The Ministerial Council of the Energy Community has recently adopted the European Union rules on the internal market for electricity and gas known as the Third Energy Package (the TEP Decision).

Investors and energy undertakings across South East Europe will be affected by the TEP Decision as transmission assets will now gradually need to comply with the EU's unbundling regime.

In this e-bulletin, we provide further details on the TEP Decision and its impact on energy companies as well as some background on the Energy Community.

Background: The Energy Community

The Treaty establishing the Energy Community entered into force on 1 July 2006. It links the European Union to Albania, Bosnia-Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, Kosovo (pursuant to Resolution 1244 of the UN Security Council), Moldova, Montenegro, Serbia and Ukraine (the Contracting Parties). Armenia, Turkey, Norway and Georgia are observers to the Energy Community.

The Energy Community was created for a period of 10 years, expiring in 2016. It can be extended by a unanimous decision of its Ministerial Council. In March 2011, the European Commission welcomed the achievements of the Energy Community, warned about the risks of not addressing outstanding shortcomings and called for its existence to be extended beyond 2016. Its secretariat, located in Vienna, provides administrative support and legal and technical assistance to the parties.

The general objective of the Energy Community is to create a stable regulatory and market framework in order to:

  • attract investment in power generation and networks in order to ensure stable and continuous energy supply that is essential for economic development and social stability;
  • enhance security of supply; and
  • improve the environmental situation in relation to energy supply in the region.

In the medium term, the Energy Community aims at creating an integrated energy market across the region which allows for cross-border trade, guarantees energy supply and takes into consideration climate and social aspects.

The TEP Decision

Following the TEP Decision, the contracting parties of the Energy Community now need to transpose the Third Energy Package into national law by January 2015.

As the economies of the non-EU Contracting Parties are in transition and the energy sector is in the process of being liberalised, the TEP Decision includes special deadlines for provisions such as the rules on unbundling or on certification of transmission system operators from third countries, and clarifies the role of the Energy Community institutions in the practical implementation of the adopted rules.

Generally, the unbundling provisions of the Third Energy Package will apply from 1 June 2016 and derogations from certain provisions relating to the exercise of shareholder rights and board appointments by supply undertakings holding an interest in a transmission system operator are available until 1 June 2017.

Contracting Parties may decide to apply the ownership unbundling models known as independent system operator and independent transmission operator (ISO and ITO, respectively) if a transmission system operator was a part of a vertically integrated undertaking on 6 October 2011. In the EU, the equivalent date is the 3 September 2009.

The certification of transmission system operators which are controlled by non-members of the Energy Community, as per Article 11 of Directives 2009/72/EU and 2009/73/EU, will only apply from 1 January 2017.

Regulatory decisions concerning the Contracting Parties or the implementation of the TEP Decision in the Energy Community decisions are referred to the Energy Community Regulatory Board (the ECRB) instead of ACER. Created by the Article 58 of the Treaty establishing the Energy Community, the functions of the ECRB comprise:

  • advising the Ministerial Council or the Permanent High Level Group on the details of statutory, technical and regulatory rules; and
  • issuing recommendations on cross-border disputes involving two or more regulators, upon receipt of a request from any of them.

Other issues discussed by the Ministerial Council concerned:

  • the need to start aligning the region’s network codes with those of the European Union without delay;
  • the idea of developing a regional energy strategy; and
  • the approval of an Implementation Plan for Gas Infrastructure Development in the Energy Community, based on the concept of a "Gas Ring" that should link the markets of single Contracting Parties, creating a regional market and contributing to the security of supply of the region.

The aim is to define a regional framework based on which national strategies can be further developed and aligned. A regional power development and investment plan should form an integral part of the strategy.

Impact on investors

The TEP Decision is an attempt to create a pan-European energy policy in the absence of further EU enlargement (with the exception of Croatia and Iceland) in the immediate future. It will affect investors and energy undertakings across South East Europe as transmission assets will now gradually need to comply with the unbundling regime of the EU. In particular, companies with multiple interests in the region will need to keep a watching brief as non-EU Contracting Parties are likely to transpose the TEP at different times.