Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight? The Regional Initiatives: Europe’s key to energy market integration European Commission/ERGEG Conference, Brussels, 27 February 2008 Mr Walter Boltz ERGEG’s Gas Focus Group (GFG) Chair

2 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008  Key areas where regional cooperation is required  Formalising voluntary cooperation of regulators  Legal basis for regional cooperation  Optimal design of regulatory toolset Structure of presentation

3 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008 Priority topics of common interest  ELECTRICITY  ELECTRICITY  Congestion management: capacity calculation, allocation, firmness  Transparency  Balancing markets integration  Market entry barriers Regional cooperation: sensible and required Electricity Regional Initiative

4 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008 Gas Regional Initiative Priority topics of common interest  GAS  GAS  Interconnection and capacity  Transparency  Interoperability (including gas balancing)  Development of gas hubs Regional cooperation: sensible and required

5 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008 Priority topics of common interest - summary  In all areas solutions need effective cooperation and coordination across borders  Cooperation and coordination by TSOs and Regulators  Broadly similar treatment of common priority topics  Differences due to local market conditions  Enhanced compatibility and eventually full integration of regions are possible at a later stage Regional cooperation: sensible and required

6 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008  GAS Areas where better regional cooperation in cross-border issues is needed  GAS  A model of TSOs acting as one by gradually bringing together their activities  Maximised and coordinated allocation of cross-border capacity  Coordinated investment planning at a regional level  Harmonised balancing rules  Harmonised trading and capacity products  Customer-oriented market transparency  Consultation rules for market codes and decisions of NRAs Regional cooperation: sensible and required Where gas infrastructure (use) affects several Member States, cooperation has to be made obligatory

7 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008  ELECTRICITY Areas where better regional cooperation in cross-border issues is needed  ELECTRICITY  Coordination, cooperation, information within & between synchronous areas  Coordinated grid planning and construction, coordinated capacity calculation  Enforceable rules and procedures for regional market operators / auction offices, on:  Governance  Competition issues  Revenues distribution  Efficient decision making and dispute resolution (e.g. resolving ITC problem)  Removing cross-border regulatory gap … reducing market entry barriers Regional Cooperation: sensible and required As electricity infrastructure always affects several Member States cooperation must be obligatory

8 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008  So far regulatory cooperation tends to be voluntary  Examples:  MoU in North West Region (GAS)  Regulators’ involvement in Pentalateral Agreement in Central West Region (ELECTRICITY)  Aim:  Promoting greater cooperation between NRAs  Coordinating national regulatory decisions  Facilitating information sharing  Mutual consultation of regulatory practices  Drawbacks:  As national authorities NRAs can only act within the law  No exact rules exist on how NRAs should cooperate in practice  An MoU or an Agreement cannot overrule national legislation Formalizing voluntary cooperation of regulators

9 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008  Examples: Single Energy Market Committee on the island of Ireland - 3 members (NI, RoI regulators plus 1 other Member)  Cooperation amongst NRAs requires a clear legal basis (in European) legislation  Topics to be addressed:  Regulatory coordination  Regulation of the Electricity and Gas Markets  Sharing of Information  Consultation  Avoidance of inconsistency of national action  Dispute resolution  Overriding inconsistent national legislation e.g. market rules  Only a top down approach based on clear EU legislation will work effectively Legal basis for increased cooperation

10 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008 Optimal design of a regulatory toolset  3 elements:  Clear legal basis for an obligatory regional cooperation of TSOs and NRAs  Strengthened and harmonized powers & sanction mechanisms at national level  Effective regulatory oversight and dispute resolution  top down approach based on European law All three elements need to work together for the system to function Europe RegionMember State ACER Implications

11 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008  The current regulatory toolset is insufficient  Stronger toolset needed  In particular: addressing the regulatory gap in cross-border issues  MoUs and/or Agreements can only partially fill the gap  ACER, if designed rightly, can overcome current problems  Alternative: Intergovernmental Agreements (many!!) Danger: If the 3rd package is not designed rightly, there will be quickly the need for a 4th package Outlook

12 Is the regulatory toolset right or is there a need for enhanced regional regulatory oversight ? The Regional Initiatives: Europe’s key to energy market integration Conference Brussels, 27 February 2008 Further information:Mr. Walter Boltz Tel: Fax: Websites: Thank you for your attention !