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How will the Third Liberalization package influence the framework of

the regulators?

Dr. Annegret GroebelManaging Director and

Head of International Coordination

International Energy ConferenceCopenhagen – March 12th 2008

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Cooperation of Energy RegulatorsSetting the scene

Spring 2007 European Council mandate to establish:“an independent mechanism for national regulators to cooperate and take decisions on important cross-border issues”

July 2007 EP report by Mr Vidal-Quadras gave a conditional welcome by stressing that the Commission’s role in a future EU entity for NRA cooperation must not undermine the independence of regulators;foresees legally binding decisions by regulators on the basis of consultation of TSO and other stakeholders

Powers and independence of national regulators

• Independence of market interests & political influence

• Adequate resources and powers

Commission proposals for an Agency for the Cooperation of the Energy Regulators (ACER) for amending the Electricity/Gas regulation measured against requirements set by Council and EP

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Cooperation of Energy RegulatorsKey concerns with the Commission

proposal Creates imbalance between ENTSOs and Agency

Delivers „self-regulation“ of ENTSO with voluntary codes and rules only – not suitable to solve cross-border problems

Public interest safeguards very limited

Agency role restricted mainly to an advisory body reducing ACER to a mere technical body following a (too) restrictive interpretation of the MERONI case law (1958)

Lacks added value compared to ERGEG; worse, an additional layer of bureaucracy

Fails to replicate at the EU level the model of independence and powers required for regulators at national level

► CEER requests a remodelled Agency which acts as a strong counterpart to ENTSO to ensure the balance between regulators and regulatees

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Cooperation of Energy RegulatorsCEER Model (1)

Agency advises Commission on “Strategic Guidelines”(after consultation with ENTSOs and stakeholders)

Agency approves codes/rules

(after consultation)

Agency disagrees (after consultation)

Commission introduces “Strategic Guidelines” proposals to comitology

Codes/rules (binding on TSOs and, where necessary, market participants)

ENTSO drafts codes/rules to meet “Strategic Guidelines” requirements

ENTSO revises code/rule

Stage 1

Stage 2

Stage 3

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Cooperation of Energy RegulatorsCEER Model (2)

Agency decisions to be based on Strategic Guidelines which set out political choices (e.g. on the level of security of supply required)

Strategic Guidelines are for agreement through comitology following Agency advice (Stage 1)

Avoids comitology scrutiny of highly complex, technical output

Agency ensures that codes and rules prepared by ENTSOs are consistent with Strategic Guidelines (Stage 2);

Codes and rules become binding after approval by Agency(Stage 3)

Agency consults stakeholders at both stage 1 and 2

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Commission interprets MERONI case law restrictively, i.e. excluding all decisions that involve discretion, but:

• MERONI rulings are 50 years old (ECSC!)

• numerous changes of the Treaty

• administrative situation changed considerably, strong need for more sophisticated EC administration (effet utile)

Conclusion:

• a wider interpretation of MERONI criteria seems possible

• ACER should have the right to adopt technical decisions and closely related pricing decisions as these are regulatory decisions that do not involve political discretion

MERONI rulings and their interpretation (1)

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MERONI rulings and their interpretation (2)

Technical decisions and pricing decisions are inseparable from a regulatory point of view

In order to be effective, codes must be mandatory

BNetzA is therefore of the opinion that ACER should adopt pricing decisions in binding approvals if the following conditions are meet:

• pricing is closely related to the underlying technical issues

• criteria for ACER’s pricing decisions are precisely laid down in legislative texts, hence very limited margin of discretion (no law or rule making by ACER)

• right to appeal is laid down in legislative texts

• parliamentary accountability of ACER is ensured

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Brunetta Report (1)

CEER welcomes the proposed amendments to strengthen ACER

• by entrusting it with decision making powers in regulatory areas (approval of codes (Art. 6) and in particular Art. 4 lit. h – ITC mechanism) and

• by improving the governance structure through

- a stronger role for the Board of Regulators and EP in the appointment of the Director

- a more efficient and transparent Admin Board with only 5 members (2 each nominated by the Commission and Council, 1 nominated by EP)

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CEER has concerns regarding proposals of Mr Vidal-Quadras

• to insert a second comitology process at the end as it is of utmost importance to provide regulatory certainty

• and it is also unclear how the necessary flexibility may be provided

CEER thinks that

• the Director should execute his/her tasks in accordance with decisions adopted by the Board of Regulators

• that the Board of Regulators should be the only decision making body of the Agency for regulatory matters

Brunetta Report (2)

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Conclusions (1)

Integration of energy market is complex

Balance of responsibilities and duties must be more carefully distributed

ACER must be able to act fast and independently on regulatory and technical issues after consultation with the European Network of TSOs (and other concerned stakeholders where necessary)

ACER must have the power to set binding standards through approval (Stage 3 decisions) in order to be a strong counterpart to the European Network of TSOs

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The amendments proposed by Rap. Brunetta to strengthen ACER and entrusting it with decision making powers in regulatory areas are welcome and are close to the proposed model of CEER for mandatory codes in order to effectively overcome the regulatory gap on cross-border issues and ensure an efficient functioning of the market

CEER agrees that entrusting ACER with decision making powers in regulatory areas does not infringe the Meroni criteria as they do not involve political discretion

CEER also agrees with the proposed strengthening of the governance structure of the Agency

Conclusions (2)

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Thank you for your attention.

Contact:Annegret GroebelFederal Network Agency – BundesnetzagenturTulpenfeld 4, 53113 Bonn, Germany