Legislation
|Electricity
directive 2003/54/EC and Regulation 1228/2003
|Notes
for the implementation of the directive 2003/54/EC
|Security
of electricity supply
directive 2005/89/EC
|Price
transparency directive 1990/377/EEC
|Historical
documents
Package of Commission
documents adopted on 13/03/2001
and amended proposals of 07/06/2002
Explanatory memorandum of the
Electricity directive 96/92
Directive 96/92/EC concerning common rules of the
internal market in electricity was adopted by the Council of Ministers on 19 December
1996. It entered into force two months later on 19 February 1997.
Member States have two years to bring into force the laws, regulations and
administrative provisions necessary to comply with this Directive. However, Belgium and
Ireland have additional one year and Greece additional two years to transpose the
Directive. Member States shall inform the Commission about their implementation before the
end of the transposition period.
The Directive establishes common rules for the generation, transmission and distribution of electricity.
Generation
For the construction of new generating capacity, Member States may choose between two
different procedures or mixes of the procedures:
Whatever procedure chosen it must be conducted in accordance with objective,
transparent and non-discriminatory criteria.
The difference between the two procedures is that in the tendering procedure the Member
State sets up an inventory of the need for future generating capacity, including the
demand for electricity, based on estimations carried out by the transmission system
operator or any other competent authority designated by the Member State. In the
authorization system, applications which are conform with the criteria for granting an
authorization should be authorized. Lack of demand is not a valid reason for refusal.
Authorization procedure
Member States shall set up criteria for the grant of authorizations. The criteria,
which shall be made public, may relate to safety and security of the electricity system
installation and associated equipment, protection of the environment, land use and siting,
use of public ground, energy efficiency, the nature of primary sources, characteristics
particular to the applicant such as technical, economic and financial capabilities and public service obligations. The need for new capacity is not among the
criteria mentioned in the Directive.
If authorization is refused the applicant shall be reformed of the reasons, which must
be objective and non-discriminatory. The reasons shall be well founded and duly
substantiated in the criteria for granting authorization. The Commission shall be informed
about the refusals. Appeal procedures must be available to the applicant.
Tendering procedure
The tendering procedure allows Member States to plan the construction of new capacity.
The Member State or a competent body appointed by the State shall draw up an inventory of
new capacity to be constructed, including replacement of old capacity. The procedure shall
follow objective, transparent and non-discriminatory criteria. The specifications shall be
published in the Official Journal of the European Communities at least six months before
the closing date for tenders. The specifications shall contain a detailed description of
the contract specifications. An exhaustive list of criteria governing the selection of
tenders and the award of the contract shall also be included.
The organisation, monitoring and control of the tendering procedure shall be carried
out by an authority fully independent of electricity production, transmission and
distribution. This should ensure objective and non-discriminatory decisions.
Also when applying a tendering procedure certain categories of generators
(self-producers, independent power producers) will always be able to obtain authorization
if they fulfill the criteria.
Transmission
Transmission is defined as the transport of electricity on the high-voltage
interconnected systems.
This chapter concentrates on the technical issues, including dispatching, for the
transmission system operator. For explanation on the organisation of the access to the
transmission network see the chapter on access to the network.
Member States shall designate or require undertakings which own transmission systems to
designate a system operator to be responsible for operating, ensuring the maintenance and
if necessary developing the transmission system in a given area and its interconnectors
with other systems in order to guarantee security of supply.
The transmission system operator (TSO) is responsible for dispatching the generating
installations in its area and for determining the use of interconnectors with other
systems. The criteria for the dispatching must be objective, published and applied in a
non-discriminatory manner. This implies that the TSO is not allowed to favour generating
facilities belonging to the same company or shareholders of the company in case the TSO is
not totally separated from production. The criteria must take into account the economic
precedence of electricity from available generating installations of interconnector
transfers and the technical constraints on the system (apply economic merit order). For
environmental reasons a Member State may, however, require the TSO to give priority in the
dispatching to electricity produced from renewables, waste and from combined heat and
power. This is important as this allows Member States to ensure the sale of
environmentally friendly electricity even in cases where the costs of this electricity
exceed the costs of traditionally produced electricity.
Priority in the dispatching can also be given to electricity produced using indigenous
fuels but only up to 15% in a calendar year of the overall primary energy necessary to
produce the electricity consumed in the Member State.
Distribution
Distribution is defined as the transport of electricity on the medium-voltage and
low-voltage interconnected systems.
This chapter concentrates on the technical requirements for the distribution system
operator. For explanation on the organisation of the access to the distribution network
see the chapter on access to the network.
As in the case for transmission, a system operator shall be designated to be
responsible for operating, ensuring the maintenance and if necessary developing the
transmission system in a given area and its interconnectors with other systems. The
distribution system operator is responsible for maintaining a secure, reliable and
efficient electricity distribution system in its area with due regard to the environment.
For environmental reasons a Member State may require the TSO to give priority in the
dispatching to electricity produced from renewables, waste and from combined heat and
power. This is important as this allow Member States to ensure the sale of environmentally
friendly electricity even in cases where the costs of this electricity exceed the costs of
traditionally produced electricity. The operator must not discriminate between the system
users and in particular not favour its subsidiaries or shareholders.
A Member State may also impose on distribution companies an obligation to supply
customers located in its area. The tariffs may be regulated, e.g. a requirement to sell
electricity to all private consumers at equal prices per kWh in its area via the
imposition of a public service obligation.
Unbundling
The aim of unbundling is to avoid discrimination, cross-subsidization and distortion of
competition. Integrated electricity undertakings must, therefore, in their internal
accounting keep separate accounts for their generation, transmission and distribution
activities. If they undertake other non-electricity activities these other activities must
be accounted for separately just as if these were carried out by separate undertakings.
Member States or any competent authority must have right of access to these unbundled
accounts. The annual accounts have to be published. See separate paper
on Unbundling. This paper also covers the requirement in the Directive to list
intercompany transactions in the notes to the accounts when having common shareholders.
Access to the network
Member States can choose between negotiated or regulated
third party access or the single buyer procedure when organising the
access to the transmission and the distribution network. Whatever chosen, both sets of
procedure shall operate in accordance with objective, transparent and non-discriminatory
criteria. Both in the case of third party access or single buyer, Member States shall take
meaures to enable producers to supply through a direct line.
Negotiated Third Party Access (neg TPA)
Negotiated TPA is characterized by the fact that producers and consumers of electricity
will contract supplies directly with each other, but that they will have to negotiate
access to the network with its operator. Such negotiations will deal with transport
tariffs and other conditions.
The system operator may refuse access in case of lack of capacity. The Directive
contains no provision that obliges the system operator to construct new capacity in case
of lack of capacity. In case of refusal duly substantiated reasons must be given, in
particular having regard to the public service obligations.
The negotiations will be subject to a dispute settlement procedure. Member States shall
designate a competent authority, which must be independent of the parties to settle
disputes relating to the contracts and the negotiations of the contracts, including in
case of refusal of access. It shall also be ensured that none of the parties abuse an
eventual dominant position
To promote transparency and facilitate negotiations for access to the system, system
operators must publish indicative prices (average prices over 1 year) for the use of the
transmission and distribution systems. The Commission will also in order to further
increase the transparency publish available prices for all Member States on this Internet
site.
Regulated Third Party Access (regTPA)
In case of regulated TPA producers and consumers also contract directly with each other
for supply. The price for the use of the transmission and distribution systems can,
however, not be negotiated. The eligible customers have a right of access on the basis of
published tariffs. Member States shall also in the case of regTPA designate a competent
body to settle disputes.
Single buyer
The single buyer has been defined in the Directive as a legal person which is
responsible for the unified management of the transmission system and/or for centralized
electricity purchasing and selling. This means that the single buyer would normally also
be the transmission system operator but not necessarily.
The single buyer system is characterized by
- the publication of a non-discriminatory tariff for the use of the transmission and the
distribution system
- eligible customers are free to conclude supply contracts to cover their own needs with
producers outside or inside the area covered by the single buyer
- the single buyer is obliged (except in the case where the single buyer principle is
combined with TPA or in the case of lack of capacity in the transmission or distribution
network) to purchase the electricity contracted by an eligible customer from a producer at
a price which is equal to the sales price offered by the single buyer minus the price for
the use of the network. The single buyer is not informed of the electricity price as it
appears in the contract between the producer and the eligible customer.
The benefit of the eligible customer is equivalent to the difference between the price
of purchase from the producer (non-single buyer) and the price of sale to the single
buyer, including the transmission costs. This should create the same economical result as
regulated TPA.
In addition to the keeping of separate accounts for the activities of vertically
integrated undertakings (unbundling) single buyer activities shall be managed separately
from production and distribution activities. No flow of information between the single
buyer and the production and distribution must be limited to what is strictly necessary on
order to conduct the single buyer responsibilities (the so-called "Chinese
wall"-clause).
Also in the single buyer system independent producers and autoproducers will have the
right to supply their own premises in the same Member State or in another Member State by
using the interconnected system, and subsidiaries and independent producers inside the
system can conclude contracts with eligible customers outside the system.
The single buyer principle can be applied without imposing a purchase obligation on the
single buyer. In this case eligible customers can conclude supply contracts on the basis
of negotiated or regulated Third Party Access. If negotiated TPA is applied, there would
be no obligation for the single buyer to publish tariffs for the use of the transmission
and distribution system.
Direct lines
All electricity producers and electricity suppliers have a right to supply their own
premises, subsidiaries and eligible customers through a direct line when the suppliers
have the necesssary authorization. The criteria for the grant of an authorization for
constructing a direct line must be objective and non-discriminatory. Member States may,
however, make authorization subject to the refusal of system access (lack of capacity of
the transmission and/or distribution network) or to the opening of a dispute settlement
procedure. Member States may refuse to auhorize the construction of a new direct line if
the line obstruct the public service obligations.
Market opening
The Directive provides for a gradual market opening in three steps: 1st step on 19
February 1999, 2nd step on 19 February 2000 and 3rd step 19 February 2003. Each Member
State shall open the market such that they respect at least this minimum market opening.
The Member States are allowed to go for a further opening, including a complete
liberalisation and many are choosing to do so (see table on market
opening in the different Member States.
The minimum market opening corresponding to the 1st step is calculated as the share of
the total consumption which is consumed by final consumers with an annual consumption
exceeding 40 GWh. Following the latest calculation this implies that about 26.48% of each
national market shall be opened for competition. In the 2nd step the threshold is reduced
to a level of 20 GWh. This increases the minimum market opening to about 28%. In the 3rd
step the threshold is further reduced to 9 GWh which equal a market opening of about 33%.
Member States themselves define the eligible customers to participate in the market
opening. However, very large final consumers of over 100 GWh, and distributors responsible
for the volume of electricity consumed through their distribution network by other final
eligible customers must be included in the definition of eligible customers. The criteria
for the definition of the eligible customers will be published by Member States by 31
January each year in the Official Journal of the European Communities.
Public service obligations
The electricity market and all areas regulated in the Directive are subject to public
service obligations which Member States may impose in the general economic interest on
electricity undertakings in their market. These obligations are defined by Member States
individually within a Community framework as laid down in the Directive. The Member States
define these obligations in detail, but they must be clearly defined, transparent,
non-discriminatory, verifiable and published. The obligations must be notified to the
Commission which will check them against Community law. The obligations shall also fall
into one of the following five categories: security of supply, regularity, quality and
price of supplies and environmental protection. Obligations which cannot be categorized
among one of the five categories will not be accepted.
The use of public service obligations will allow Member States to balance competition
with public services, where this is deemed necessary in the general interest of the
society. Examples of such obligations could be an obligation for a distribution to supply
all customers in its area at equal price per kWh or an obligation for the customers to
purchase a certain percentage of its electricity from renewables. It is, however,
important that these obligations respect the Community framework as they by no means
should be used to favour domestic electricity producers at the expense of producers in
other Member States.
Reciprocity
To avoid imbalance in the opening of electricity markets the Directive contains some
possibilities of refusing access for customers from other Member States when the Member
State itself opens a larger part of the market than the other states (e.g. if a customer
is eligible in Member State A but not in Member State B). See separate
paper for the interpretation of the reciprocity clause.
Table on the market opening in the Member States
| Member State |
Final electricity
consumption (1995) |
Percentage
to be liberalised |
| Austria |
4013 Toe |
46.66 GWh |
| Denmark |
2686 Toe |
31.23 GWh |
| Finland |
5615 Toe |
65.29 GWh |
| Germany |
38912 Toe |
452.5 GWh |
| Ireland |
1276 Toe |
14.83 GWh |
| Luxembourg |
430 Toe |
5.00 GWh |
| Netherlands |
7144 Toe |
83.07 GWh |
| Portugal |
2439 Toe |
28.36 GWh |
| Sweden |
10704 Toe |
124.46 GWh |
| United Kindom |
25604 Toe |
297.72 GWh |
| Belgium |
5885 Toe |
68.43 Gwh |
| France |
29456 Toe |
342.5 GWh |
| Greece |
2931 Toe |
34.08 GWh |
| Italy |
20436 Toe |
237.62 GWh |
| Spain |
12139 Toe |
141.15 GWh |
| EU |
|
1149.12 GWh for 10 MS
+ 823.78 GWh for 5 MS
=1972.9 GWh |
Unbundling of Accounts - Interpretation of Article 14 (3)
Question:
Do the separate balance sheets and profit & loss accounts for each of the 4
activities (production, transmission, distribution, other activities) as required by the
unbundling of accounts of Article 14.3, need to be published (or held at public disposal)
as required by Article 14.2 for the annual accounts?
The German version of the Directive clearly requires such a publishing as the last
sentence of Art 14.3 says "Jahresabschluss" ("annual accounts"), which
means explicitly the "annual accounts" as mentioned in Art 14.2.
However, the English and the French version of the Directive are less exact as the last
sentence of Art 14.3 only says "accounts" (FR "comptes") without exact
restatement of "annual accounts" (FR "comptes annuals") from Art 14.2.
Answer:
The unbundled balance sheet as well as the profit and loss account have to be published
according to the requirements of Article 14 (2). The less exact wording of the English and
French (and perhaps other linguistic versions) cannot give rise to turn around the sense
of the transparency requirements as
- in the following Article 14 (4) all linguistic versions restate again the exact term
"annual accounts" when requiring the allocation rules to be specified in the
notes to the annual accounts. This closes any involuntary ambiguity of Article 14 (3).
- also a teleological interpretation would come to the same conclusion as it was
clearly the aim to increase transparency by publishing the unbundled accounts.
Unbundling of Accounts - Interpretation of Article 14 (5)
Question:
A pure formal interpretation of the Art 14.5 would suggest that even the smallest
participation of a common shareholder would enforce the defined obligation to list the
respective inter-company transactions in the notes to the accounts. Such an interpretation
would raise serious administrative problems and would not really increase transparency.
Answer:
Already the original Commission proposal of 1992 and the modified Commission proposal
of 1994 contained in the respective Articles 24.7 and 20.6 (now Art 14.5) already the
obligation to indicate important transactions with:
(1) associated undertakings, with reference to Art 33 of Dir 83/349/EEC
(2) affiliated undertakings/ FR: "lié"/ DE: "verbunden", with
reference to Art 41 of Dir 83/349/EEC,
(3) undertakings belonging to the same owner.
Criterion (3) refers to undertakings that are not directly linked between each other
but only linked via common shareholders. Thus, this criterion enforces the obligation to
indicate important transactions also between unconsolidated subsidiaries, whereas
criterion (1) would only apply to transactions between a parent company and an
unconsolidated but associates company (according to Art 33 to hold a notable, approx. 20%
interest) but not between two unconsolidated sisters, and
criterion (2) would only apply between sister undertakings affiliated to, i.e.
consolidated with a common parent undertaking according to Art 41 (dominating, i.e. above
50% interest).
The approach of going beyond the compulsory requirements of Dir 83/349/EEC, has been
explicitly discussed in the Council Energy Working Group of 23 October 1995
However, criterion (3) of the unbundling requirement, finally in Article 14.5 of the
IEM Directive, does not explicitly refer to Art 12 of Dir 83/349/EEC although criteria (1)
and (2) refer explicitly to the respective Articles 33 and 41 of the same directive. This
can be explained as the facultative Art 12 does not exactly reflect the intended provision
but comprises even further "horizontal" relations, namely not only via common
shareholders, but more generally via common management/same physical persons/management
contracts/provisions in the memorandum and articles of association.
Clearly, Art 12 refers rather to the material influence, whereas criterion (3) refers
rather to the formal existence of common shareownership. However, if Art 12 of Dir
83/349/EEC were not be taken for interpretation, this would raise the question of how
important the share of the common owners would have to be and the above mentioned pure
formal interpretation would lead to the situation that had not been intended and could
hardly be administered.
Therefore, a teleological interpretation of Art 14.5 is proposed. The criterion of
common shareholders was never intended to be formally more restrictive than the provisions
of Art 12 of Dir 83/349/EEC, which requires material influence. On the contrary, Art 12
has not been explicitly mentioned as the Council did not want to cover the full scope of
Art 12. On the other hand, it has been clearly expressed that the provisions of Art 14.5
IEM Directive go beyond Art 33 and Art 41 of Dir 83/349/EEC. Therefore, "belonging to
the same shareholders" should be understood as the shareholders having at least a
material or a major interest. Percentages below 20% would certainly not qualify for such a
definition.
Reciprocity Clause - Implementation of Article 19 (5)
1. Compatibility with the Treaty
The compatibility of Article 19 (5) with the Treaty is sometimes questioned since
reciprocity cannot be a principle within the European Community where instead, the
principe of equal treatment applies. Nevertheless, the combination of the principles of
progressivity according which Member States may be allowed to follow a step by step
opening of the market and of subsidiarity where Member States may choose to open the
market more rapidly, may result in serious imbalances of rights and obligations between
electricity companies of different Member States. Under such circumstances a reciprocity
rule which aims at introducing a better balance between electricity companies, is
compatible with the Treaty insofar as this provision is transitional and of reasonable
duration and is in keeping with a progressive pattern which is the case of
Article 19 (5).
2. Conditions for implementation
Article 19 (5) introduces a transitional mechanism in order "to avoid
imbalance in the opening of electricity markets during the period referred to in Article
26."
Article 19 (5b) implicitly allows to refuse access for electricity suppliers from
specific Member States "because of the customer being eligible only in one of
the two systems".
Consequently, in order to apply Article 19 (5) two preconditions have to be fulfilled
(1) a higher level of market opening (percentage higher than the minimum) is
implemented by the Member States, that wishes to apply Article 19 (5) against a company
located in another Member State
(2) an eligible customer that wants to contract electricity from a supplier situated in
the other Member State, would not have the status of an eligible customer in that other
Member State.
In determining when recourse to this provision can legitimately be claimed, it is
important to take account of the fact that the requirement for all Member States to
liberalise 25 % of domestic consumption will mean that the actual threshold, in terms of
Gwh corresponding to the 25 % figure, will differ from Member State to Member State.
An example: In order to reach the 25% market opening in the first stage of
liberalisation, Country A would have to set the threshold at 30 Gwh, whereas Country B
would have to set it at 40 Gwh. A 35 Gwh customer of Country A would be eligible in A but
not in B. However, Country A could not refuse supplies from Country B by claiming
reciprocity, because there is no imbalance in the market opening (both countries opening
25%).
Under the assumption that Country A would ("voluntarily") further lower its
threshold to, e.g. 20 Gwh, thereby opening e.g. 30%, reciprocity could, in certain cases,
be claimed. In that case, Country A could refuse access to a supplier from country B that
wishes to supply e.g. a 25 Gwh customer of Country A, eligible in A but not in B.
The same mechanism applies not only for different thresholds but also for different
qualitative eligibility criteria. For example, distributors could be eligible in Country A
but not in Country B. But also in this case, a clear line has to be drawn between eligible
distributors that are granted the status of eligible customers in order to reach the
minimum market opening and eligible distributors that represent a further reaching segment
of market opening in comparison with a specific other Member State. If distributors in
country A are designated as eligible in order to reach the 25 % minimum market opening
figure, then the fact that they are not eligible in B (as different customers make up the
"eligible" requirements) does not provide grounds for a refusal to permit
distributors in A to purchase freely in B.
Concluding, recourse to Article 19 (5) may not be used to counteract the difference in
quantitative or qualitative thresholds which are necessary to reach an equivalent market
opening, which is the primary aim of the Directive.
3. Reciprocity between different approaches to system access
The question has also been raised whether Article 19(5) only relates to
"quantitative reciprocity" and not "qualitative reciprocity".
Assume that two neighbours Member States have both liberalised to the minimum 25 %
requirement. One Member State, however, considers that de facto, because of
difference in the structure of the two markets in question, its market is in reality for
more open than that of its neighbour. Could that Member States then rely on Article 19(5)
to prohibit imports from its neighbour.
It is clear from the wording of 19(5)b that this provision is concerned only with the
question of legal eligibility to purchase freely. It makes no allusion to qualitative
considerations. Such matters are, however, covered by Article 3(1) of the Directive which
states that the method of transposition must "lead to equivalent economic results and
hence to a directly comparable level of opening-up of markets and to a directly comparable
degree of access to electricity markets".
It is clearly the task of the Commission to enforce this requirement, not that of the
Member States.
In the light, it seems clear that Article 19(5) cannot be relied upon to justify
refusals of access on grounds of "qualitative reciprocity". The correct recourse
in the event of such issues arising is to request a Commission action pursuant to Article
3(1).
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