The Commission presented a report on progress in creating the internal gas and electricity market.

The last step on the road to competitive energy markets was achieved on 1 July 2007 with the full opening of national retail markets. From a legal perspective, all European consumers are now able to choose their supplier and benefit from competition. However, this report shows that, in practice, market integration is still far from a success . With very few exceptions, electricity and gas markets in the EU remain national in economic scope with limited competition.

Implementation of legislation : all Member States have met the deadline of 1 July 2007 for full opening of their gas and electricity markets. Restrictions to free and fair competition have, however, developed through the coexistence of open market segments and end-user supply price regulation. Some Member States have still not properly implemented the legal requirements of the Electricity and Gas Directives. This concerns, in particular, core areas of market liberalisation, such as regulatory oversight, unbundling and regulated supply tariffs as well as the communication of Public Service Obligations. ERGEG’s (European Regulators Group for Electricity and Gas) monitoring, in 2007, of the implementation of the Electricity and Gas Regulation shows inadequate compliance in areas of core relevance for the development of liquid markets such as transparency and primary capacity allocation.

Market integration : market integration has still not developed to a sufficient extent. This is demonstrated by price differences, regional monopolies and persistent cross-border congestion between Member States, for example. Energy prices for industrial electricity customers in the EU are starting to converge in the Central and North Western EU areas but still differ by almost 100% in some cases. Cross-border trade is a key source of competitive pressure on prices. The lack of independence of network operators continues to be a barrier to adequate investment. Lastly, legal differences between Member States remain a barrier to market integration.

Concentration and consolidation : market structures on a national scale are still very concentrated. In addition, incumbents control essential infrastructure facilities, further increasing their market power. Between 2005 and mid-2007, the number of independent suppliers on the electricity market increased in 40% of the Member States where data was available. In 7 out of 21 Member States, no independent supplier is active on the national gas market. Retail markets are not yet well developed, mainly because of limited access to gas supplies for new entrants. Alongside highly concentrated national markets, the tendency towards consolidation and concentration continues.

Price trends : c ustomers in the EU-15 Member States benefited from cumulative price savings from electricity liberalisation to the order of €60 billion over the period 1998 to 2004. These savings were partly countered by price increases in later periods. As competition is still limited, competitive pressures on prices are correspondingly weak. Moreover, prices mirror general trends, notably in oil prices, which increased by more than 50% between 2005 and 2007. Since market opening in 1998, Member States with ownership unbundled TSOs have experienced more positive price developments than Member States where the TSOs were and are still related to supply companies .

Independence of network operators : functional unbundling is still not effectively implemented in all Member States. This applies both to electricity and gas and to transmission and distribution system operators. Insufficient independence of network operators is reflected in underinvestment in network capacities and, in particular, in inadequate cross-border capacities. Legal unbundling has not been sufficient to cope with this effect.

Effective regulation by regulators : despite the Electricity and Gas Directives requiring regulators to hold a minimum set of powers, the unequal levels of regulatory powers across borders have not improved. Non-compliance with European legislation is often met by insufficient or ineffective penalties in national legislation. However, the “regulatory gap” remains a barrier to coordinated decision making across borders, which cannot be solved by the existing model of voluntary cooperation by ERGEG.

Customer dimension : while the rates of switching for larger customers continue to rise, most small business customers and households still have limited scope to exercise their right to choose. Electricity switching is at a high level in Iberian countries, the Czech Republic and Nordic countries and above average especially for large industrial customers in Germany, Austria and Luxembourg. In most other countries, the annual switching rate for households is about 1% or below. The picture is similar for gas, with the exception of Italy, where the rate is above 1%. Moreover, retail competition is distorted by regulated supply tariffs. In terms of service quality , market surveys have concluded that the level of satisfaction with the quality of electricity and gas services provided is generally good. Concerns that the introduction of competition would lead to a decline in service standards or problems in the provision of universal service have proved unfounded. The report notes that the coexistence of open energy markets and regulated energy prices is quite common among EU Member States: it exists in one third of the gas markets for at least one market segment and more than half of the electricity markets. The negative effects of regulated energy prices remain a major concern.

Security of supply : European electricity outlook reports drawn up in 2007 by the Group of European Electricity Transmission System Operators (ETSO) and European Gas Transmission System Operators suggest that no particular risk of power shortage is expected in the medium term. However, in terms of gas supply in particular, the European Union relies increasingly on imports. Therefore, the diversification of routes or sources plays a key role in reducing dependence on today’s three major pipeline sources, Russia, Norway and Algeria. Electricity and gas networks are at the heart of a well-functioning European market. Obstacles still remain to the completion of the priority projects that have already been identified. For electricity, dependence on imports is lower. However, the dependence of power generation on gas, much of which is imported, is increasing.

To conclude, the report notes that despite some encouraging improvements, notably in cross-border coordination at regional level, major barriers to the efficient functioning of the market still exist:

The insufficient implementation of European legislation remains a crucial factor. Improvement has to be driven by the Commission, Member States, regulators and industry together; At the same time, national regulators must be empowered with a view to ensuring proper implementation of legislation by stakeholders; Regulators themselves have to act on their own responsibility to encourage implementation of legal requirements. Harmonisation of regulatory best practice models across borders is certainly needed if practical barriers to cross-border trade are to be reduced; The industry must observe the legal requirements without compromise. Implementation of European legislation does not allow for negotiations; Lastly, regulated energy prices remain a major concern.

The Commission has therefore addressed these shortcomings in a legislative package, which it presented on 19 September 2007 (see also COD/2007/0253 and COD/2007/0197 ).

COM(2008)0192
EUR-Lex

PURPOSE : to set fair rules for access conditions to natural gas transmission systems taking into account the specificities of national and regional markets.

LEGISLATIVE ACT : Regulation 1775/2005/EC of the European Parliament and of the Council on conditions for access to the natural gas transmission networks.

CONTENT : the Council adopted a regulation setting rules for access conditions to natural gas networks in the EU with a view to ensuring the proper functioning of the internal gas market. The regulation aims at establishing harmonised principles on:

the definition on tariffs for access to networks and on third party access services; capacity allocation mechanisms and congestion management procedures; transparency requirements; balancing rules and imbalance charges; trading of capacity rights.

The regulation sets up guidelines on access taking account of the differences between national gas systems. The guidelines establish minimal requirements in order to ensure non-discriminatory access to the network. It aims at setting non-discriminatory rules for access conditions to natural gas transmission systems taking into account the specificities of national and regional markets with a view to ensuring the proper functioning of the internal gas market.

This objective shall include the setting of harmonised principles for tariffs, or the methodologies underlying their calculation, for access to the network, the establishment of third party access services and harmonised principles for capacity allocation and congestion management, the determination of transparency requirements, balancing rules and imbalance charges and facilitating capacity trading.

Member States may establish an entity or body set up in compliance with Directive 2003/55/EC for the purpose of carrying out one or more functions typically attributed to the transmission system operator, which shall be subject to the requirements of this Regulation.

The Member States must lay down rules on penalties applicable to infringements of the provisions of the new regulation, which will apply from 1 July 2006.

The Commission shall monitor the implementation of this Regulation. In its report under Article 31(3) of Directive 2003/55/EC, the Commission shall also report on the experience gained in the application of this Regulation. In particular the report shall examine to what extent the Regulation has been successful in ensuring non-discriminatory and cost-reflective network access conditions for gas transmission networks in order to contribute to customer choice in a well functioning internal market and to long-term security of supply. If necessary, the report shall be accompanied by appropriate proposals and/or recommendations.

The regulation is aimed at complementing internal gas market directive 2003/55/EC, in parallel to regulation 1228/2003 on conditions for access to the network for cross-border exchanges in electricity, adopted in 2003 as a package.

The regulation also takes into account guidelines approved by the European gas regulatory forum (Madrid Forum).

ENTRY INTO FORCE : 23/11/2005.

DATE OF APPLICATION: It shall apply from 1 July 2006 with the exception of the second sentence of Article 9(2), which shall apply from 1 January 2007.

Regulation 2005/1775
OJ L 289 03.11.2005, p. 0001-0013

03614/2005

The Commission can accept all nine amendments adopted by the European Parliament in full. They are the result of a compromise agreement reached between the European Parliament, Council and Commission during the second reading. The amendments are in line with the Commission’s objectives for the proposal and maintain the balance of interests achieved in the common position.

The substance of the amendments can be described as follows:

- Four Parliamentary amendments concern the costs to be taken into account when establishing transmission tariffs or imbalance charges. They reinforce the text of the Common Position by referring to actual costs incurred, “insofar as such costs correspond to those of an efficient and structurally comparable network operator”. Such a concept is already part of the acquis communautaire.

- One amendment defines imbalance charges to be cost reflective to the extent possible.

COM(2005)0157
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SP(2005)1475

Parliament adopted the report by Esko SEPPÄNEN (GUE/NGL, FIN) broadly approving the Council's common position under the 2nd reading of the codecision procedure, subject to a few minor amendments. (Please refer to the summary dated 25/01/2005).

T6-0061/2005
OJ C 320 15.12.2005, p. 0014-0036 E

Results of vote in Parliament

Parliament adopted the report by Esko SEPPÄNEN (GUE/NGL, FIN) broadly approving the Council's common position under the 2nd reading of the codecision procedure, subject to a few minor amendments. (Please refer to the summary dated 25/01/2005).

T6-0061/2005

Debate in Parliament

A6-0012/2005

A6-0012/2005

The committee adopted the report by Esko SEPPÄNEN (GUE/NGL, FIN) broadly approving the Council's common position under the 2nd reading of the codecision procedure, subject to a few minor amendments:

- the phrase "actual costs incurred", which is used in a number of places in the regulation, should be replaced by "costs which are efficiently incurred and transparent";

- the definition of "unused capacity" should be clarified by mentioning the deadline specified in the transportation contract;

- common network codes are required where there is more than one network;

- the requirement that the agreement of the European Association for the Streamlining of the Exchange of Energy Gas (EASEE-gas) is needed in order to determine nomination and renomination procedures should be deleted, as this would involve vesting legislative powers upon a specific industry body.

The Commission feels that the Common Position fully corresponds to the proposal from the Commission with respect to its substance. A number of other changes introduced by the Council and the European Parliament clarify the provisions of the Regulation with respect to its consistency with Directive 2003/55/EC or supplement them. Member States have not only acknowledged the need for the regulation as such, but also the fact that its scope has to go beyond pure cross-border issues, in order to avoid distortion of competition and discrimination. With regard to Parliament's amendments, the Commission concurred with the Council's view. In particular, it rejected Parliament's amendment restricting the scope to cross-border issues. Such a restriction of the scope would render it impossible to achieve the underlying objectives of the Regulation, and would not enable the Regulation to ensure the necessary level playing field in terms of access conditions, in particular with Member States with more than one transmission system operator. Issues addressed by the Regulation are relevant throughout gas networks and are not confined to inter-connections. Restricting the scope of the regulation to cross-border trade would therefore render the proposed regulation almost useless.

The Commission accepted the Parliament's definition of "network users" as it provides clarification and simplification without limiting the scope of the definition as proposed by the Commission.

On the matter of comitology, the Commission notes that the Council has reduced the scope of the comitology procedure as proposed by the Commission. It has deleted all subjects not yet covered by Guidelines annexed to the Regulation. Only those subjects addressed already by the annexed Guidelines have been maintained. The subjects taken out by the Council could be addressed at a later stage, e.g. when submitting the report pursuant to Article 30 of Directive 2003/55/EC (2nd Internal Gas Market Directive).

Finally, the Commission accepted an entry into force of the Regulation delayed by one year compared to its original proposal. In addition, it accepted that the Guidelines annexed to the Regulation should not be amended before 1 January 2007. As the Commission considers the Guidelines contained in the Annex to the Regulation sufficiently complete, comprehensive and developed in order to respond properly to market requirements, it could accept this proposal, too.

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EUR-Lex

Regarding the 41 amendments of the European Parliament, the Council has followed the Commission in accepting:

- 22 amendments fully (sometimes with redrafting);

- 3 partially;

- 5 in principle.

The Council has rejected 18 amendments on grounds of substance and/or of form.

Concerning the Commission proposal, the Council has introduced certain modifications.

The main changes introduced by the Council concern the Guidelines referred to in Article 9 the scope of which the Council has reduced. The Commission's ability to adopt new Guidelines through the committee procedure has been deleted from the Commission proposal. The Commission now has the competence to amend the Guidelines laid down in the Annex of the draft Regulation. These Guidelines concern third party access services, the principles of capacity allocation mechanisms and congestion management procedures, and transparency requirements. The Council has also introduced an additional paragraph to Article 9 where it is made clear that differences between national gas systems should be reflected in the Guidelines and their application and future amendments.

The Council has also delayed the date of application of the Regulation from 1 July

2005 to 1 July 2006 except for Article 9(2) for which the date of application is 1 January 2007.

Other changes include the following:

-the introduction of two new definitions of "unused capacity" and of "firm services";

-the deletion of the definitions of new market entrants and of small player. The Council considers that the Regulation should apply to all market actors in the same way.

-finally, there is a new clause to ensure that the use of auctions is a possible means to determine tariffs.

11652/2/2004
OJ C 025 01.02.2005, p. 0044-0056 E

Regarding the 41 amendments of the European Parliament, the Council has followed the Commission in accepting:

- 22 amendments fully (sometimes with redrafting);

- 3 partially;

- 5 in principle.

The Council has rejected 18 amendments on grounds of substance and/or of form.

Concerning the Commission proposal, the Council has introduced certain modifications.

The main changes introduced by the Council concern the Guidelines referred to in Article 9 the scope of which the Council has reduced. The Commission's ability to adopt new Guidelines through the committee procedure has been deleted from the Commission proposal. The Commission now has the competence to amend the Guidelines laid down in the Annex of the draft Regulation. These Guidelines concern third party access services, the principles of capacity allocation mechanisms and congestion management procedures, and transparency requirements. The Council has also introduced an additional paragraph to Article 9 where it is made clear that differences between national gas systems should be reflected in the Guidelines and their application and future amendments.

The Council has also delayed the date of application of the Regulation from 1 July

2005 to 1 July 2006 except for Article 9(2) for which the date of application is 1 January 2007.

Other changes include the following:

-the introduction of two new definitions of "unused capacity" and of "firm services";

-the deletion of the definitions of new market entrants and of small player. The Council considers that the Regulation should apply to all market actors in the same way.

-finally, there is a new clause to ensure that the use of auctions is a possible means to determine tariffs.

11652/2/2004

14120/2004

13401/2004

CES0851/2004
OJ C 241 28.09.2004, p. 0031-0033

T5-0301/2004
OJ C 104 30.04.2004, p. 0036-0305 E

T5-0301/2004

Debate in Parliament

A5-0254/2004

A5-0254/2004

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COM(2003)0741
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COM(2003)0743
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COM(2003)0741
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