy efficiency possibilities preferably by independent bodies or service providers and not by their energy supply company as this is often provided as a bundled service which prevents a consumer switching suppliers. g) Security of supply: The California example but also a recent survey in the North Pole shows that the market has difficulty in generating new production capacities and necessary investment in the existing infrastructure. Are the measures proposed in the Directive strong enough to prevent problems on security of supply? How much (new) transborder capacity is needed to allow for a real internal market? Answer: The Directive will require Member States to have powers to ensure new investment in infrastructure. It is up to Member States as to how they license production and the requirements they impose upon producers. It is evident that in a liberalised market most players avoid having excess capacity which might prove uneconomic. The Directive does not propose any measures to deal with this it is up to the individual Member States. As the British experience demonstrates, the national licensing regime can offer ways of dealing with this issue. h) Level Playing Field: Some people claim that there are considerable distortions in the existing market due to state aid, historical subsidies, lack of internalisation of external costs and differences in administrative obligations (e.g. for decommissioning of nuclear reactors). How could the existing distortions be addressed before a full market opening? Answer: it is usually the case that these types of distortions become apparent on market opening it may therefore be a mistake to suggest that they should be dealt with before full market opening. A strict, pro-active application of the EU state aid rules should prevent these distortions from continuing in the future. The Commission could take a more pro-active stance in dealing with existing aid measures as well as on alleged stranded costs regimes. 2.) Specific questions on the proposal for a regulation on cross-border exchanges in electricity a) The proposal aims at giving all consumers the choice between independent electricity suppliers in the EU. Do you have any comments on the Commission proposal as far as - the amount of the transit costs, - the allocation of the obligation to pay - the criteria and the procedure for the harmonisation of the compensation for costs incurred through compensation systems are concerned? Answer: it is highly doubtful that transit of electricity as such gives rise to additional costs to the system as a whole a compensation mechanism between system operators should be sufficient to even out any extra burdens borne by certain parts of the system. b) Do you have any specific comments on the allocation of available capacities? Answer: the proposal is weak on this point there is no uniform definition of the concept.

4 c) Is it possible that cross-border exchanges contribute to a real competition in the Member States and to a bigger choice for the final consumer, if there are no transparent, binding and clearly defined competition rules for suppliers in the different Member States, and therefore cross-border-suppliers of final consumers in a "host" country have to negotiate on different aspects? Answer: given the large price differences, cross-border supply and competition are an important source of competitive pressure on national production clearly defined rules for transportation of electricity are therefore vital to ensure proper flow of trade especially if this includes more than one national border. d) Do you have any further comments on this Commission proposal? Answer: the proposal is a step in the right direction it is important to abandon transaction based cost systems and to try to harmonise tariff methodologies. However in many respects the proposal does not go far enough and it would be better to take existing best practice as the base line as of now rather than leave this as a vague matter to be developed over time.. 3.) Specific questions on the proposal for a directive on common rules for the internal market in electricity and natural gas a) In a liberalised internal energy market it is vital that all suppliers have access to the grid. Do you have any comments on the Commission proposal concerning - the provisions on unbundling (Do you see unbundling of the transport function as an essential requirement?), Answer: unbundling is a key provision without full legal and managerial unbundling it is not possible to guarantee an level playing field for all market actors. - the conditions for using the grid (including tariffs)? Answer: the conditions and tariffs for the use of the grid/network should be laid down ex ante in clear, general rules otherwise it will be inefficient and uncertain for new players to try to enter markets. It is not sufficient to concentrate only on the price of access as such or the conditions for access as such the terms and conditions for using important ancillary services need careful regulation too. b) What is your opinion on the proposed provisions concerning the allocation of free capacity and/ or on congestion management? Answer: it is important to have uniform rules on how capacity is to be defined these should be transparent and published in a timely way - if the market is fully informed as to when and where capacity is available this will encourage the most efficient use of the network. Congestion could be avoided in many situations if there was better co-ordination of the allocation of free capacity.

5 c) To what extent is coordination at EU level necessary? If yes on what topics and who has the responsibility? Answer: co-ordination is a technical matter and it will be primarily the responsibility of the network operators. However it is important that there is some independent review of their activities and in this respect the Commission could play an important role requiring reports, policing transparency and providing independent dispute settlement mechanisms to ensure that the co-ordination functions in a way that treats all market players fairly.