Council reaches new political agreement on third package proposals

United Kingdom

Following the agreement reached in the European Council on 6 June 2008 and the positions adopted by the European Parliament on the electricity and gas elements of the third package on 17 June and 8 July 2008 respectively, the Council reached a political agreement on 10 October on the remaining elements of the European Commission’s third package proposals on an internal energy market for gas and electricity. This will be of interest to stakeholders in the European electricity and gas sectors.

The Council reached an agreement on the following outstanding issues.

Third Country Clause

This element of the third package proposals aims to regulate the ownership of the EU’s gas and electricity networks by companies located in third countries to ensure (in a non-protectionist manner) that these companies are subject to the same competitive and unbundling rules as those that apply to EU-based undertakings.

The third country clause agreed by ministers on 10 October establishes a procedure for the certification of third country investors that wish to obtain control of an electricity or gas distribution system or operator company. It is also reported that this clause will specify where the responsibilities in this certification process should lie as well as setting out the role of national regulators and the European Commission in this process.

Unbundling models & fair competition

The European Council has decided to support the existence of three different unbundling models within the EU’s gas and electricity markets to guarantee the separation of supply and production activities on the one hand and transmission activities on the other hand.

Thus, in addition to the Commission’s two original unbundling proposals (full ownership unbundling and the independent transmission system operator model), the Council has approved a third solution whereby gas and electricity companies engaged in production or supply activities could also retain ownership of transmission networks provided that these networks are operated by an independent transmission network operator and that additional guarantees as to the independence of this operator are given to national regulators (the so-called “ITO” model).

The Council also confirmed a provision that would prohibit gas or electricity companies engaged in production or supply activities from exercising control or any power whatsoever over a transmission network operator of a Member State that has opted for full ownership unbundling (i.e. full separation of production and supply activities from transmission activities).

Next Steps

The European Council is now expected to prepare its Common Positions on the third package proposals that will be forwarded to the European Parliament for a second reading as part of the co-decision procedure before the end of 2008.

To access the European Council press release, please click here.

To read our previous law-now on the European Parliament’s positions on the gas proposals, please click here.

To read our previous law-now on the European Parliament’s positions on the electricity proposals, please click here.