Explanatory Memorandum to COM(2016)52 - Measures to safeguard the security of gas supply - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2016)52 - Measures to safeguard the security of gas supply. |
|---|---|
| source | COM(2016)52  |
| date | 16-02-2016 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The purpose of the draft regulation is to ensure that all Member States put in place appropriate tools to prepare for and manage the effects of a gas shortage due to a disruption in supply or exceptionally high demand. There are three levels of responsibility for the security of the gas supply. It is natural gas undertakings, subject to market mechanisms, that bear the primary responsibility for the gas supply. In the event of market failure in a given Member State, the competent authorities of that Member State and of the Member States in the region are responsible for taking appropriate measures to secure the gas supply to protected customers. At another level, the European Commission provides general coordination and ensures that the measures taken are consistent with one another.
To meet this objective, the draft regulation proposes stronger regional coordination, with certain principles and standards being set at EU level. The approach proposed is that Member States should cooperate closely within their regions when conducting regional risk assessments. To ensure EU-wide consistency, regional risk assessments will be conducted on the basis of an EU-wide simulation, with common standards and a specific scenario. Risks identified through regional risk assessments will be addressed in regional preventive action plans and emergency plans, to be peer-reviewed and approved by the Commission.
To ensure that risk assessments and plans are comprehensive and consistent with one another, the Regulation sets out mandatory templates listing aspects that must be taken into account when conducting the risk assessment and drawing up the plans. Regional cooperation must be improved, as a disruption of the gas supply can easily affect several Member States at the same time. National risk assessments and plans are not well suited to tackling such situations.
The Regulation also improves the application of the supply standard to protected customers (mainly households) and the infrastructure standard (the possibility of supplying gas even if the largest infrastructure is not available). It enables permanent bi-directional capacity. Finally, it proposes the introduction of additional transparency measures concerning gas supply contracts; as such contracts may affect security of supply in the EU.
Five years after the adoption of Regulation 994/2010, the security of the gas supply remains a highly topical issue, given the tensions prevailing between Ukraine and Russia. Efforts are being made at national and EU level to enhance the security of gas supplies for the winter of 2015/2016 and beyond.
Stronger regional cooperation between the Member States does not imply creating any new institutional structures.
• Consistency with existing policy provisions in the policy area
The main policy documents relevant for the security of supply are:
1. European Energy Security Strategy 1
2. Framework Strategy for a resilient Energy Union with a forward-looking climate change policy 2
The proposed draft regulation implements the policy proposals presented in the Energy Union Strategy and in the Energy Security Strategy.
• Consistency with other European Union policies
The proposal contributes to internal energy market legislation by prioritising market-based measures.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The draft regulation proposes measures to safeguard the security of the gas supply in the European Union. The legal basis for the regulation is therefore Article 194 of the Treaty on the Functioning of the European Union (TFEU).
• Subsidiarity (for non-exclusive competence)
The EU action is framed under Article 194 TFEU, which recognises that a certain level of coordination, transparency and cooperation is necessary as regards EU Member States' policies on security of supply, to ensure that the energy market functions properly and that there is a secure supply of gas within the European Union.
The increasing interconnection of the EU gas markets and the corridor approach 3 for enabling the reverse flows on gas interconnectors call for coordinated measures. Without such coordination, national security of supply measures are likely to adversely affect other Member States or the security of supply at EU level. The risk of a major disruption of gas supplies to the EU is not restricted by national borders and could affect several Member States, whether directly or indirectly. Situations like the cold spell of 2012 and the 2014 stress test demonstrated the vital importance of coordinated action and solidarity. The need for EU action is clear, given the evidence that national approaches both result in sub-optimal measures and aggravate the impact of a crisis. A measure taken in one country can cause a shortage of gas in neighbouring countries. For instance, the restrictions Bulgaria imposed in February 2012 on exporting electricity adversely affected the electricity and gas sectors in Greece.
So far, not enough has been done to exploit the potential for more efficient and less costly measures through regional cooperation, which is detrimental to EU consumers. While the stress test has shown that functioning markets are vitally important to secure gas supplies, it has also shown that well-coordinated measures taken by Member States, particularly in the event of an emergency, can significantly boost supply security. This concerns better coordination not only of national mitigation measures in the event of an emergency, but also of national preventive measures, such as proposals for better coordination of national storage or LNG policies, which can be strategically importance in certain regions. Cooperation should also be extended to specific measures to foster solidarity between Member States in security of supply matters.
Action at EU level could be also needed in certain situations (e.g. EU-wide and regional emergencies) where the security of supply in the EU cannot be sufficiently achieved by the Member States alone and can therefore, by reason of the scale or efforts of the action, be better achieved at EU level.
• Proportionality
The regulation is designed to achieve a high enough level of preparedness before a crisis occurs and to mitigate the impact on customers of an unexpected event causing an interruption of the gas supply. To meet this objective, it proposes stronger regional coordination, with some principles and standards being set at EU level. The proposed approach is based on close cooperation between Member States within a particular region when conducting a risk assessment at regional level. To ensure consistency throughout the EU, regional risk assessments are to be conducted on the basis of an EU-wide simulation, with common standards and a specific scenario. Risks identified through regional risk assessments will be addressed in regional Preventive Action Plans and Emergency Plans, to be peer-reviewed and approved by the Commission.
The draft regulation does not propose a full harmonisation with all measures being prescribed at EU level.
Stronger regional cooperation, with certain standards being set at EU level, is necessary to sufficiently address the deficiencies of the current system (national risk assessment and national plans) and enables problems to be solved at regional level, without being unnecessarily prescriptive. The approach proposed in the draft regulation is therefore proportionate (see also Impact Assessment, pp. 34-46 and p. 50).
• Choice of the instrument
The existing legal act in this area is Regulation (EU) No 994/2010 of the European Parliament and of the Council of 20 October 2010 concerning measures to safeguard security of gas supply and repealing Council Directive 2004/67/EC. The purpose of the proposed legal act is to improve and beef up the measures and procedures laid down in the existing regulation. That is why it was decided that the appropriate instrument was a regulation.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations of/fitness checks on existing legislation
In accordance with the monitoring obligation laid down in Article 14 of Regulation 994/2010, the Commission drew up a report in 2014 4 assessing the implementation of the Regulation and possible ways of improving security further. The report gives a detailed assessment of the many tools referred to in the Regulation, focusing on how Member States have implemented them and how each has helped improve security of supply of the EU and its preparedness.
This report showed that the Regulation had already done much to improve the security of Europe's gas supply, both in terms of preparation and mitigation. Member States are now better prepared to face a supply crisis, as they are required to make a full risk assessment and, on the basis of the results, to draw up preventive action and emergency plans. Member States have also increased their level of protection thanks to the need to meet an EU-wide supply and infrastructure standard.
At the same time the report demonstrated that there are still serious reasons for concern as regards cooperation between Member States (the predominantly national measures they take are not well suited to tackling gas supply problems); application of the supply standard to protected customers (mainly households) and the infrastructure standard. Moreover, gas supply contracts between natural gas companies and non-EU suppliers are not sufficiently transparent. These shortcomings stand in the way of an effective response at moments of crisis.
The stress test conducted in the summer of 2014 showed that a severe disruption of gas supplies from the east (i.e. Russia) would still have a major impact throughout the EU. Some areas, particularly in Eastern Europe, would still suffer severe economic and social consequences in the event of a gas shortage. Moreover the cold spell of 2012 saw wholesale day-ahead gas prices rise by over 50% on European hubs by comparison with the levels registered before the cold weather. In Italy, prices rose from €38/MWh to €65/MWh, while in the UK, Germany and Austria prices reached €38/MWh from levels of €23/MWh 5 .
The current situation is the result of a variety of problems of different magnitude, including behavioural biases (a purely national approach to security of supply), external factors (the behaviour of non-EU suppliers) and technical issues (a shortage of appropriate infrastructure, or inadequate protection for infrastructure).
The regulation proposes measures to tackle the deficiencies detected.
• Stakeholder consultations
The public consultation of stakeholders held from 15 January to 8 April 2015 produced 106 responses. This means it can be considered very wide-reaching. 6 Though most respondents came from the private sector and consumer, regulatory or industry associations, a relatively large number of public-sector authorities also took part.
The consultation followed the dual structure of the existing Regulation, which is based on prevention and mitigation. The questions on prevention were designed to find out whether there was a need to improve the legal provisions in force. However, they also allowed some scope for testing new ideas, especially as regards the application of measures to meet the supply standard. The questions on mitigation sought to establish whether Member States were prepared to manage an emergency situation and, in doing so, consider efficient coordinated solutions, rather than adopting a purely national approach and resorting to counterproductive measures affecting their neighbours.
As regards the outcome, most public authorities focused on shortcomings in cooperation between Member States, while private companies and associations insisted that priority should be given to market measures in tackling security of supply issues. The Commission took these opinions into account, proposing closer regional cooperation and a clear priority for market-based measures when addressing risks to security of supply. The various stakeholders' opinions were also reflected in the assessment and impact of the policy options in sections 6 and 7 of the Impact Assessment.
• Collection and use of expertise
External consultants were used for different topics during the preparation of this proposal. A study was conducted on possible underground gas storage measures and their impact 7 , as well as input from the JRC received to support the Impact Assessment with analyses. A further study comparing approaches to boost the EU's bargaining power on natural gas markets 8 has provided input into certain policy options related to how to meet the supply standard (common purchasing schemes).
• Impact assessment
All proposed measures were supported by the Impact Assessment.
The Impact Assessment Board issued a positive opinion on 16 December 2015.
The Impact Assessment looked at four policy options:
Contents
- 1. Stronger implementation and soft law measures
- 2. Better coordination and tailored solutions
- 3. Better coordination, with some principles/standards being set at EU level
- 4. Full harmonisation
- 1. Costs and impact on prices
- 2. Impact on stakeholders, especially small and medium-sized businesses
- 3. Completing the internal market
- 3. Improved risk assessment and risk prevention
- 4. Increased supervision of obligations to supply gas to certain categories of consumers, even under demanding conditions (the supply standard.)
Options 1 and 2 have not been taken up, because of their poor performance record in terms of effectiveness and efficiency. They did not do enough to improve on the deficiencies of the current system, identified thanks to the ex-post evaluation (report drawn up in 2014) and the stress test conducted in the summer of 2014.
Option 4 includes some approaches that are more effective than options 1 and 2. However, some are no more effective than those available under option 3. Moreover, they cost more, and some may be counterproductive. That is why option 4 has not been taken up either.
The final proposal is to take option 3, the most effective package. It is the best option as regards both effectiveness and efficiency. The following effects were considered.
The overall impact on costs and prices will be very limited. Some proposals are designed to avoid unnecessary costs and exploit synergies in measures to improve security of supply. This should reduce the overall costs of the security of supply framework for all consumers. Measures such as the regional risk assessments, regional plans or the provisions regarding contracts will not increase costs significantly. There might have impact on the administrative burden.
The policy tools likely to affect costs more are the refinement in the N-1 calculations and the reverse flow obligations. As regards the N-1 standard, however, refining the formula is unlikely to make a compliant Member State non-compliant, which would trigger mandatory investment. The possibility to take demand-side measures in order to meet the N-1 standard remains. A fine-tuned N-1 could lead to higher investment, but this would be based on an assessment of the Member State concerned and a better picture of the actual capacity situation. It therefore seems a cost-effective measure, given the benefits associated with improved diagnosis of the sector through minimum investment (e.g. real contribution of storage thanks to a more realistic estimate of withdrawal rates depending on the level of gas stored). The hydraulic calculation 9 should not imply any additional costs either, as transmission system operators (TSOs) have the tools to carry out such assessments. The EU-wide simulations can be carried out by ENTSOG as part of the annual summer and winter supply outlook required by Regulation (EC) No715/2009. They may help identify cost-effective measures to minimise any adverse effects.
Overall, option 3 should be good for market participants and consumers. Better supervision of the supply standard measures will ensure transparent and cost-effective compliance. Many industry respondents to the public consultation stated that they wanted more transparency and fully justified measures subject to regular review or testing.
Small and medium-sized businesses will continue to be protected customers if a Member State so decides, so this option will not adversely affect them. Under this option, the main difference is that they will not necessarily be covered by the solidarity principle. It is worth recalling, however, that the point of this principle is to ensure a continued supply to households and essential social services in emergencies. This mechanism is a last resort, intended only for use in situations of extreme gas shortage. While the revised Regulation is designed to avoid such situations, we must nonetheless be prepared for them.
Option 3 is likely to help make the single energy market operate better. The proposed measures will significantly reduce the risk of a situation in which national measures to ensure security of supply distort competition or result in discrimination against non-nationals. Firstly, mandatory impact assessments of new non-market measures to be adopted by the Member States should prevent harmful measures from entering into force and being included in the plans. Existing measures will also be subject to scrutiny by the other Member States within a given region. This should help avoid a situation in which measures taken in one country have negative spill-over effects in neighbouring countries. Secondly, the peer review process and Commission supervision should help identify and eliminate any problems arising from measures to guarantee security of supply.
• Regulatory fitness and simplification
The proposal will increase administrative burden to a limited extent. One of the main sources of administrative burden would be the need to draw up regional risk assessments and regional preventive action plans and emergency plans. However, since Option 3 builds on the existing mandatory regional consultation on the plans and sets out a clearer framework for result-oriented regional cooperation and coordination, the administrative burden will not increase vastly. This solution is both technically and legally feasible, as shown by the joint UK-Ireland preventive action plans and the joint report drawn up by the Baltic States and Finland on the 2014 stress test.
To implement the Plans in good time, responsibilities and timeframes must be clearly defined. This can be achieved in different ways. In some cases, for instance, there is a secretariat, while some Member States have opted in the past for a rotating allocation of responsibilities for a given plan. The Commission is ready to provide guidance and facilitate the process as needed, as it has done during the stress test for the Focus Groups and in the BEMIP focus group for regional cooperation between the Baltic States and Finland.
The administrative burden is bound to increase, even if regional plans replace national ones, thereby avoiding duplication of tasks. It could be also argued that agreeing on the plans at regional level is likely to be more time-consuming and require additional arrangements. For that reason, and to limit the additional burden, the regional risk assessment and regional plans could be updated every four years, instead of every two years, as is the case under the existing Regulation.
The plans under this Regulation should be consistent with the Energy Union's strategic planning and reporting tools. However, the emergency plans and preventive action plans to be developed under this Regulation are not policy documents setting out strategic policy choices. They are technical in nature, their purpose being to prevent emergencies from breaking out or escalating and to mitigate their effects.
• Fundamental rights
Not applicable.
4. BUDGETARY IMPLICATIONS
The proposal has no implications for the EU budget.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The Commission will monitor how Member States implement the changes introduced by the Gas Security of Supply Regulation. Increased involvement, along with supervisory and monitoring powers, should ensure better EU-wide compliance with the rules. Where needed, the Commission will offer to help Member States implement the necessary changes in the law by means of workshops with all Member States, or bilateral meetings, if any of them so request. If necessary, the Commission will pursue the procedure set out in Article 258 TFUE, should any Member State fail to fulfil its duty to implement and apply Union Law.
The Commission will also permanently monitor the security of supply in the EU and report regularly to the Gas Coordination Group.
• Explanatory documents (for directives)
Not applicable.
• Detailed explanation of the specific provisions of the proposal
The revised Regulation contains the following components:
1. Better regional cooperation and coordination, as the most cost-effective approach to improving security of supply across the EU:
Mandatory regional preventive action plans and emergency plans ('the plans') and regional risk assessments to be prepared jointly, on the basis of mandatory templates in the annexes to the Regulation.
As a basis for regional cooperation, Annex I to the Regulation contains a proposal illustrating the composition of the regions, based on the criteria set out in Article 3(7) (i.e. as proposed in the map under option 2 in the Impact Assessment). In the Commission's view, this proposal is the best way to ensure a secure gas supply in the event of an emergency. As far as possible, it builds on existing regional cooperation structures set up by the Member States and the Commission, particularly the regional groups set up under Regulation 347/2013 on guidelines for trans-European energy infrastructure 10 (TEN-E Regulation). However, since this Regulation and the TEN-E Regulation have different objectives, the size and composition of the regional groups have been altered. For the purposes of this Regulation, the following criteria, defined in Art. 3(7), should be taken into account when defining regional groups: supply patterns; existing and planned interconnections and interconnection capacity between Member States; market development and maturity; existing regional cooperation structures; and the number of Member States in a region, which should be limited, to keep arrangements workable.
For instance, the North Western region (the UK and Ireland) builds on existing cooperation between the two countries. The rationale for the proposed design of the majority of the regions (Southern Gas Corridor, Central-East, South-East, Baltic Energy Market I and II) is the supply pattern in the event of disruption of the supply from Russia. The make-up of the region North-South Western Europe (Belgium, France, Luxembourg, Spain, the Netherlands and Portugal) reflects the fact that the gas market in this part of the EU is mature and well developed. This may prove to be the best way of avoiding an emergency, or, should one arise, of mitigating its impact.
The regional plans are subject to peer review. The Commission arranges this, selecting the members of each peer review team (one per region) from among candidates put forward by Member States. It participates in the peer reviews as an observer.
The Gas Coordination Group discusses the plans on the basis of the outcome of the peer review, to ensure that plans for different regions are consistent with one another.
At the end of the process, the Commission may request amendments to the plans by Commission decisions and eventually approve the plans.
2. More detailed obligations to ensure that the necessary infrastructure is available:
The N-1 calculation must be accompanied by a national hydraulic calculation and EU-wide simulations to be performed by ENTSOG, similar to the simulations it performed for the stress tests in the summer 2014.
On reverse flows, all interconnection points must be equipped with permanent reverse flow capacity unless they are granted an exemption.
i) The decisions, either to grant an exemption or to decide on the capacity level to be built, shall be taken jointly by the competent authorities on both sides of the interconnection point ('joint decision') after consulting with other Member States along the gas supply corridor, the Commission and ACER.
ii) ACER has to issue an opinion on the competent authorities' joint decision.
iii) The Commission may take a decision, taking into account ACER's opinion, requiring amendments to the joint decision of the competent authorities. The Commission's power to adopt a decision in this area will no longer be restricted to the cases of disagreement between some Member States.
iv) If there is no joint decision within a certain period of time, ACER draws up a decision containing a proposal for an exemption or a given reverse flow capacity. ACER's decision provides the basis for a Commission decision containing the terms for an exemption or a given capacity.
v) Existing exemptions must to be reviewed in line with the new procedure.
Better access to information:
i) Limited increase in the scope of contractual information of which the Commission is automatically informed under existing arrangements (i.e. daily, monthly and yearly gas volumes, as a minimum). Such information will no longer be supplied in aggregated form.
ii) Competent authorities will be empowered to ask natural gas companies, ahead of an emergency but under duly justified circumstances (e.g. in the event of a possible threat), for additional information, including contractual information. The Commission may request access to such information and may also trigger requests by competent authorities. The provision was introduced on the basis of the Commission's experiences in the winter of 2014-15. The Commission observed a reduction in the gas supply from Russia to some EU gas companies. However, it received only limited information on the basis of which to assess this development, as the competent authorities had no legal basis for asking the gas companies concerned to provide such specific information, given that the situation did not qualify as an emergency.
iii) Natural gas companies will be required to notify the national competent authority and the Commission automatically of contracts relevant for security of the gas supply, as soon as they have been signed or amended. Contracts relevant to security of supply are long-term contracts (i.e. valid for more than one year) that provide, either individually or together with other contracts concluded with the same supplier or its affiliates, more than 40% of the yearly natural gas consumption in the Member State concerned to one natural gas company or its affiliates.
iv) Automatic notification is triggered when a contract that meets the threshold criterion is concluded or amended. However, even contracts that do not meet this criterion may be relevant to assessing the security of the gas supply situation. Although the market has developed in such a way that very long-term contracts are now rare, they still exist. If a long-term contract is concluded just before this Regulation enters into force, it will not be covered by the automatic obligation to notify the national competent authority and the Commission. If, in addition, such a contract contains a clause linking the price to the hub price, it may not be amended for a number of years. In other words, the automatic obligation to notify amendments will not apply either.
In view of this situation, the Commission and the competent authorities need the power to ask for contracts to be notified, even if they have not been revised or do not meet the threshold criterion. Therefore, in duly justified cases such as those outlined above, the Commission or the competent authorities may ask for notification of contracts if such contracts are needed to make a comprehensive assessment of the impact of a contractual framework on the security of supply situation in a Member State, a region or the EU as a whole, and in particular for risk assessments, preventive action plans and emergency plans.
Since the request made by the competent authorities or the Commission may cover the contract in its entirety, the competent authorities may also receive information about prices. The Commission can then use the information from the contracts to assess the security of supply situation in the EU as a whole and, in particular, to assess the preventive action plans and emergency plans. If the natural gas company does not comply with the obligation to notify, the Commission may start infringement proceedings against the Member State whose competent authorities have the power to receive or request the contract.
The fact that the Commission will henceforth have better access to information on commercial contracts does not in any way affect its ongoing monitoring of the gas market. It will intervene if market abuses are identified.
Obligation to assess in the risk assessment all relevant risks, such as natural disasters, technological, commercial, financial, social, political and market-related risks. The plans should set out effective, proportionate and non-discriminatory measures to address all relevant risks. The purpose of this obligation is to improve transparency and encourage the sharing of best practice.
4. Increased supervision of obligations to supply gas to certain categories of consumers, even under demanding conditions (the supply standard.)
No change to the supply standard defined in the current Regulation, which guarantees uninterrupted gas supplies to protected customers for a minimum of 7 or 30 calendar days, depending on the scenario defined, even in the event of scarce gas supplies and/or exceptionally high demand.
Better Commission supervision of existing national measures, to comply with the supply obligation (through the Commission's decisions on the plans) to avoid under-protection or over-protection, which could adversely affect more vulnerable Member States.
New non-market-based measures to comply with the supply standard are subject to a public impact assessment and must be notified to the Commission, which assesses their proportionality and their impact on the internal market and on other Member States' security of supply. The Commission may adopt a decision requesting amendments to the measures, which cannot enter into force if they do not comply with the Commission's decision.
5. The Regulation explicitly incorporates the new solidarity principle.
If, as the Regulation allows, a Member State applies a higher supply standard, which may reduce gas flows from one country to another, thereby aggravating the security of supply situation in a neighbouring Member State, the raised supply standard must be restored to the EU default level (which guarantees service to all protected customers) in the event of an emergency.
Application of the solidarity principle on the basis of technical and administrative arrangements agreed between Member States will be mandatory. Customers others than households, essential social services and district heating cannot continue to be supplied with gas in a given Member State - even if it is not in an emergency situation - as long as households, essential social services and district heating are not being supplied in another Member State in emergency to which the first country's transmission network is connected.
6. The definition of protected customers will be maintained (i.e. small and medium-sized enterprises can be considered protected customers if a Member State so decides). However, Member States will have to introduce measures, as part of their plans, to address technical issues and avoid non-eligible customers consuming gas intended for protected customers. Member States may decide on the nature of these measures.
7. Application of the Regulation between the Energy Community Contracting Parties and the EU Member States. The revised Regulation will include EU Member States' specific obligations with cross-border character towards Contracting Parties and should be followed by the adoption within the Energy Community of a Joint Act adopting and integrating the Regulation in the Energy Community and introducing reciprocal obligations on the side of the Energy Community Contracting Parties in the relations with the Member States. These obligations will only apply upon a Commission's decision confirming the applicability of reciprocal obligation between each Contracting Party and the Member States. The obligations will concern the framework for risk assessments, risk prevention and emergency measures.
.8. As regards joint purchasing mechanisms, the Regulation makes it clear that Member States and natural gas companies are free to explore the potential benefits of purchasing natural gas collectively to address supply shortage situations. Such mechanisms should be in line with WTO and EU competition rules, in particular with Commission guidelines on horizontal cooperation agreements.