The Energy Council of the European Union reached an agreement on the European Union’s third package of legislative measures concerning the internal energy market.

On 9 and 10 October 2008, at a meeting of the Energy Council of the European Union (EU), energy ministers finally reached a political agreement on the third package of legislation on the liberalisation of the European energy market (Third Package).

When originally launched in September 2007, the Third Package proposed significant changes to existing legislation to further boost competition, through, inter alia, the unbundling of the ownership and operation of transmission networks, improved third-party access to key infrastructure and further cross-border cooperation between EU Member States.

Following a previous Energy Council meeting on 6 June 2008, agreement was reached on many issues, but notable sticking points remained, particularly the unbundling provisions and the so-called “third country” clause. Agreement on both of these key provisions, which are described below in more detail, have now been reached.

Unbundling

Unbundling has long been viewed by the European Commission as a cornerstone of its energy policy, and necessary to facilitate truly competitive markets. Under the original unbundling plans contained in the Third Package in September 2007, the Energy Council’s intention was to alleviate the stranglehold of “national champion” energy companies by forcing them to sell off their transmission assets, thus ensuring these activities were fully separate from energy production.

Following intense lobbying against the plans by a coalition of EU Member States, led by France and Germany, “national champions” will be allowed to retain ownership of their gas and electricity grids, provided that they are subjected to outside supervision. However, significantly, following pressure from other EU Member States, including the Netherlands and Spain, “national champions” will not be allowed to buy up grid companies in other European Member States where full unbundling has been introduced.

The Third Country Clause

Also approved by the Energy Council was the “third country” clause (also known as the “Gazprom clause” in reference to the Russian energy giant). The intention of the “third country” clause was to make non-EU energy companies subject to the same rules as EU entities, thus limiting their ability to buy up distribution networks in EU Member States.

Originally, the “third country” clause would have operated as an EU-wide “reciprocity” clause, pursuant to which “third country” entities would only be permitted to acquire distribution networks in the EU if they offered all EU entities similar rights in their home country (meaning all EU Member States would form a single powerful “bloc” for negotiating purposes). The final, watered-down plans only require an EU Member State to negotiate an individual bilateral agreement with a non-EU country before allowing entities from that non-EU country to invest in its energy infrastructure.

New Supervisory Authority

Supervision of the new liberalised energy markets will be effected through the creation of an EU-wide Agency for the Co-Operation of Energy Regulators (Agency). While the final remit of the Agency is still being decided, its key roles will likely include the following:

  • Providing a framework for national regulators to cooperate (i.e., the laying down of procedures with regard to the exchange of information)
  • Regulatory oversight of the cooperation between transmission system operators (i.e., responsibility for monitoring and reviewing the activities of the European gas and electricity transmission system operators)
  • General advisory role (i.e., to act as a general advisor to the European Commission on market regulation issues)

All EU Member States will have the same voting weight when it comes to the Agency’s decision-making process.

Next Steps

The European Parliament must now ratify the agreement that was reached by the Energy Council on the Third Package. As the European Parliament has tended to take a tough line on the breaking up of utilities, there may be a few twists and turns left before the Third Package is finally in a form that meets with the approval of all parties.