Autorità per l’energia elettrica e il gas Public Service Obligations in the Electricity and Gas Service Roberto Malaman Director - Quality and Consumer Affairs Autorità per l’energia elettrica e il gas (Italy) October 2004

Autorità per l’energia elettrica e il gas Public Service Obligations: Definition Specific requirements that are imposed by public authorities on the provider of the service in order to ensure that certain public interest objectives are met, for instance, in the matter of air, rail and road transport and energy. These obligations can be applied at Community, national or regional level (EC White Paper on Services of General Interest – May 2004)

Autorità per l’energia elettrica e il gas Reconciling liberalization and public service obligations  The objective of an open and competitive internal market and of developing high-quality, accessible and affordable services of general interest are compatible  The definition of public service obligations and missions remains a task for the public authorities at the relevant level  The relevant public authorities are also responsible for market regulation and for ensuring that operators accomplish the public service missions entrusted to them  It is necessary for the relevant public authorities to have adequate instruments and expertise at their disposal  The Commission intends to clarify and simplify the legal framework for the compensation of PSOs

Autorità per l’energia elettrica e il gas Public Service Obligations in the electricity and gas sector  “…Member States, may impose […], in the general economic interest, PSOs which may relate to security, including security of supply, regularity, quality and price of supplies and to environmental protection. Such obligation must be clearly defined, transparent, non discriminatory and verifiable…”(Directives 96/92/EC and 98/30/EC, Art. 3).  “Having full regard to the relevant provisions of the Treaty, in particular Article 86 thereof, Member States may impose on undertakings […], in the general economic interest, public service obligations which may relate to security, including security of supply, regularity, quality and price of supplies and environmental protection, including energy efficiency and climate protection. Such obligations shall be clearly defined, transparent, non-discriminatory and verifiable…” (New Directives 2003/54/EC and 2003/55/EC, Art. 3)

Autorità per l’energia elettrica e il gas Directives 2003/54/EC and 2003/55/EC More details on PSOs:  MS shall ensure the provision of universal service to all household customers and, where appropriate, to small enterprises (electricity)  MS may appoint a supplier of last resort  MS shall take appropriate measures to protect final customers and in particular vulnerable customers, including appropriate measures to help them avoid disconnection  MS shall ensure high levels of consumer protection, particularly with respect to transparency regarding contractual terms and conditions, general information and dispute settlement mechanisms  MS shall implement appropriate measures to achieve the objectives of social and economic cohesion, environmental protection, which may include energy efficiency/demand side management and security of supply

Autorità per l’energia elettrica e il gas PSOs must be transparent The legislative or regulatory instrument or a contract or instruction must specify:  the nature of the PSOs  the undertakings and territory concerned  the nature of any exclusive or special rights assigned to the undertakings  the amount of any compensation granted to the undertakings and any revision clauses  the period covered by these obligations

Autorità per l’energia elettrica e il gas The following principles will be applied:  the measures must be the least restrictive possible for competition and trade between the Member States  PSOs must be reported to the Commission  a competitive tender should be introduced to carry out certain obligations  the Commission will evaluate the need and the scope of the proposed measures to carry out the objectives pursued PSOs must be verifiable and non-discriminatory

Autorità per l’energia elettrica e il gas Directives 2003/54/EC and 2003/55/EC  MS shall designate one or more competent bodies with the functions of regulatory authorities, responsible for ensuring non-discrimination, effective competition and the efficient functioning of the market  MS shall take measures to ensure that regulatory authorities are able to carry out their duties in an efficient and expeditious manner  Governments and regulators share responsibilities in the supervising of PSOs fulfilment by electrical and gas companies

Autorità per l’energia elettrica e il gas Monitoring and reporting  MS shall inform the Commission of measures adopted to fulfil universal service and public service obligations, including consumer protection and environmental protection and their possible effect on competition whether or not such measures require a derogation from the provisions of the Directives  The Commission shall monitor and review the application of the Directives: every two years the report shall cover an analysis of the measures taken in the MS to meet PSOs and it may include recommendations  MS shall ensure the monitoring of security of supply issues. They may delegate this task to the regulatory authorities. The competent authorities shall publish every two years a report outlining the findings resulting from the monitoring

Autorità per l’energia elettrica e il gas Monitoring and reporting The Commission is collecting information from MS on:  universal service (electricity) and/or supplier of last resort (gas)  measures to guarantee eligible customers’ ability to switch to a new supplier  regulation of end user prices  the treatment of disadvantaged customers and measures to avoid their disconnection  the standard of network performance  the standard of service to retail customers and dispute settlement between customers and suppliers  labelling of the energy mix used by electricity companies  the promotion of energy efficiency  primary fuels used for electricity generation  diversity of sources of natural gas

Autorità per l’energia elettrica e il gas Clarifying and simplifying the legal framework for the compensation of public service obligations The Commission  will adopt a Decision on the application of Article 86 of the Treaty to state aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest by July 2005  will adopt a Community framework for state aid in the form of public service compensation by July 2005  will adopt an amendment of Directive 80/723/EEC on the transparency of financial relations between Member States and public undertakings by July 2005  will further clarify under which conditions public service compensations may constitute state aid within the meaning of Article 87 (1) by July 2005

Autorità per l’energia elettrica e il gas A comparison of the main PSOs in different European countries A CEER survey was conducted among participating countries: Austria Finland France Great Britain Ireland Italy Luxembourg Netherlands Norway Portugal Spain

Autorità per l’energia elettrica e il gas PSOs main dimensions  Security including security of supply  Access to electricity and gas supply  Quality of supply  Price of electricity and gas supply  Environmental protection

Autorità per l’energia elettrica e il gas PSO Questionnaire Assumptions  Situation in each country at the beginning of the year 2003 (changes announced were not considered)  Affirmative answers (marked with ) means that a specific public service obligation is into force in one country  Negative or non-applicable answers correspond to a blank cell in the tables  Due to a lack of consistency in the information collected, five questions were not considered in the analysis

Autorità per l’energia elettrica e il gas Access to electricity supply  Obligation to connect  Obligation to supply  Last resort supplier  Supply to customers in isolated rural areas  Minimum services  Prior notice to customers before interruption of supply

Autorità per l’energia elettrica e il gas Access to electricity supply

Autorità per l’energia elettrica e il gas Access to electricity supply

Autorità per l’energia elettrica e il gas Security of supply  Security of supply monitoring  Reserve capacity margins  Obligation to invest in the extension and reinforcement of networks

Autorità per l’energia elettrica e il gas Security of supply

Autorità per l’energia elettrica e il gas Security of supply

Autorità per l’energia elettrica e il gas Quality of supply  Continuity of supply standards  Voltage quality standards  Customer services (commercial quality) standards  Penalty payments in case of non-fulfilment guaranteed standards  Outage repairing maximum delays  Services for elderly and disabled people  Customers complaints procedures  Customer information (leaflets, codes of practice, websites, etc.)  Resolution of conflicts (fast and cheap mechanisms)  Actions to reduce disconnections

Autorità per l’energia elettrica e il gas MAIN QUALITY FACTORS Electricity Service VOLTAGE LIMITS VOLTAGE DIPS HARMONICS FLICKER CUSTOMER SERVICE ISSUES SUPPLY DISTRIBUTION COMMERCIAL QUALITY CONTINUITY OF SUPPLY OTHER PARAMETERS OF POWER QUALITY SECURITY DEPOSITS TOOLS FOR PAYING BILLS NON PAYMENT HANDLING DISCONNECTIONS FOR DEBT COMPLAINTS READING BILLING ( METERING ) NEW SUPPLY ESTIMATES CONNECTIONS TO NETWORK PROVING SUPPLY RICONNECTIONS AFTER NON-PAYMENT DISCONNECTIONS APPOINTMENTS VOLTAGE AND METERS INVESTIGATIONS LONG, SHORT AND TRANSIENT NON PLANNED SUPPLY INTERRUPTIONS PLANNED SUPPLY INTERRUPTIONS ELECTRICITY SERVICE

Autorità per l’energia elettrica e il gas MAIN QUALITY FACTORS Gas Service GAS COMPOSITION CALORIFIC VALUE CUSTOMER SERVICE ISSUES SUPPLY DISTRIBUTION COMMERCIAL QUALITY SAFETY/CONTINUITY GAS QUALITY SECURITY DEPOSITS TOOLS FOR PAYING BILLS NON PAYMENT HANDLING DISCONNECTIONS FOR DEBT COMPLAINTS READING BILLING ( METERING ) NEW SUPPLY ESTIMATES CONNECTIONS TO NETWORK PROVING SUPPLY RICONNECTIONS AFTER NON-PAYMENT DISCONNECTIONS APPOINTMENTS METERS INVESTIGATIONS NETWORK SAFETY RULES GAS SERVICE

Autorità per l’energia elettrica e il gas Quality of supply

Autorità per l’energia elettrica e il gas Quality of supply

Autorità per l’energia elettrica e il gas Regulation of continuity of supply in Italy: The effects/ LV customer minutes lost (yearly actual levels) CUSTOMER MINUTES LOST TOTAL CUSTOMER MINUTES LOST NET (UNDER REGULATION) improvement : 43%

Autorità per l’energia elettrica e il gas Regulation of continuity of supply in Italy: The effects/2

Autorità per l’energia elettrica e il gas Price of electricity supply  Regulated prices for captive customers  Social tariffs for low income consumers  National equalisation mechanisms (networks/end users tariffs uniformity)

Autorità per l’energia elettrica e il gas Price of electricity supply

Autorità per l’energia elettrica e il gas Price of electricity supply

Autorità per l’energia elettrica e il gas Environmental protection  Incentives for renewables and CHP  Environmental mandatory objectives placed on electricity companies (standards, limits, environmental taxes, participation in emissions trading markets)  DSM mechanisms (advice and assistance with energy efficiency measures, subsidies to high efficiency equipments, etc.)

Autorità per l’energia elettrica e il gas Environmental protection

Autorità per l’energia elettrica e il gas Environmental protection

Autorità per l’energia elettrica e il gas Responsibility for PSOs fulfilment

Autorità per l’energia elettrica e il gas PSOs financing

Autorità per l’energia elettrica e il gas PSOs penalties

Autorità per l’energia elettrica e il gas Conclusions  PSOs help to make compatible competition with accessible and affordable services  Similarities emerge in the list of PSOs introduced in each country; national models prevail in defining specific PSOs  PSOs may be imposed both on monopolistic activities and with regard to competitive supply issues (universal service and vulnerable consumers protection)  When PSOs are introduced on competitive activities, economic compensation issues become critical