Energy Council reaches broad agreement on Third Package

United Kingdom

The EU’s Energy Council reached a broad agreement on the essential elements of the proposed internal energy market legislative package (the “Third Package”) at its meeting on 6 June 2008. A full vote by the European Parliament to accept the package is awaited later this month. This will be of interest to stakeholders in the EU’s gas and electricity sectors.

Key agreed features

The Energy Council broadly agreed on the following key measures:

  • Effective separation of supply and production activities from network operation should be achieved
    • Full ownership unbundling was agreed on as the ‘first best’ option, but the Independent System Operator (‘ISO’) option has been developed as a ‘next best’ alternative for cases where the transmission system belongs to a vertically integrated undertaking.
    • The ISO option will be available to both gas and electricity sectors and will allow companies to retain ownership of transmission systems on condition that these are managed by an independent transmission system operator.
    • Specific measures will be in place to ensure the independence of the operator, its management and supervisory body, the fair and non-discriminatory access to the transmission network, the avoidance of conflicts of interest, the availability of undistorted investment incentives and the development of investments and interconnection infrastructure.
    • A specific review of the ISO-related provisions would be carried out by the Commission 2 years after implementation to ensure the continual independence of the ISO
  • Third Country control of networks
    • The issue of third country control over EU transmission networks is to be addressed in a non-protectionist way that guarantees that third country companies which are to control EU transmission networks are subject to the same rules that apply to EU undertakings.
    • The final text is also to provide criteria against which investments from third country companies will be assessed, in particular with respect to the EU’s security of supply.
  • Derogations
    • These will be available for small or isolated systems, with nominative derogations for Cyprus, Luxembourg and Malta in both the gas and electricity sectors, and derogations for Estonia, Finland and Latvia regarding the gas sector until these countries are directly connected to systems of other Member States.
  • Market functioning
    • The final legislative text of the Third Package is to have provisions on extended record keeping (supply undertakings would be required to keep at the disposal of regulators relevant data in respect of transactions in supply contracts and gas/electricity derivatives) and on consumers’ rights
  • Agency for Cooperation of Energy Regulators
    • This Agency to be established will be independent from both Member States and the EU Commission. It will have clearly defined tasks by concentrating essentially on binding decision-making issues involving more than one Member State. The Agency will act in an advisory role with respect to technical matters.

The European Parliament is expected to adopt its first reading opinions on the electricity directive and regulation and agency regulation on 17 June and the gas part of the package on 8 July 2008.

To see our previous law-now on the main features of the Third Package, please click here.