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The 3rd Energy Package

Achieving a genuine internal energy market is a priority goal for the European Union. The internal energy market is made up of the European gas and electricity markets. It has been the subject of several successive sets of directives and regulations, grouped into “legislative packages”. There have been three such packages up to now, put together by the European Parliament and the European Union Council, which establish common rules for the internal energy market for all Member States. Note that a regulation is directly applicable whereas a directive needs to be transposed into national law, which leaves room for manoeuvre.

The purpose of these directives is to create a truly competitive internal market in the European Union. The opening up of the market is closely linked with objectives for quality of service, universal service obligation, consumer protection and security of supply.

Regulatory context of the European internal market

The gradual process of liberalising Europe’s energy markets began in 1997 for electricity (Directive 96/92/EC) and in 2000 for natural gas (Directive 98/30/EC). These first directives laid the foundations for a free energy market, focusing on 3 objectives:

 

  • To resolve the inherent conflict of interests between producers, suppliers and network operators, and maintain security of supply;

  • To ensure equitable access to the network for new entrants and a choice of suppliers for consumers;

  • To achieve market transparency.

 

The European Summit in Lisbon in 2000 prompted the European Commission and the Member States to speed up the liberalisation and completion of the internal market.

In consequence, the EU Council of 2002 reached an agreement for national gas and electricity markets to be fully opened up to competition.

This agreement was embodied in the 2nd Energy Package adopted in 2003, consisting of a regulation and two directives on gas (2003/54/EC) and electricity (2003/55/EC), replacing the previous arrangements. In practice, from July 1, 2004 and from July 1, 2007 respectively, industrial and then domestic customers became free to choose their gas and electricity suppliers.

In 2007, the European Commission drew up an assessment report on the internal market based on a sector-specific survey of the gas and electricity markets. It concluded that there were still numerous deficiencies preventing both consumers and the industry from fully reaping the benefits of open national markets:

  • The provisions of the directive were not properly applied in certain Member States;

  • There was insufficient legal and functional separation between network operators and supply and production companies in vertically integrated relations;

  • National regulators did not have the powers or independence required to carry out their role effectively.

 

The Commission then announced that a 3rd legislative package would be introduced to reinforce the rules so far adopted.

The 3rd Gas Directive

The 3rd Energy Package was adopted on July 13, 2009. It consists of 5 components, 2 of them directives:

  • Regulation (EC) No. 713/2009 establishing an Agency for the Cooperation of Energy Regulators;

  • Regulation (EC) No. 714/2009 on conditions of access to the network for cross-border exchanges in electricity;

  • Regulation (EC) No. 715/2009 on conditions for access to the natural gas transmission networks, repealing the previous regulation;

  • The 3rd Electricity Directive (2009/72/EC);

  • The 3rd Gas Directive (2009/73/EC).

The proposals of the 3rd legislative package were consistent with information on prospects for the internal gas and electricity market, and covered:

  • The separation of production and supply activities from transmission network operation activities. There are 3 possibilities. The first one is through Ownership Unbundling: in this case the same company can no longer both own the transmission network and conduct energy production or supply activities. Then, the second way is through an Independent System Operator (ISO): vertically integrated companies, i.e. companies working across the entire energy chain (production, transmission, distribution and supply), can retain ownership of the transmission system provided that operation activities are carried out by an entirely independent company or body. And there is a 3rd model proposed by 8 Member States, including France and Germany which is through the Independent Transport Operator (ITO): integrated companies can retain ownership of their gas and electricity networks. However, they have to hand over day-to-day operation of those networks to independent transmission operators;

  • The increase of powers and the independence for national regulators, and cooperation between them through the creation of an agency for the cooperation of energy regulators with the authority to take binding decisions and inflict penalties;

  • The formalisation of groupings of European transmission system operators for better coordination and, in particular, the establishment of common commercial and technical codes (ENTSOG for natural gas, and ENTSOE for electricity);

  • The improvement in the operation of the market, in particular greater transparency and genuine access to storage facilities and LNG terminals.

 

So the objective of the 3rd Gas Directive is to introduce shared rules for the transmission, distribution, supply and storage of natural gas.

 

These rules would prevent conflicts of interest between the Transmission System Operator and natural gas Production and Supply companies.

This directive applies to natural gas, liquefied natural gas (LNG), biogas and gas produced from biomass.

The 3rd Directive in France

EU governments had until March 3, 2011 to incorporate this 3rd Energy Package into national law, and in particular to choose between the 3 options for maintaining the independence of transmission system operators.

In an internal report in February 2011, however, the Commission noted delays amongst all Member States, with only a few States having submitted bills to their parliaments. So the European Commission granted additional time.

In the case of France, it was the bill of January 5, 2011 (2011-12) which embodied the different provisions adapting the 3rd Directive and it was only on May 9, 2011 (2011-504) that the transposition required by the EU came into force.

 

Under the 3rd Directive, from March 3, 2012 Member States must ensure that the ownership and operation of transmission systems are kept separate.

France opted for the ITO (Independent Transport Operator) model, which allowed France’s three energy groups, EDF, GDF Suez and Total, to remain vertically integrated companies. The transmission subsidiaries RTE, GRTgaz and TIGF will have to adjust their status and method of operation.

By March 2012, through the so-called “certification” procedure, the French Energy Regulatory Commission (‘Commission de Régulation de l’Energie) must have verified that the electricity and gas transmission companies fulfil all the requirements laid down in the “ITO” option so that they can be designated network operators.

 

On February 13, 2012, CRE ruled that the gas transmission system operators (GRTgaz and TIGF) fulfilled the requirements of independence and autonomy in relation to their parent company (likewise for electricity with RTE).

CRE is the first European regulator to have applied this new certification procedure.

This certification of all the European TSOs is a necessary criterion for the integration of Europe’s energy markets.

In 2015, the EU started an initiative called « Energy Union ». It aims to reinforce the supply security of Member States by advising to take action to cooperate and to help each other on supranational zones.

Moreover, several network codes are now mandatory and the Gas Target Model is coming to an end : that’s why the EU organised a European consultation to think about possible evolutions of the regulatory framework (Gas Market Design). Besides, the EU thinks about assessing in 2017 both how market places are operating and the condition of gas supply (long term contracts in particular). So, the EU doesn’t exclude to make some changes in the 3rd Directive.