In the context of PSOs, the Second Gas and Electricity Directives have introduced the concept of the “supplier of last resort”. Article 3(3) of the Second Gas Directive and the Second Electricity Directive, respectively, provide that Member States must ensure that all household customers, and, where Member States deem it appropriate, small enterprises, (namely enterprises with fewer than 50 occupied persons and an annual turnover or balance sheet not exceeding €10 million), enjoy universal service. For the purposes of both Directives, “universal service” has been defined as the right to be supplied with electricity of a specified quality within their territory at reasonable, easily and clearly comparable and transparent prices. The Directives do not define what prices would qualify as reasonable, but the provisions clearly seek to protect customers who, in the absence of the PSO in question, would be vulnerable to market forces – both in terms of the security of their supply and in terms of pricing.

To ensure the provision of universal service, Member States may appoint a supplier of last resort. Where they do so, Member States are obliged to impose on distribution companies an obligation to connect customers to their grid under terms, conditions and tariffs approved by the relevant regulatory authorities. Pursuant to article 23(2) of the Second Electricity Directive and article 25(2) of the Second Gas Directive, the regulatory authorities are responsible for fixing or approving, prior to their entry into force, at least the methodologies used to calculate or establish the terms and conditions for connection and access to national networks, including transmission and distribution tariffs. These tariffs, or methodologies, are to allow the necessary investments in the networks to be carried out in a manner allowing these investments to ensure the viability of the networks.

The Directives provide that Member States may take measures to strengthen the market position of the domestic, small and medium-sized consumers by promoting the possibilities of voluntary aggregation of representation for this class of consumers.